Firing Costs and Flexibility: Evidence from Firms' Employment Responses to Shocks in India

Adhvaryu, Achyuta; Chari, Amalavoyal V.; Sharma, Siddharth

doi:10.2139/ssrn.1978961

Cited by 29 publications

(44 citation statements)

References 21 publications

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“…Thus the conclusions depend critically on the sample used. In a related contribution, using district and state level data from India, Adhvaryu, Chari and Sharma (2013) on the other hand find factory employment to be affected negatively by negative productivity (rainfall) shock which is consistent with our evidence from the STE sample. The results in Table 3 thus highlight the need for making a distinction between large and small firms, and the importance of focusing on geographical areas beyond the villages.…”

Section: Evidence On Large Manufacturing and Services Firms (Economicsupporting

confidence: 87%

“…Empirical estimation issues and strategies to deal with them are discussed in detail in Section 3. It is worth noting here that while rainfall shocks have been used for identification in a variety of contexts, agricultural productivity is arguably one of the most natural contexts where rainfall can provide reasonable identifying variations ( (Foster and Rosenzweig (2004), Adhvaryu, Chari andSharma (2013), Bruckner andCiccone (2011)). …”

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confidence: 99%

“…To remedy this potential source of bias, we implement an instrumental variable approach. Following a large literature (Foster and Rosenzweig (2004), Adhvaryu, Chari and Sharma (2013)), agricultural productivity is measured by rice yield as rice is the predominant subsistence and cash crop in Bangladesh. We use rainfall shock as an instrument for rice yield.…”

mentioning

confidence: 99%

“…We use rainfall shock as an instrument for rice yield. Rainfall is found to affect agricultural yields in both developed and developing countries and hence used widely as an instrument for agricultural yields (Foster and Rosenzweig (2004), Adhvaryu, Chari andSharma (2013), Bruckner(2012)). To be precise, we use deviation of current rainfall from its long term average as an instrument.…”

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confidence: 99%

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Beyond Dualism: Agricultural Productivity, Small Towns, and Structural Change in Bangladesh

Emran¹,

Shilpi²

2017

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This paper uses a framework that goes beyond rural-urban dualism and highlights the role of small town economy (STE) in understanding structural change in a rural economy such as Bangladesh. It provides a theoretical and empirical analysis of the role of agricultural productivity in structural transformation in the labor market, with a focus on the differences between a village economy and a small town economy. The empirical work is based on a general equilibrium model that formalizes the demand and labor market linkages: the STE draws labor away from the rural areas to produce goods and services whose demand may depend largely on rural income. The theory clarifies the role played by the income elasticity of demand and the elasticity of wage with respect to productivity increase in agriculture. For productivity growth to lead to a demand effect, the elasticity of wage has to be lower than a threshold. When the demand for goods and services produced in small towns comes mainly from the adjacent rural areas, the demand effect can more than offset the negative wage effect, and lead to higher labor allocation to the production of town good. Using rainfall as an instrument for agricultural productivity, the empirical analysis finds a significant positive effect of agricultural productivity shock on rice yield and agricultural wages. The evidence shows that productivity shock increases wages more in the rural sample when compared to the STE sample. But structural change in employment is more pronounced in the STE sample. In the rural sample, it increases employment only in small scale manufacturing and services. In contrast, a positive productivity shock has large and positive impacts on employment in construction and transport, education, health and other services, and manufacturing employment in larger scale enterprises located in small towns and cities. Agricultural productivity growth is found to induce structural transformation within the services sector in small towns, with employment in skilled services growing at a faster pace than that of low skilled services.

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Section: Evidence On Large Manufacturing and Services Firms (Economicsupporting

confidence: 87%

mentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Beyond Dualism: Agricultural Productivity, Small Towns, and Structural Change in Bangladesh

Emran¹,

Shilpi²

2017

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“…15 There is also evidence to this effect from India, where EPL does not cover temporary ('contractual') workers. As EPL becomes stronger, the extent to which firms adjust numbers of permanent workers in response to shocks falls (Adhvaryu et al, 2013), while the extent to which firms adjust numbers of contractual workers in response to shocks increases (Chaurey, 2015). 16 ILO (2015) provides a full description of the index and methodology.…”

Section: The Role Of Epl For Permanent Contracts In Shaping the Impacmentioning

confidence: 99%

The labour market effects of financial crises

Sharma

Winkler

2017

Econ Transit

Self Cite

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This paper examines how the 2008-2009 financial crisis affected labour markets in Europe, and how this impact depended on employment protection laws. Using a difference-in-differences approach, our estimates isolate the effect of the lack of credit on the labour market from that of the general decline in aggregate economic activity. We find large and negative impacts of the credit shock on total employment, particularly on temporary, unskilled and young workers. These impacts were significantly larger in countries with stronger legal protection of permanent workers from dismissal. This suggests that the differential impact of the crisis across countries was not entirely driven by the heterogeneity of the credit shock, but also by labour regulations. Given regulatory inflexibility in adjusting the permanent workforce, firms responded to tightening financial constraints by disproportionately laying off temporary workers (who tend to be younger and less skilled than permanent workers).JEL classifications: J23, G01, J46, J41.

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Slack resources, firm performance, and the institutional context: Evidence from privately held European firms

Vanacker

Collewaert

Zahra

2016

Strategic Management Journal

239

208

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Research summary:Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary:A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop "lean" firms. Our study suggests that excess cash resources-which are usually viewed as easy to redeploy-benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources-which are usually viewed as more difficult to redeploy-hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate. 1 The absolute level of a given resource a firm has could depend on the national institutional framework in which it operates. However, we look at slack resources available in a firm adjusted for industry and country norms. This implies that the level of slack is not dependent on the country-level institutions or any country-level variable.3 These quadratic relationships are often referred to in the literature as inverted U-shaped (e.g., Nohria and Gulati, 1996;Tan and Peng, 2003). However, following Kim and Bettis (2014), we use the term quadratic relationship since inverted U-shaped implies that the peak lies within the valid range of the data set, which is not always true and remains subject to empirical scrutiny.

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Firing Costs and Flexibility: Evidence from Firms' Employment Responses to Shocks in India

Cited by 29 publications

References 21 publications

Beyond Dualism: Agricultural Productivity, Small Towns, and Structural Change in Bangladesh

Beyond Dualism: Agricultural Productivity, Small Towns, and Structural Change in Bangladesh

The labour market effects of financial crises

Slack resources, firm performance, and the institutional context: Evidence from privately held European firms

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