Labour market flexibility in Indian manufacturing: A critical survey of the literature

Abstract A growing literature seeks to establish a relationship between India's supposedly “restrictive” labour laws and its poor performance on a range of industrial and social indicators. After providing an overview of this literature, this article shows that multiple errors were made in the foundational papers that constructed indices measuring interstate differences in labour regulation. These indices were then misinterpreted as measures of labour market flexibility. The literature is also marred by econometric problems and by difficulties involved in replicating the analysis with corrected and updated indices. The author concludes by summarizing evidence of deteriorating labour market outcomes for workers in Indian manufacturing.