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Labour Market Flexibility in Indian Industry A Critical Survey of the Literature

Author

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  • Aditya Bhattacharjea

    (Department of Economics, Delhi School of Economics)

Abstract
This paper updates, expands and reinforces my earlier critical reviews (Bhattacharjea 2006 and 2009) of the growing literature on the relationship between India’s supposedly ‘restrictive’ labour laws and poor performance on a range of industrial and social indicators. I first summarize the main claims of this literature, and the construction of the indices that it uses to measure inter-state differences in labour regulation. I show, on the basis of a detailed textual analysis of the relevant laws, that the original authors made multiple errors in coding the legal provisions, and that later contributors to the literature misinterpreted the resulting indices as measures of labour market flexibility. I then highlight some econometric issues that undermine their findings, and the difficulties involved in replicating their analyses with a ‘corrected’ indicator. I briefly discuss two kinds of flaws in some recent papers: they inaccurately capture the employment thresholds at which different sections of the law become applicable, and they wrongly differentiate between contract and ‘permanent’ workers. I conclude by summarizing evidence of deteriorating labour market outcomes for workers and growing de facto flexibility in Indian industry, without any changes in the regulatory framework.

Suggested Citation

  • Aditya Bhattacharjea, 2019. "Labour Market Flexibility in Indian Industry A Critical Survey of the Literature," Working papers 296, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:296
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    References listed on IDEAS

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    Cited by:

    1. M Parameswaran, 2021. "Trade Openness and Labour Market Unrest: Evidence from Indian Manufacturing Industry," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(2), pages 345-373, June.
    2. Hasan, Rana & Mehta, Aashish & Sundaram, Asha, 2021. "The effects of labor regulation on firms and exports: Evidence from Indian apparel manufacturing," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 183-200.
    3. Jagannath Mallick, 2020. "Does Global Economic Integration affect Labour Income Share in India?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(2), pages 291-309, June.
    4. Chakraborty, Pavel & Mitra, Devashish & Sundaram, Asha, 2024. "Import competition, labor market regulations, and firm outsourcing," Journal of Development Economics, Elsevier, vol. 168(C).
    5. Pradip Kumar Biswas & Saurabh Bandyopadhyay, 2021. "Labour Market Institutions, Industry Structure and Productivity in Indian Manufacturing Sector," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 64(4), pages 999-1021, December.
    6. Swapan Chakraborty, 2021. "Labour Market Regulation and Manufacturing Employment: A Study of Organized Manufacturing Sector Across Indian States," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 64(1), pages 1-22, March.
    7. Ravi Srivastava, 2020. "Labour Migration, Vulnerability, and Development Policy: The Pandemic as Inflexion Point?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(4), pages 859-883, December.

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    Keywords

    India; manufacturing; inter-state inequality; labour regulation; employment protection legislation.;
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