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

  • Irfan Ahmad Sofi EMAIL logo , Santosh Mehrotra and Adil Hussain Reshi
Published/Copyright: March 28, 2022
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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.

JEL Classification Code: J21; K31

Corresponding author: Irfan Ahmad Sofi, Assistant Professor, Department of Economics, Islamic University of Science and Technology, Kashmir, India, E-mail:

Funding source: Indian Council of Social Science Research (ICSSR) and the Ministry of Education, Government of India

Award Identifier / Grant number: IMPRESS/P3084/0163/2018-19/ICSSR

  1. Research funding: The authors are thankful to the Indian Council of Social Science Research (ICSSR) and the Ministry of Education, Government of India for funding this research project under Reference No. IMPRESS/P3084/163/2018-19/ICSSR.

  2. Competing interests: The authors confirm that no conflict of interest exists regarding this research.

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Published Online: 2022-03-28

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