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Size-dependent labour regulations and threshold effects: The Case of contract-worker intensity in Indian manufacturing

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  • K.V. Ramaswamy

    () (Indira Gandhi Institute of Development Research)

Abstract

Labour regulations like employment protection legislation in India are size-dependent rules and therefore constitute a basis for threshold effects. Firms could use non-permanent workers to stay below the legal establishment size threshold of 100 workers. This strategy is expected to cause the ratio of non-permanent to total workers to peak at size close to the legal threshold size. The study is based on a large nationally representative unbalanced panel of manufacturing plants in the formal sector covering 25 states and 5 union territories of India spanning the period 1998-2008. The average contract-worker intensity of factories in size group 50-99 is found to be significantly higher in general and particularly in labour intensive industries located in states categorized as inflexible. Contrary to the job security enhancing intention of labour regulation the employment status of average workers in establishments close to or just above the threshold size appear to be more vulnerable.

Suggested Citation

  • K.V. Ramaswamy, 2013. "Size-dependent labour regulations and threshold effects: The Case of contract-worker intensity in Indian manufacturing," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-012, Indira Gandhi Institute of Development Research, Mumbai, India.
  • Handle: RePEc:ind:igiwpp:2013-012
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2013-012.pdf
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    References listed on IDEAS

    as
    1. Sean M. Dougherty, 2009. "Labour Regulation and Employment Dynamics at the State Level in India," Review of Market Integration, India Development Foundation, vol. 1(3), pages 295-337, December.
    2. Achyuta Adhvaryu & A. V. Chari & Siddharth Sharma, 2013. "Firing Costs and Flexibility: Evidence from Firms' Employment Responses to Shocks in India," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 725-740, July.
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    Cited by:

    1. Basu, Arnab K. & Chau, Nancy H. & Soundararajan, Vidhya, 2018. "Contract Employment as a Worker Discipline Device," IZA Discussion Papers 11579, Institute for the Study of Labor (IZA).
    2. Srivastava, Ravi., 2016. "Structural change and non-standard forms of employment in India," ILO Working Papers 994897513402676, International Labour Organization.
    3. Ravi S. Srivastava, 2016. "Myth and reality of labour flexibility in India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 59(1), pages 1-38, March.
    4. Chaurey, Ritam, 2015. "Labor regulations and contract labor use: Evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 224-232.

    More about this item

    Keywords

    labour regulation; threshold; firm size distribution; employment;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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