The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment

The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment

Stringent employment protection laws are argued to be a cause of reduced employment flexibility, slower growth and increased reliance on temporary employment contracts in many countries, including India. In 2014, the Indian state of Rajasthan amend...

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Main Authors: Chaudhary, Sarur, Sharma, Siddharth
Format: Working Paper
Language:English
Published: Washington, DC: World Bank 2022
Subjects:
LABOR REFORM
DISTRIBUTION OF WORK
TRADE UNIONS
LABOR UNIONS
WORKFORCE
LABOR PRODUCTIVITY
Online Access:http://documents.worldbank.org/curated/en/099751205092221721/IDU0de829349018930480b0a4ba0e627b6576af2
http://hdl.handle.net/10986/37417
id okr-10986-37417
recordtype oai_dc
spelling okr-10986-374172022-05-14T05:10:41Z The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment Chaudhary, Sarur Sharma, Siddharth LABOR REFORM DISTRIBUTION OF WORK TRADE UNIONS LABOR UNIONS WORKFORCE LABOR PRODUCTIVITY Stringent employment protection laws are argued to be a cause of reduced employment flexibility, slower growth and increased reliance on temporary employment contracts in many countries, including India. In 2014, the Indian state of Rajasthan amended labor laws to increase employment flexibility in firms. The most discussed of the amendments lifted the requirement for government approval for retrenching regular workers in medium-size factories. This paper first conducts a synthetic control analysis of the policy change using state-level panel data from 1980 to 2018, finding no evidence of an impact on aggregate manufacturing employment and output. The paper then uses firm-level panel data to conduct a difference-in-differences analysis of the main amendment, exploiting its size-dependent feature for identification. This analysis finds that the amendment reduced the implicit regulatory cost of labor in firms, but there is no discernible impact on their total employment and output. The amendment also led to firms substituting temporary (“contract”) workers for permanent workers. This collateral impact is contrary to the expectation that easing the flexibility of permanent employment arrangements would make them more attractive to firms. 2022-05-13T15:47:32Z 2022-05-13T15:47:32Z 2022-05-09 Working Paper http://documents.worldbank.org/curated/en/099751205092221721/IDU0de829349018930480b0a4ba0e627b6576af2 http://hdl.handle.net/10986/37417 English CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank Washington, DC: World Bank Policy Research Working Paper Publications & Research India
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic LABOR REFORM
DISTRIBUTION OF WORK
TRADE UNIONS
LABOR UNIONS
WORKFORCE
LABOR PRODUCTIVITY
spellingShingle LABOR REFORM
DISTRIBUTION OF WORK
TRADE UNIONS
LABOR UNIONS
WORKFORCE
LABOR PRODUCTIVITY
Chaudhary, Sarur
Sharma, Siddharth
The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment
geographic_facet India
description Stringent employment protection laws are argued to be a cause of reduced employment flexibility, slower growth and increased reliance on temporary employment contracts in many countries, including India. In 2014, the Indian state of Rajasthan amended labor laws to increase employment flexibility in firms. The most discussed of the amendments lifted the requirement for government approval for retrenching regular workers in medium-size factories. This paper first conducts a synthetic control analysis of the policy change using state-level panel data from 1980 to 2018, finding no evidence of an impact on aggregate manufacturing employment and output. The paper then uses firm-level panel data to conduct a difference-in-differences analysis of the main amendment, exploiting its size-dependent feature for identification. This analysis finds that the amendment reduced the implicit regulatory cost of labor in firms, but there is no discernible impact on their total employment and output. The amendment also led to firms substituting temporary (“contract”) workers for permanent workers. This collateral impact is contrary to the expectation that easing the flexibility of permanent employment arrangements would make them more attractive to firms.
format Working Paper
author Chaudhary, Sarur
Sharma, Siddharth
author_facet Chaudhary, Sarur
Sharma, Siddharth
author_sort Chaudhary, Sarur
title The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment
title_short The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment
title_full The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment
title_fullStr The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment
title_full_unstemmed The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment
title_sort impact of lifting firing restrictions on firms : evidence from a state-level labor law amendment
publisher Washington, DC: World Bank
publishDate 2022
url http://documents.worldbank.org/curated/en/099751205092221721/IDU0de829349018930480b0a4ba0e627b6576af2
http://hdl.handle.net/10986/37417
_version_ 1764487136467222528

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