Labor Laws and Manufacturing Performance in India: How Priors Trump Evidence and Progress Gets Stalled

Servaas Storm (s.t.h.storm@tudelft.nl)
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Servaas Storm: Delft University of Technology, The Netherlands

No 90, Working Papers Series from Institute for New Economic Thinking

Abstract: Strong labor protections for ordinary workers are often portrayed as a `luxury developing countries cannot afford`. No study has been more influential in propagating this perversity trope in the context of the Indian economy than the QJE article of Besley and Burgess (2004). Their article provides econometric evidence that pro-worker regulation resulted in lower output, employment, investment and productivity in India`s registered manufacturing sector. This paper reviews existing critiques of Besley and Burgess (2004), which highlight conceptual and measurement errors and uncover econometric weaknesses. The paper takes a step beyond these: it reports a failure to replicate Besley and Burgess’ findings and demonstrate the non- robustness of their results. My deconstruction is not only about the econometrics, however. I show that Besley and Burgess` findings are not just inconsistent with their theoretical priors, but also internally contradictory and empirically implausible, taxing any person’s capacity for belief. The paper, written by two `useful economists`, exhibits a gratuitous empiricism in which priors trump evidence. On all counts, it fails the test of being useful to the purpose of `evidence-based` public policy advice.

Keywords: Manufacturing performance; industrial relations; pro-worker regulation; labor laws; Indian economy; Industrial Disputes Act (IDA) (search for similar items in EconPapers)
JEL-codes: B50 C26 O10 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-01
New Economics Papers: this item is included in nep-dev and nep-hme
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:90

DOI: 10.2139/ssrn.3346760

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