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Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence

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  • Aditya Bhattacharjea

    (Delhi School of Economics)

Abstract

This paper offers a critique of recent empirical studies on the impact of labour regulation on industrial performance in India. It begins with a review of earlier studies that tried to infer the effects on manufacturing employment of amendments to the Industrial Disputes Act (IDA) in 1976 and 1982 that required government permission for layoffs, retrenchments and closures, and shows that the results are ambiguous. It then criticizes the widely-used index of state-level labour regulation devised by Besley and Burgess (2004), and the econometric methodology they use to establish that excessively pro-worker regulation led to poor performance in Indian manufacturing. Several recent studies that have used their index are also surveyed. Finally, the paper reviews other evidence, pointing in a very different direction, on the actual enforcement of labour laws, labour flexibility, and industrial employment. Throughout, attention is paid to the crucial role of judicial interpretation of the IDA, which has been neglected in this literature.

Suggested Citation

  • Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:141
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    References listed on IDEAS

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    1. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
    2. Gaurav Datt & Martin Ravallion, 2002. "Is India's Economic Growth Leaving the Poor Behind?," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 89-108, Summer.
    3. Abhijit Banerjee & Lakshmi Iyer, 2005. "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India," American Economic Review, American Economic Association, vol. 95(4), pages 1190-1213, September.
    4. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
    5. Bhalotra, Sonia R, 1998. "The Puzzle of Jobless Growth in Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(1), pages 5-32, February.
    6. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    7. Sanyal, Paroma & Menon, Nidhiya, 2005. "Labor Disputes and the Economics of Firm Geography: A Study of Domestic Investment in India," Economic Development and Cultural Change, University of Chicago Press, vol. 53(4), pages 825-854, July.
    8. Suresh Chand Aggarwal, 2002. "Labour Demand Function for the Indian Organized Industry An Instrument Variable Approach," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 37(2), pages 209-220, July.
    9. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
    10. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    11. Dutta Roy, Sudipta, 2004. "Employment dynamics in Indian industry: adjustment lags and the impact of job security regulations," Journal of Development Economics, Elsevier, vol. 73(1), pages 233-256, February.
    12. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    13. E. Paul Durrenberger, 2005. "Labour," Chapters,in: A Handbook of Economic Anthropology, chapter 8 Edward Elgar Publishing.
    14. Sudipta Dutta Roy, 2002. "Job Security Regulations and Worker Turnover : A Study of the Indian Manufacturing Sector," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 37(2), pages 141-162, July.
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    More about this item

    Keywords

    India; industrial relations; employment protection laws; job security regulations; labor flexibility.;

    JEL classification:

    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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