Employment Protection Legislation and Labour Market Outcomes: A Unit Level Analysis of the Indian Manufacturing Sector

Sofi Irfan Ahmad (), Mehrotra Santosh () and Reshi Adil Hussain ()
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Sofi Irfan Ahmad: Department of Economics, Islamic University of Science and Technology, Kashmir, India
Mehrotra Santosh: Centre for Development Studies, University of Bath, Bath, UK
Reshi Adil Hussain: Department of Economics, Baba Ghulam Shah Badshah University, Rajouri, India

Asian Journal of Law and Economics, 2022, vol. 13, issue 1, 101-122

Abstract: Building on insights from the insider-outsider theory, we examine the effects of the Employment Protection Legislation (EPL) on labour market outcomes, using high-court verdicts on labour disputes invoking Chapter 5-A and 5-B of the Industrial Disputes Act. Our regression analysis of a statewise unit-level dataset suggests that pro-worker judicial verdicts lead to an increase in wages and labour productivity especially in labour intensive industries, but discourage employment. The study demonstrates how the insider-outsider model combined with the labour market segmentation theory, unlike labour adjustment models, explain such findings consistently. The results suggest that loosening the EPL regime will have implications on the balance between the quantity and the quality of jobs, with serious consequences on industrial performance.

Keywords: employment protection legislation; labour disputes; judicial outcomes; labour market segmentation; wages (search for similar items in EconPapers)
JEL-codes: J21 K31 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/ajle-2021-0063

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