IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Employment Protection Legislation and Plant-Level Productivity in India

Listed author(s):
  • Sean Dougherty


  • Verónica Frisancho Robles

    (Pennsylvania State University)

  • Kala Krishna

    (Pennsylvania State University)

Using plant-level data from the Annual Survey of Industries (ASI) for the fiscal years from 1998-99 through 2007-08, this study provides plant-level cross-state/time-series evidence of the impact of employment protection legislation (EPL) on total factor productivity (TFP) and labour productivity in India. Identification of the effect of EPL follows from a difference-in-differences estimator inspired by Rajan and Zingales (1998) that takes advantage of the state-level variation in labour regulation and heterogeneous industry characteristics. The fundamental identification assumption is that EPL is more likely to restrict firms operating in industries with higher labour intensity and/or higher sales volatility. Our results show that firms in labour intensive or more volatile industries benefited the most from labour reforms in their states. Our point estimates indicate that, on average, firms in labour intensive industries and in flexible labour markets have TFP residuals 14% higher than those registered for their counterparts in states with more stringent labour laws. However, no important differences are identified among plants in industries with low labour intensity when comparing states with high and low levels of EPL reform. Similarly, the TFP of plants in volatile industries and in states that experienced more pro-employer reforms is 11% higher than that of firms in volatile industries and in more restrictive states; however, the TFP residuals of plants in industries with low labour intensity are 11% lower in high EPL reform states than in states with lower levels of EPL reform. In sum, the evidence presented here suggests that the high labour costs and rigidities imposed through Indian federal labour laws are lessened by labour market reforms at the state level. La législation sur la protection de l'emploi et la productivité des entreprises en Inde À l’aide de données au niveau des entreprises, tirées de l’enquête annuelle sur les industries (ASI) pour l’ensemble des exercices comptables entre 1998-99 et 2007-08, cette étude présente des séries chronologiques pour des États indiens mettant en lumière l’incidence de la législation sur la protection de l’emploi (LPE) sur la productivité totale des facteurs (PTF) et la productivité du travail dans les entreprises indiennes. L’incidence de la LPE est déterminée à partir d’un estimateur de la différence des différences inspiré de Rajan et Zingales (1998), qui tire parti des différences de réglementation au niveau des États et des caractéristiques hétérogènes des secteurs d’activité. L’hypothèse de base retenue pour la détermination de l’incidence est que la LPE est plus susceptible de peser sur les entreprises exerçant leurs activités dans un secteur à forte intensité de main-d’oeuvre et/ou dont la volatilité des ventes est élevée. Nos résultats montrent que les entreprises relevant de secteurs à forte intensité de main-d’oeuvre ou plus volatils sont celles qui ont le plus tiré profit des réformes du marché du travail mises en place dans leurs États. Nos évaluations de point indiquent qu’en moyenne, les entreprises de secteurs à forte intensité de main-d’oeuvre et évoluant dans un marché du travail flexible affichent, pour la PTF, des chiffres résiduels supérieurs de 14 % à ceux de leurs homologues implantées dans des États dont la législation sur le travail est plus stricte. Toutefois, aucun écart important n’a été décelé entre les entreprises de secteurs à faible intensité de main-d’oeuvre lorsque l’on compare les États qui ont peu et beaucoup réformé leur LPE. De même, la PTF des entreprises de secteurs volatils implantées dans des États ayant imposé des réformes plus favorables aux employeurs est supérieure de 11 % à celle des entreprises de secteurs volatils implantées dans des États plus restrictifs. Cependant, les chiffres résiduels de la PTF des entreprises exerçant leurs activités dans des secteurs à faible intensité de main-d’oeuvre sont inférieurs de 11 % dans les États ayant beaucoup réformé leur LPE par rapport à ceux qui ont peu réformé leur législation dans ce domaine. En conclusion, les éléments présentés ici donnent à penser que les effets des coûts élevés du travail et des rigidités imposées par la législation fédérale indienne sur l’emploi sont atténués par les réformes du marché du travail mises en oeuvre au niveau des États.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 917.

in new window

Date of creation: 16 Dec 2011
Handle: RePEc:oec:ecoaaa:917-en
Contact details of provider: Postal:
2 rue Andre Pascal, 75775 Paris Cedex 16

Phone: 33-(0)-1-45 24 82 00
Fax: 33-(0)-1-45 24 85 00
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 24, pages 349-402, 04.
  2. Mikael Carlsson & Julián Messina & Oskar Nordström Skans, 2016. "Wage Adjustment and Productivity Shocks," Economic Journal, Royal Economic Society, vol. 126(595), pages 1739-1773, 09.
  3. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, 04.
  4. Poschke, Markus, 2009. "Employment protection, firm selection, and growth," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1074-1085, November.
  5. Simon DEAKIN & Priya LELE & Mathias SIEMS, 2007. "The evolution of labour law: Calibrating and comparing regulatory regimes," International Labour Review, International Labour Organization, vol. 146(3-4), pages 133-162, 09.
  6. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563.
  7. Gupta,Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, National Council of Applied Economic Research, vol. 5(1), pages 59-123.
  8. Krishna, Pravin & Levchenko, Andrei A., 2013. "Comparative advantage, complexity, and volatility," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 314-329.
  9. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  10. 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.
  11. 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.
  12. Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 27(2), pages 202-228.
  13. Paul Conway & Richard Herd, 2009. "How competitive is product market regulation in India?: An international and cross-state comparison," OECD Journal: Economic Studies, OECD Publishing, vol. 2009(1), pages 1-25.
  14. 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.
  15. Sean Dougherty & Richard Herd & Thomas Chalaux, 2009. "What is holding back productivity growth in India ?: Recent microevidence," OECD Journal: Economic Studies, OECD Publishing, vol. 2009(1), pages 1-22.
  16. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  17. Danielle Venn, 2009. "Legislation, Collective Bargaining and Enforcement: Updating the OECD Employment Protection Indicators," OECD Social, Employment and Migration Working Papers 89, OECD Publishing.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:917-en. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.