IDEAS home Printed from https://ideas.repec.org/p/ind/igiwpp/2014-037.html
   My bibliography  Save this paper

Estimating workers bargaining power and firms markup in India: Implications of reforms and labour regulations

Author

Listed:
  • Rupayan Pal

    (Indira Gandhi Institute of Development Research)

  • Udayan Rathore

    (Indira Gandhi Institute of Development Research)

Abstract

We examine implications of industrial deregulations, trade liberalisation and labour regulations on workers' bargaining power and firms' markup in Indian manufacturing industries, using state-wise three-digit industry-level panel data for the period 1980-2007. Results of our econometric analysis suggest that both industrial deregulations and trade liberalisation led to significant declines in workers bargaining power, which was already less than 6.7 on an average during pre-reform era. However, none of these reforms appears to have any significant effect on firms' markup. Our results also suggest that amendments to labour regulation by State governments, which aim to simplify procedures and reduce costs of industrial dispute resolutions, have a significant positive effect on workers' bargaining power. Surprisingly, amendments to Employment Protection Legislations do not appear to have any significant effect on workers' bargaining power. We also document considerable variation in firms' markup and workers' bargaining power across industry-groups and States.

Suggested Citation

  • Rupayan Pal & Udayan Rathore, 2014. "Estimating workers bargaining power and firms markup in India: Implications of reforms and labour regulations," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-037, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2014-037
    as

