Abstract
There is an intense debate on the impact of labour regulation in India today. Labour regulation in India differ state-wise and apply differently across types of workers (both regular and contract workers). This paper examines the joint effects of Employment Protection Legislation (EPL) and variable enforcement intensity on the growth in a size of temporary contract workers in the organised manufacturing sector. It uses the state level amendments to Industrial Dispute Act of 1947, and the average size of total number of labour inspectors for each state, as independent variables to capture the variation in labour regulations and enforcement intensity across thirty-one Indian states for the period 2000–2007. This paper argues that, average Indian firms located in strict EPL states hire differentially more temporary contract workers as compare to regular workers in response to variable enforcement intensity. Among other findings, the empirical analysis shows that firms prefer to employ excessive number of contract workers to circumvent firing and overall compliance costs of regular workers as stipulated by the Indian labour laws. Our results are robust to alternative specifications.
Highlights
The effect of Employment Protection Legislation (EPL) on the growth in a size of temporary contract workers in developing countries is widely debated in the recent economic literature
This paper estimate the joint effect of EPL and enforcement intensity on the incidence of temporary contract workers, by exploiting variation across space and time in the extent of EPL and enforcement intensity, in the Indian context
We examine whether firms located in a stricter EPL regime hire differentially a greater number of temporary contract workers in response to variable enforcement intensity
Summary
The effect of Employment Protection Legislation (EPL) on the growth in a size of temporary contract workers in developing countries is widely debated in the recent economic literature. Much of the empirical literature has been extended to analyse both-the impact of strict EPL on the firm’s demand for temporary contract workers, where perfect compliance with labour regulation was implicitly assumed, (Pierre and Scarpetta 2013; Cuesta and Martin 2009; Autor 2003), and the impact of enforcement intensity on compliance with labour regulation that constrains the demand for temporary contract workers (Almeida and Carneiro 2012; Ronconi 2010; Di Tella and MacCulloch 2005) None of these studies have looked at a case of labour markets in developing countries where there is a weak compliance with labour laws, and the de facto level of regulation is lower than the de jure level (Feldmann 2009; Djankov and Ramalho 2009).
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