Labor Law, Judicial Efficiency, and Informal Employment in India

Abstract

This study assesses the effects of industrial disputes legislation and the dispute‐settlement process on informal versus formal employment in India. It uses indicators of pro‐worker court awards and court efficiency as well as amendments to the Industrial Disputes Act (IDA) at the level of Indian states. The state‐level IDA amendments are classified in relation to their pro‐worker stance and ability to enforce existing legislation. The main finding is that the relationship between formal employment in both the industrial and service sectors and the judicial indicators is weak. Results are not robust to model specification. Thus, the evidence is neither robust nor strong enough to confirm the much claimed negative relationship between pro‐worker judicial change and the degree of formal work in the entire service or industrial sectors.