Labor Adjustment in an Evolving Marketplace

This thesis is about the process of employment adjustment. It studies adjustment costs and their impact on employment and labor demand. It starts by describing key characteristics of India's labor market; documents legal, economic, and social framework; investigates the impact and finds magnitudes of worker adjustment costs. Then, it estimates econometrically parameters of labor adjustment based on ASI industry data from 1973 to 1997. Specifically effects of the job security regime in India on employment are estimated while accounting for the concurrent impact of product markets' liberalization. It establishes that adjustment costs are substantial, adjustment is slow, and competition mitigates only some of the adverse impact of adjustment costs. Third, it investigates retrenchment programs across countries. This one-time or episode form of adjustment is a preferred mechanism in the presence of excess labor. Multi-dimensional program designs are found to be more successful. These analyses can be better conducted using a panel dataset based on the unit level data of the ASI.