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Citation Information

Type Working Paper - Background Paper for forthcoming World Bank Report, India Labor and Employment Study
Title Helping or Hurting Workers? Assessing the Effects of de jure and de facto Labor Regulation in India
Author(s)
Publication (Day/Month/Year) 2005
URL http://siteresources.worldbank.org/INTLM/Resources/390041-1212776476091/5078455-1267646113835/HELPIN​GORHURTING01_18_06.pdf
Abstract
This article provides a first attempt to study the combined economic effects of legal amendments on
different types of labor regulation (de jure) as well as of the increasing use of contract labor (de facto) in
India. Within de jure reforms, we distinguish between amendments in laws concerning the procedures for
the resolution of labor disputes, and laws concerning job security. In addition, we also identify the effects
of legal amendments related to the most contentious regulation of all: Chapter 5b of the Industrial Disputes
Act, which stipulates that firms above a certain size threshold cannot retrench workers without permission
from the State. We find that both types of regulations hurt registered sector workers and exert substantial
costs on society. Labor-intensive industries, such as textiles, are the hardest hit by job security regulations,
while capital-intensive industries are most affected by changes in dispute resolution procedures. We also
find that the widespread and increasing use of contract labor brought some employment and output gains
but it did not make up for the adverse effects of labor laws, particularly on employment.

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