Labour law and economic development: Indian states in comparative perspective

Résumé 0

This thesis addresses the research question: what (if any) is the impact of labour law on economic development? The answer to this question is important as legislators, labour lawyers and labour economists debate how labour laws should be shaped to support economic growth in countries around the world. A significant claim put forth by the World Bank’s Doing Business Reports, is that worker protective labour laws have had an overall negative impact on economic growth, leading to an increase in unemployment, lower labour force participation, and growth of the informal economy. This is the genesis of the claim that “laws created to protect workers often hurt them” (World Bank, 2008). These claims have been based on evidence – most often quantitative data – to analyse the effects of labour laws on indicators of economic growth. Nevertheless, the methodology employed in both constructing such data on labour law, as well as that used to analyse the relationship between labour law and economic development is a critical factor here – studies applying different methodologies have yielded different answers to this question. In light of this, the thesis addresses this research question through a three-part analysis. First and foremost, it presents an in-depth analysis of the methodological debates involved in the construction of so-called leximetric indices that are used in quantitative analyses to study the relationship between labour law and economic outcomes. Second, it presents a quantitative analysis studying the effects of worker protective labour laws on economic outcomes using a difference-in-differences methodology comparing two Indian states – Maharashtra that is known to have a worker protective regime, and Gujarat that underwent significant deregulation of its labour law regime in the mid-2000’s. Third, to complement the quantitative analysis, the thesis presents a qualitative analysis on the question of the relationship between labour laws and economic growth based on field work conducted in India. The findings from the thesis suggest that the lowering of labour standards in Gujarat have indeed led to a rise in employment but without a concomitant increase in productivity or wages implying a trajectory of ‘low quality growth’ in Gujarat. This result is derived from the regression analysis in combination with the qualitative evidence which the thesis demonstrates was necessary to arrive at a fully informed interpretation of the econometric analysis. Overall, the thesis places an emphasis on the methodology applied in addressing the question of the impact of labour laws on wider indicators of economic growth, seeking to convey social science research methods that are typically applied in both, the construction of leximetric indices, as well as in conducting empirical legal analysis itself, in a manner that is accessible to labour lawyers.