Labor Laws and Manufacturing Performance in India: How Priors Trump Evidence and Progress Gets Stalled

Abstract

Strong labor protections for ordinary workers are often portrayed as a 'luxury developing countries cannot afford'. No study has been more influential in propagating this perversity trope in the context of the Indian economy than the QJE article of Besley and Burgess (2004). Their article provides econometric evidence that pro-worker regulation resulted in lower output, employment, investment and productivity in India's registered manufacturing sector. This paper reviews existing critiques of Besley and Burgess (2004), which highlight conceptual and measurement errors and uncover econometric weaknesses. The paper takes a step beyond these: it reports a failure to replicate Besley and Burgess' findings and demonstrate the nonrobustness of their results. My deconstruction is not only about the econometrics, however. I show that Besley and Burgess' findings are not just inconsistent with their theoretical priors, but also internally contradictory and empirically implausible, taxing any person's capacity for belief. The paper, written by two 'useful economists', exhibits a gratuitous empiricism in which priors trump evidence. On all counts, it fails the test of being useful to the purpose of 'evidence-based' public policy advice.

La flexibilité du marché du travail dans le secteur manufacturier indien: revue critique de la littérature

“…Suivre cette voie poserait cependant plusieurs problèmes. Premièrement, comme le fait observer Storm (2019), la réplication des résultats de Besley et Burgess (2014) pose un problème pratique parce que les observations disponibles pour les données qu'ils fournissent sur leur site Internet sont nettement moins nombreuses que ce qu'ils indiquent dans leur article. Deuxièmement, la version originale de l'indicateur de BB comprenait déjà peu de changements -18 seulement au total dans 10 États (sur 16) au cours de la période 1958-1992, dont 14 ont eu lieu au cours de la seule période 1979-1989.…”

Labour Market Flexibility in Indian Industry: A Critical Survey of the Literature

“…17 But going down that road would encounter several obstacles. First, as noted by Storm (2019), a practical difficulty in replicating the BB results is that the dataset they provide on their website has far more missing observations than they acknowledge in their paper.…”

Labor Reforms in Rajasthan: A Boon or a Bane?

“…Moreover, Rodgers and Menon (2013) find that employment adjustment and dispute settlement restrictions cause higher job quality for women. One of the most influential studies by Besley and Burgess (2004) has been criticized on various conceptual and measurement issues, coding errors, methodological problems, failure to replicate the findings (Bhattacharjea 2006;Bhattacharjea 2009;Jha and Golder 2008;Storm 2019;D'Souza 2010) and, difficulties in the enforcement of the labor laws in India (Fagernäs 2010). Some scholars find the labor laws changes are endogenous to several other economic factors and do not explicitly determine economic indicators (Dutta Roy 2004;Deakin, and Sarkar 2011).…”