Can Labor Regulation Hinder Economic Performance? Evidence from India

This paper investigates whether the industrial relations climate inIndian states has affected the pattern of manufacturing growthin the period 1958-92. We show that states which ammendedthe Industrial Disputes Act in a pro-worker direction experiencedlowered output, employment, investment and productivityin registered or formal manufacturing. In contrast, output in unregisteredor informal manufacturing increased. Regulating in apro-worker direction was also associated with increases in urbanpoverty. This suggests that attempts to redress the balance ofpower between capital and labor can end up hurting the poor.[...]