Effects of Labour Regulation on Manufacturing Firms in India: A Leximetric Approach

Abishek Choutagunta

Asian Journal of Law and Economics, 2019, vol. 10, issue 1, 15

Abstract: Inefficiencies and rigidities in the supply of inputs caused by strict laws and regulation could lead to distortions in the production structures of firms. These distortions, when magnified, can have adverse effects on the economic performance of a country. The study by Botero et al. (Botero, Juan C., Simeon Djankov, Rafael La Porta, Florencio Lopez de-Silanes, and Andrei Shleifer. 2004. “The Regulation of Labor.” The Quarterly Journal of Economics 119: 1339–1382.) among others, has observed that richer counties with social welfare supports tend to regulate labour less than relatively poorer countries; but, these studies concentrate mainly on country-wide or cross-country data leaving out variations exclusively found in micro-level data. This study fills a gap in the literature by conducting a comprehensive study of the effects of labour laws on output and productivity of manufacturing firms in Indian states. Unlike previous studies which measure the strength of labour regulation by interpreting labour laws, this study measures the same by mining information from case-law citations of labour laws and builds an index of labour litigiousness which proxies for the strength of labour regulation. Results show that labour litigation and industrial disputes have significant negative influences on both output and productivity of manufacturing firms.

Keywords: firm-level; India; labour regulation; manufacturing; productivity (search for similar items in EconPapers)
JEL-codes: D22 J08 J58 K31 L51 L52 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/ajle-2019-0007

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