Labor Law, Judicial Efficiency, and Informal Employment in India

Abstract

This study assesses the effects of industrial disputes legislation and the dispute-settlement process on informal versus formal employment in India. It uses indicators of pro-worker court awards and court efficiency as well as amendments to the Industrial Disputes Act (IDA) at the level of Indian states. The state-level IDA amendments are classified in relation to their pro-worker stance and ability to enforce existing legislation. The main finding is that the relationship between formal employment in both the industrial and service sectors and the judicial indicators is weak. Results are not robust to model specification. Thus, the evidence is neither robust nor strong enough to confirm the much claimed negative relationship between pro-worker judicial change and the degree of formal work in the entire service or industrial sectors.

Indian Labour Law and its Impact on Unemployment, 1970-2006: A Leximetric Study

“…When data on the working of the court system and the degree to which judges decide cases in a pro-worker way are factored into regression analyses, the negative effects obtained by Besley and Burgess (2004) disappear (Fagernäs, 2010).…”

“…Rather, the aim in carrying out leximetric coding is precisely to arrive at a measure of the normative content of legal rules which is separate from measures of their impact and effect, so that potential causal relationships between legal phenomena and these other variables of interest can be identified. Evidence of the effectiveness of a rule in practice is available through other sources, such as the evidence on court efficiency and enforcement levels analysed for the Indian case by Fagernäs (2010), or evidence on employer and worker perceptions of the operation of the law in practice of the kind which are collected via workplace surveys for some other countries (see, for example, van Wanrooy et al, 2007, on Australia). Evidence on the economic variables to which legal phenomena might be related, either as causal or outcome variables, are available through sources which include national, sectoral and company level data on economic and financial performance, of the kind we use in our econometric analysis, to which we now turn.…”

“…As we have seen, Fagernäs (2010) takes this approach in her study of the impacts of cross-state variation in labour law. Her data are drawn from state-level measures of the effectiveness of the court system and the extent of pro-worker rulings.…”

“…One method is to supplement data on the content of formal legal rules with data from surveys and fieldwork research on respect for the law and enforcement of legal rules among a given population of actors. To this end, Fagernäs (2010) collated data on court efficiency and pro-worker legal rulings in different Indian states, and coded them alongside the changes in state-level laws which Besley and Burgess (2004) focus on. Her analysis found no correlation between the resulting, composite de jure and de facto measures of the pro-worker orientation of state laws, and the extent of formal employment in either manufacturing or services, across the states concerned.…”

Empirical analysis of legal institutions and institutional change: multiple-methods approaches and their application to corporate governance research

“…Severe sanctioning may be counter-productive where it induces avoidance from those to whom public regulations are addressed and undermines private regulation; in practice, the most effective enforcement regimes combine Empirical analysis of legal institutions and institutional change 11 punishment and persuasion (Braithwaite, 2006). Enforcement measures may however be usefully combined with measures of de iure law in environments where it is known that laws lack the support of all or some actors or where there is evidence of widespread non-implementation of the law (Fagernäs, 2010).…”