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

A key prediction of dynamic labor demand models is that firing restrictions attenuate firms' employment responses to economic fluctuations. We provide the first direct test of this prediction using data from India. We exploit the fact that rainfall fluctuations, through their effects on agricul...

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Main Authors:	Adhvaryu, Achyuta, Chari, A. V., Sharma, Siddharth
Format:	Journal Article
Language:	en_US
Published:	MIT Press 2014
Subjects:	labor regulation labor policy
Online Access:	http://hdl.handle.net/10986/16605

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spelling	okr-10986-166052021-04-23T14:03:31Z Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India Adhvaryu, Achyuta Chari, A. V. Sharma, Siddharth labor regulation labor policy A key prediction of dynamic labor demand models is that firing restrictions attenuate firms' employment responses to economic fluctuations. We provide the first direct test of this prediction using data from India. We exploit the fact that rainfall fluctuations, through their effects on agricultural productivity, generate variation in local demand within districts over time. Consistent with the theory, we find that industrial employment is more sensitive to shocks where labor regulation is less restrictive. Our results are robust to controlling for endogenous firm placement and vary across factory size in a pattern consistent with institutional features of Indian labor law. 2014-01-23T20:02:19Z 2014-01-23T20:02:19Z 2013-07 Journal Article Review of Economics and Statistics 1530-9142 http://hdl.handle.net/10986/16605 en_US http://creativecommons.org/licenses/by-nc-nd/3.0/igo CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank MIT Press Publications & Research :: Journal Article India
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	labor regulation labor policy
spellingShingle	labor regulation labor policy Adhvaryu, Achyuta Chari, A. V. Sharma, Siddharth Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India
geographic_facet	India
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	A key prediction of dynamic labor demand models is that firing restrictions attenuate firms' employment responses to economic fluctuations. We provide the first direct test of this prediction using data from India. We exploit the fact that rainfall fluctuations, through their effects on agricultural productivity, generate variation in local demand within districts over time. Consistent with the theory, we find that industrial employment is more sensitive to shocks where labor regulation is less restrictive. Our results are robust to controlling for endogenous firm placement and vary across factory size in a pattern consistent with institutional features of Indian labor law.
format	Journal Article
author	Adhvaryu, Achyuta Chari, A. V. Sharma, Siddharth
author_facet	Adhvaryu, Achyuta Chari, A. V. Sharma, Siddharth
author_sort	Adhvaryu, Achyuta
title	Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India
title_short	Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India
title_full	Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India
title_fullStr	Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India
title_full_unstemmed	Firing Costs and Flexibility : Evidence from Firms' Employment Responses to Shocks in India
title_sort	firing costs and flexibility : evidence from firms' employment responses to shocks in india
publisher	MIT Press
publishDate	2014
url	http://hdl.handle.net/10986/16605
_version_	1764434265448120320

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

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