Indian labour law and its impact on unemployment, 1970-2006: A leximetric study

Sarkar, Prabirjit and Deakin, Simon (2011): Indian labour law and its impact on unemployment, 1970-2006: A leximetric study.

Abstract

We analyse a recently developed leximetric dataset on Indian labour law over the period 1970 to 2006. Indian labour law is seen to be highly protective of workers’ interests by international standards, particularly in the area of dismissal regulation. We undertake a time-series econometric analysis to estimate the impact of the strengthening of labour laws on unemployment and industrial output in the formal economy. We find no evidence that pro-worker labour legislation leads to unemployment or industrial stagnation. Rather, pro-worker labour laws are associated with low unemployment, with the direction of causality running from unemployment and output to labour regulation

• Item Type: MPRA Paper
• Language: English
• Keywords: labour law, employment, India
• Subjects: J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J80 - General; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J60 - General; J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J83 - Workers' Rights; K - Law and Economics > K3 - Other Substantive Areas of Law > K31 - Labor Law

References

Acharya, V., Baghai-Wadji, R. and Subramanian, K. (2010a). ‘Labor laws and innovation’ NBER Working Paper No. 16484.

Ahsan, A. and Pagés, C. (2009) ‘Are all labor regulations equal? Evidence from Indian manufacturing’ Journal of Comparative Economics, 37: 62-75.

Amable, B., Demmou, L. and Gatti, D. (2007). ‘Employment performance and institutions: new answers to an old question’, IZA Discussion Paper No. 2731.

Anant, T., Mahapatra, P, Nagraj, R., Sasikumar, S. (2006) ‘Labour markets in India: issues, perspectives, and a research agenda’, in J. Felipe and R. Hasan, Labour Markets in Asia: Issues and Perspectives (Basingstoke: Palgrave Macmillan).

Anderson, G. (2010) ‘The labour market regulation index, New Zealand 1970-2010: variable definitions and description of the data’. Available at SSRN: http://ssrn.com/abstract=1742903.

Armour, J., Deakin, S., Sarkar, P., Siems, M. and Singh, A. (2009a). ‘Shareholder protection and stock market development: an empirical test of the legal origins hypothesis’, Journal of Empirical Legal Studies, 6: 343-381.

Armour, J., Deakin, S., Lele, P. and Siems, M. (2009b). ‘How legal rules evolve: evidence from a cross-country comparison of shareholder, creditor and worker protection’, American Journal of Comparative Law, 57: 579-630.

Baker, D., Glyn, A., Howell, D. and Schmitt, J. (2005). ‘Labour market institutions and unemployment: a critical assessment of cross-country evidence’, in D. Howell (ed.) Fighting Unemployment: The Limits of Free Market Orthodoxy (Oxford: OUP).

Bertola, G. (2009). ‘Labour market regulation: motives, measures, effects’,Working Paper, Conditions of Employment and Work Research Series, Geneva: ILO.

Besley, T. and Burgess, R.(2004). “Can labour regulation hinder economic performance? Evidence from India,” Quarterly Journal of Economics, 199: 91-134.

Bhalotra, S. (1998) ‘The puzzle of jobless growth in Indian manufacturing’ Oxford Bulletin of Economics and Statistics, 60: 5-32.

Bhattacharjea, A. (2006) ‘Labour market performance and industrial performance in India’ Indian Journal of Labour Economics, 49: 211-32.

Bhattacharjea, A. (2009) ‘The effects of employment protection legislation on Indian manufacturing’ Economic and Political Weekly, 44: 55-62.

Botero J., Djankov S., La Porta R., Lopez-de-Silanes F. and Shleifer A. (2004). ‘The regulation of labor’, Quarterly Journal of Economics, 119: 1340-82.

CBR (2007) CBR Labour Regulation Index for the UK, US, Germany, France and India (Cambridge: Centre for Business Research), available at: http://www.cbr.cam.ac.uk/research/programme2/project2-20output.htm.

Davis, K., Kingsbury, B. and Merry, S. E. (2010) ‘Indicators as a technology of global governance’ NYU Law and Economics Research Paper No. 10-13; NYU School of Law, Public Law Research Paper No. 10-26. Available at SSRN: http://ssrn.com/abstract=1583431.

Deakin, S. (2011a) ‘The evidence-based case for labour regulation’, in S. Lee and D. McCann (eds.) Regulating for Decent Work: New Directions in Labour Market Regulation (Basingstoke: Palgrave Macmillan).

Deakin, S. (2011b) ‘The contribution of labour law to economic and human development’, in G. Davidov and B. Langille (eds.) The Idea of Labour Law (Oxford: OUP).

Deakin, S., Lele, P., Siems, M. (2007), ‘The evolution of labour law: calibrating and comparing regulatory regimes’ International Labour Review, 146: 133-62.

Deakin, S. and Sarkar, P. (2008) ‘Assessing the long-run economic impact of labour law systems: a theoretical reappraisal and analysis of new time series data’ Industrial Relations Journal, 39: 453-87.

Deakin, S., Sarkar, P. and Singh, A. (2012) ‘An end to consensus? The selective impact of corporate law reform on financial development’, forthcoming in M. Aoki et al. (eds.) Proceedings of the XVI Congress of the International Economic Association (Basingstoke: Palgrave Macmillan).

