Labour Law, Enforcement and the Rise of Temporary Contract Workers : Empirical Evidence from India's Organised Manufacturing Sector

This paper examines the interactive effect of strict Employment Protection Legislation (EPL) and enforcement intensity on the incidence of temporary contract workers. Indian labour market is the empirical context where labour regulations differs state-wise and across types of workers (regular and contract workers). This study uses the state level amendments to Industrial Dispute Act of 1947, and the average size of total number of labour inspectors for each state, as independent variables to capture the variation in labour regulation and enforcement intensity across thirty one Indian states for the period 2000-2007. This paper argues that firms located in strict EPL states hire differentially more temporary contract workers in response to variable enforcement intensity. Among other findings, the analysis shows that firms prefer to employ excessive number of contract workers to circumvent firing and overall compliance costs of regular workers as stipulated by the Indian labour laws. Our results are robust to alternative specifications