Labour Reforms and Employment in Manufacturing Plants in Rajasthan
B.N.GoldarFormer Professor, IEG
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. By the end of 2020, 15 states in India had reportedly made this change. Rajasthan was the first state to make such a change in the threshold of applicability of Chapter V-B of the Industrial Disputes Act (IDA) in 2014, along with other similar changes in labour laws, including reforms 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.
To examine the impact of labour reforms in Rajasthan (in 2014) on industrial employment in the state, an econometric analysis has been carried out based on plant-level panel data for 2008-09 to 2017-18 drawn from the Annual Survey of Industries. Some analysis is undertaken by estimating a plant-level labour demand function using panel data estimation techniques. Also, additionally, the difference-in-difference research design is applied for the econometric analysis. From the analysis, it is found that the easing of labour regulations in Rajasthan in 2014 significantly raised employment in industrial plants in the state. The reforms led to increases in the employment of both regular workers and temporary or contract workers. The growth in the employment of contract workers because of the labour reforms was probably more significant than the growth in the employment of regular workers.
[papers available at SSRN; abstract=4324171; abstract=4390183]