Labour Reforms and Employment in Manufacturing Plants in India : An Analysis using a Difference-in-Difference Research Design

Since 2014, several Indian states have taken steps towards easing labour regulations, the prominent one among them being the raising of the threshold of applicability of Chapter V-B of the Industrial Disputes Act (IDA) from 100 to 300 workers, lifting thereby the requirement of government approval for retrenchment of regular workers in medium-size industrial firms. The Indian state of Rajasthan made such a change in the threshold of applicability of Chapter V-B of the IDA in 2014, along with other similar changes in some other labour laws, including amendments made in the Contract Labour (Regulation and Abolition) Act, 1970, where the applicability limit was raised from 20 to 50 workers, thus bringing about substantial labour reforms. Subsequently, such reforms were undertaken by several other states. The paper begins by investigating the impact of the labour reforms in Rajasthan on industrial employment in the state. The analysis is based on plant-level panel data drawn from the Annual Survey of Industries from 2008-09 to 2017-18. A difference-in-difference (DiD) research design is applied for the analysis. For this purpose, the methodology developed by Callaway and Sant’Anna (2021) is used. From the analysis presented in the first part of the paper, it is found that the easing of labour regulations in Rajasthan in 2014 significantly raised employment in industrial plants in the state. This analysis is followed by another such analysis based on the same plant-level dataset. Besides the labour reforms in Rajasthan in 2014, such reforms in Andhra Pradesh, Haryana, Jharkhand, Maharashtra and Uttar Pradesh during 2015 to 2017 are considered. The results of this analysis are found to be in conformity with the results of the initial analysis. Thus, the key finding emerging from the analyses presented in the paper is that the labour reforms in India during 2014-2017 significantly positively impacted industrial employment. These reforms raised the employment of regular workers as well as the employment of contract workers