The economic effects of labour legislation in India: a critical essay

Abstract

Job security regulations have been central to government interventions in the labour market in India. These have been criticised for restricting employment growth. We argue that job security regulation has not had the negative effects its critics make a case out for. Firms have changed work practices and reorganised job boundaries as the import substituting industrialisation regime was dismantled. Weak enforcement of laws has supported this restructuring effort, with firms resorting to voluntary retirement of workers and increasingly hiring on the basis of flexible contracts. A two-tier system of employment currently prevails, with job security for the employed insiders and no protection to newly hired outsiders. Unorganised workers' employment prospects have been furthered in this emerging scenario, and their alliance with firms and the state results in an atrophying of job security regulations.