Exchange rate fluctuations, labour laws, and gender differences in job flows: Analysis of manufacturing industries across Indian states

Abstract

India’s disappointing performance in creating productive employment for women, in spite of its increased integration with the world markets, contrasts with the experience of several countries in Asia. A number of studies have analysed the supply and demand side factors responsible for this situation. However, no study has examined the gender differences in job flows – job creation, destruction and reallocation. Net employment changes may conceal large changes in gross job flows and the associated adjustment costs. Using plant level panel data from India’s formal manufacturing sector for the period 1998–2014, this paper estimates the magnitude of job flows and analyses the impact of industry-level changes in exchange rates on job flow dynamics of men and women across state-industries. Even as net employment grew sluggishly for women, we find that, the labour market was characterised by a simultaneous process of job destruction and creation. Our analysis provides evidence for an asymmetric impact of exchange rates on job flows, with depreciation (appreciation) resulting in higher (lower) gross job creation rates with no effect on job destruction rates. Exchange rate depreciation results in higher gross and net job creation rates for both men and women in states with flexible labour laws. In states with inflexible labour laws, however, depreciation causes an increase in gross job creation for women (but not for men) with no effect on net job creation. Exchange rate depreciation also causes women to face higher job reallocation than men, particularly in states with inflexible labour laws. Participation in global value chains and output tariff reductions are found to exacerbate the effects of exchange rate changes on women’s job flows. Firms operating under rigid labour market conditions tend to employ female workers as a ‘buffer’ to adjust the workforce in response to short term fluctuations in export competitiveness.