Employment dynamics in Indian industry: adjustment lags and the impact of job security regulations

Abstract

The mismatch in output and employment growth phases witnessed by Indian industry in the 1960s and 1970s and the puzzle of jobless growth during the 1980s drew attention to the possible adverse impact of the Industrial Disputes (Amendment) Acts of 1976 and 1982. The Government of India recently mooted a proposal to relax the provisions of the Acts to enhance the flexibility of the labour market. We investigate the extent of impact of job security legislation through an analysis of dynamic inter-related factor demand functions. Our findings provide evidence of significant lags in employment adjustment. We find evidence, however, that these existed even in the period preceding the formal introduction of job security legislation, and that the impact of job security regulations, contrary to popular perception, was minimal.