D’Souza, E. (2010) ‘The employment effects of labour legislation in India: a critical survey’ Industrial Relations Journal, 41: 122-135.

Dutt, Amitava K. (1984) "Stagnation, Income Distribution and 'Monopoly Power'." Cambridge Journal of Economics, 8: 25- 40. . "

Dutta Roy, S. (2004) ‘Employment dynamics in Indian industry: adjustment lags and the impact of job security regulations’ Journal of Development Economics, 73: 233-256.

Engle, R. and Granger, C. (1987) ‘Cointegration and error correction: representation, estimation, and testing’ Econometrica, 55: 251-76.

Fallon, P. and Lucas, R. (1993) ‘The impact of changes in job security legislation in India and Zimbabwe’ World Bank Economic Review , 5: 395-413.

Fagernäs, S. (2010) ‘Labor law, judicial efficiency and informal employment in India’ Journal of Empirical Legal Studies, 7: 282-321.

Freeman, R. (2005) ‘Labour market institutions without blinders: the debate over flexibility and labour market performance’ International Economic Journal, 19: 129-145.

Gahan, P., Mitchell, R., Cooney, S., Stewart, A. and Cooper, B. (2012) ‘Economic globalisation and convergence in labour regulation: an empirical assessment’ American Journal of Comparative Law, 60 (forthcoming).

Granger, C. (1988) ‘Some recent developments in a concept of causality’ Journal of Econometrics, 39: 199-211.

Greenwald, B., and Stiglitz, J. (1986) ‘Externalities in economies with imperfect information and incomplete markets’ Quarterly Journal of Economics, 101: 229-264.

Grubb, D. and W. Wells (1993) ‘Employment regulation and patterns of work in EC countries’ OECD Economic Studies, 21: 7-58.

Heckman, J. and Pagés, C. (2004) ‘Introduction to law and employment: lessons from Latin America and the Carribean’, in J. Heckman and C. Pagés (eds.) Law and Employment: Lessons from Latin America and the Carribean (Chicago: NBER and University of Chicago Press).

Jha, P. and Golder, S. (2008) ‘Labour market regulation and economic performance: a critical review of arguments and some plausible lessons for India’ Economic and Labour Market Papers 2008/1, ILO, Geneva.

Kaufman, B. (2009) ‘Labor law and employment regulation: institutional and neoclassical perspectives’ in K. Dau Schmidt, S. Harris and O. Lobel (eds.) Labor and Employment Law and Economics (Cheltenham: Edward Elgar).

Koeniger, W. (2005) ‘Dismissal costs and innovation’ Economics Letters, 88: 79-85.

La Porta R., Lopez-de-Silanes, F. and Shleifer, A. (2008) ‘The economic consequences of legal origins’, Journal of Economic Literature, 46: 285-332.

Lele, P. and Siems, M. (2007) ‘Shareholder protection: a leximetric approach’ Journal of Corporate Law Studies, 7: 17-50.

Malik, P. (1997) Industrial Law (Lucknow: Eastern Book Company).

Malmberg, J. and Lundmark Söderberg, T. (2010) Sweden Labour Regulation Index, available at: http://www.cbr.cam.ac.uk/research/programme2/project2-20output.htm.

Ministry of Finance (2006) Economic Survey 2005-6 (New Delhi: Government of India).

OECD (2004) Employment Outlook (Paris: OECD).

OECD (2008) Employment Outlook (Paris: OECD).

Perry-Kessaris, A. (2011) ‘Prepare your indicators: economics imperialism on the shores of law and development’ International Journal of Law in Context, 7: 401-421.

Pesaran, H., Shin, Y. and Smith, R. (2000) ‘Structural analysis of vector error correction models with I(1) exogenous variables’ Journal of Econometrics, 97: 293-343.

Sarkar, Prabirjit (1992) "Industrial Growth and Income Inequality: An Examination of 'Stagnationism' with Special Reference to India" Journal of Quantitative Economics 8: 125-38.

Sengenberger, W. and Campbell, D. (eds.) (1994) Creating Economic Opportunities: The Role of Labour Standards in Industrial Restructuring (Geneva: International Institute for Labour Studies).

Siems, M. and Deakin, S. (2010) ‘Comparative law and finance: past, present and future research’ Journal of Institutional and Theoretical Economics, 166: 120-140.

Streeck, W. (1997) ‘Beneficial constraints: on the economic limits of rational voluntarism’, in J. R. Hollingsworth (ed.) Contemporary Capitalism: The Embeddedness of Institutions (Cambridge: Cambridge University Press).

Rogers, J, and Streeck, W. (1995) Works Councils: Consultation, Representation and Cooperation in Industrial Relations (Chicago: University of Chicago Press).

Van Wanrooy, B., Oxenbridge, S., Buchanan, J. and Jakbauskas, M. (2007) Australia at Work: The Benchmark Report, Sydney: Workplace Research Centre, University of Sydney.

Venn, D. (2009) ‘Legislation, collective bargaining and enforcement: updating the OECD employment protection indicators’, OECD Social, Migration and Employment Working Paper No. 89.

Williamson, O., Wachter, M. and Harris, J. (1975) ‘Understanding the employment relation: the economics of idiosyncratic exchange’, Bell Journal of Economics and Management Science, 6: 250-78.

World Bank (2008 and various years) Doing Business Reports, Washington DC: International Bank for Reconstruction and Development.