Application of job security laws, workers’ bargaining power and employment outcomes in India

Anamitra Roychowdhury

The Economic and Labour Relations Review, 2019, vol. 30, issue 1, 120-141

Abstract: This article empirically investigates two propositions normally advanced to explain employment stagnation in the organised sector of the Indian labour market namely, rigid labour laws regulating the ‘hiring and firing’ of workers (along with factory closures) and militant trade union activity boosting workers’ bargaining power. It is claimed that labour laws arrest employment creation by making the labour adjustment process difficult. Additionally, it is claimed that workers’ increased bargaining power raises the effective cost of labour, hindering employment creation. This article critically examines both these claims. First, it questions whether labour laws can be held responsible as an explanation for employment stagnation in the organised sector as a whole, since a close reading of the Indian legislation reveals that labour laws apply in less than 35% of aggregate employment in the organised sector in India. Next, it investigates whether employment stagnation in those industry segments where labour laws apply – namely, organised manufacturing – is due to restrictions on ‘hiring and firing’. We find no evidence to support this hypothesis. Finally, it analyses the trend in workers’ bargaining power through various indicators, and finds such power to be unambiguously declining. Thus, the study finds no empirical support for the two conventional arguments put forward to explain employment stagnation in the organised sector of the Indian labour market. JEL codes: J31, J63, J88

Keywords: Bargaining power; employment protection law (EPL); employment stagnation; hire and fire; India; job security regulations; labour laws; labour market flexibility; organised sector; trade unions (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ecolab:v:30:y:2019:i:1:p:120-141

DOI: 10.1177/1035304619831245

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