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Firing costs and flexibility: evidence from firms’ employment responses to shocks in India
journal contribution
posted on 2023-06-08, 15:04 authored by A Adhvaryu, Amalavoyal ChariAmalavoyal Chari, S SharmaA key prediction of dynamic labor demand models is that ?ring restrictions attenuate ?rms’ employment responses to economic ?uctuations. We provide the ?rst direct test of this prediction using data from India. We exploit the fact that rainfall ?uctuations, through their effects on agricultural productivity, generate variation in local demand within districts over time. Consistent with the theory, we ?nd that industrial employment is more sensitive to shocks where labor regulation is less restrictive. Our results are robust to controlling for endogenous ?rm placement and vary across factory size in a pattern consistent with institutional features of Indian labor law.
History
Publication status
- Published
Journal
Review of Economics and StatisticsISSN
0034-6535Publisher
Massachusetts Institute of Technology PressExternal DOI
Issue
3Volume
95Page range
711-724Department affiliated with
- Economics Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2013-10-07Usage metrics
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