    Download full text from publisher

    File URL: http://www.igidr.ac.in/pdf/publication/WP-2014-037.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Naude, Willem & Coetzee, Rian, 2004. "Globalisation and inequality in South Africa: modelling the labour market transmission," Journal of Policy Modeling, Elsevier, vol. 26(8-9), pages 911-925, December.
    3. Rupayan Pal & Bibhas Saha, 2008. "Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing," Journal of Economics, Springer, vol. 95(2), pages 121-147, November.
    4. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    5. Sabien Dobbelaere & Jacques Mairesse, 2013. "Panel data estimates of the production function and product and labor market imperfections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 1-46, January.
    6. Krishna, Pravin & Mitra, Devashish & Chinoy, Sajjid, 2001. "Trade liberalization and labor demand elasticities: evidence from Turkey," Journal of International Economics, Elsevier, vol. 55(2), pages 391-409, December.
    7. Chakravarty, Sangeeta & Mitra, Arup, 2009. "Is industry still the engine of growth? An econometric study of the organized sector employment in India," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 22-35.
    8. Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011. "Imports as Product and Labour Market Discipline," British Journal of Industrial Relations, London School of Economics, vol. 49(2), pages 331-361, June.
    9. S. Dobbelaere, 2003. "Joint Estimation of Price-Cost Margins and Union Bargaining Power for Belgian Manufacturing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/171, Ghent University, Faculty of Economics and Business Administration.
    10. Fujimori, Azusa & Sato, Takahiro, 2015. "Productivity and technology diffusion in India: The spillover effects from foreign direct investment," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 630-651.
    11. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 91-134.
    12. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
    13. Nickell, S J & Andrews, M, 1983. "Unions, Real Wages and Employment in Britain 1951-79," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 183-206, Supplemen.
    14. Goyal, Ashima (ed.), 2014. "Handbook of the Indian Economy in the 21st Century: Understanding the Inherent Dynamism," OUP Catalogue, Oxford University Press, number 9780198097532.
    15. Stephen Bond & Frank Windmeijer, 2002. "Finite sample inference for GMM estimators in linear panel data models," CeMMAP working papers CWP04/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    16. Bishwanath GOLDAR & Suresh Chand AGGARWAL, 2005. "Trade Liberalization And Price-Cost Margin In Indian Industries," The Developing Economies, Institute of Developing Economies, vol. 43(3), pages 346-373, September.
    17. Goyal, Ashima, 2015. "A Concise Handbook of the Indian Economy in the 21st Century," OUP Catalogue, Oxford University Press, number 9780199460991.
    18. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    19. Rada, Codrina & von Arnim, Rudiger, 2014. "India's structural transformation and role in the world economy," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 1-23.
    20. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    21. repec:adr:anecst:y:2005:i:79-80:p:22 is not listed on IDEAS
    22. Dewatripont, Mathias, 1987. "Entry deterrence under trade unions," European Economic Review, Elsevier, vol. 31(1-2), pages 149-156.
    23. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
    24. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    25. Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
    26. Saha, Bibhas & Sen, Kunal & Maiti, Dibyendu, 2013. "Trade openness, labour institutions and flexibilisation: Theory and evidence from India," Labour Economics, Elsevier, vol. 24(C), pages 180-195.
    27. Bussolo, Maurizio & Mizala, Alejandra & Romaguera, Pilar, 2002. "Beyond Heckscher-Ohlin: trade and labour market interactions in a case study for Chile," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 639-666, November.
    28. Rupayan Pal & Bibhas Saha, 2006. "Wage Commitment, Signalling, and Entry Deterrence or Accommodation," LABOUR, CEIS, vol. 20(4), pages 625-650, December.
    29. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    30. Ahsan, Reshad N. & Mitra, Devashish, 2014. "Trade liberalization and labor's slice of the pie: Evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 108(C), pages 1-16.
    31. Pulapre Balakrishnan & M. Parameswaran & K. Pushpangadan & M. Suresh Babu, 2006. "Liberalization, Market Power, and Productivity Growth in Indian Industry," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(1), pages 55-73.
    32. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
    33. Ahsan, Ahmad & Pagés, Carmen, 2009. "Are all labor regulations equal? Evidence from Indian manufacturing," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 62-75, March.
    34. Dowrick, Steve, 1989. "Union-Oligopoly Bargaining," Economic Journal, Royal Economic Society, vol. 99(398), pages 1123-1142, December.
    35. K. Pushpangadan & N. Shanta, 2008. "Competition and Profitability in Indian Manufacturing Industries," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 43(1), pages 103-123, July.
    36. Bruno Crépon & Rozen Desplatz & Jacques Mairesse, 2010. "Price-Cost Margins and Rent Sharing: Evidence from a Panel of French Manufacturing Firms," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 583-610, National Bureau of Economic Research, Inc.
    37. Ellen Brock & Sabien Dobbelaere, 2006. "Has International Trade Affected Workers’ Bargaining Power?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 233-266, July.
    38. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    39. Cuesta, Jose & Olivera, Mauricio, 2014. "The impact of social security reform on the labor market: The case of Colombia," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 1118-1134.
    40. Dibyendu Maiti, 2013. "Market imperfections, trade reform and total factor productivity growth: theory and practices from India," Journal of Productivity Analysis, Springer, vol. 40(2), pages 207-218, October.
    41. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kumar, Alok, 2023. "Financial market imperfections, informality and government spending multipliers," Journal of Development Economics, Elsevier, vol. 163(C).
    2. Kopel, Michael & Petrakis, Emmanuel & Ressi, Anna, 2019. "Endogenous scope of firm-union bargaining with vertical pay comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 39-52.
    3. Ashish Kumar Sedai, 2019. "Wages in Imperfect Markets: A Post-reforms Study of Indian Manufacturing," Journal of South Asian Development, , vol. 14(3), pages 257-280, December.
    4. Weilin Liu, 2022. "Did Trade Liberalization Boost Total Factor Productivity Growth in Manufacturing in India in the 1990s?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 43, pages 110-139, Fall.
    5. Nandi, Aurodeep, 2019. "Fiscal deficit targeting alongside flexible inflation targeting: India’s fiscal policy transmission," Journal of Asian Economics, Elsevier, vol. 63(C), pages 1-18.
    6. Stankov, Petar & Vasilev, Aleksandar, 2019. "Business reform outcomes: Why so different?," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1109-1127.
    7. Diti Goswami & Sourabh Bikas Paul, 2020. "Labor Reforms in Rajasthan: A boon or a bane?," Papers 2012.01016, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dibyendu Maiti & Chiranjib Neogi, 2024. "Endogeneity-corrected stochastic frontier with market imperfections," Empirical Economics, Springer, vol. 67(3), pages 1149-1183, September.
    2. Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011. "Imports as Product and Labour Market Discipline," British Journal of Industrial Relations, London School of Economics, vol. 49(2), pages 331-361, June.
    3. Dobbelaere, Sabien & Mairesse, Jacques, 2018. "Comparing micro-evidence on rent sharing from two different econometric models," Labour Economics, Elsevier, vol. 52(C), pages 18-26.
    4. Sabien Dobbelaere & Jacques Mairesse, 2010. "Comparing Micro-evidence on Rent Sharing from Three Different Approaches," NBER Working Papers 16220, National Bureau of Economic Research, Inc.
    5. Dibyendu Maiti, 2019. "Trade, Labor Share, and Productivity in India’s Industries," ADB Institute Series on Development Economics, in: Gary Fields & Saumik Paul (ed.), Labor Income Share in Asia, chapter 0, pages 179-205, Springer.
    6. Dobbelaere, Sabien & Kiyota, Kozo & Mairesse, Jacques, 2015. "Product and labor market imperfections and scale economies: Micro-evidence on France, Japan and the Netherlands," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 290-322.
    7. Sabien Dobbelaere & Jacques Mairesse, 2013. "Panel data estimates of the production function and product and labor market imperfections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 1-46, January.
    8. Devashish Mitra, 2019. "Responses to Trade Opening: Evidence and Lessons from Asia," Working Papers id:12977, eSocialSciences.
    9. Dobbelaere, Sabien & Kiyota, Kozo, 2018. "Labor market imperfections, markups and productivity in multinationals and exporters," Labour Economics, Elsevier, vol. 53(C), pages 198-212.
    10. Bhaskar Jyoti Neog & Bimal Kishore Sahoo, 2020. "Job Reallocation Dynamics in India: Evidence from Large Manufacturing Plants," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 934-959, August.
    11. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
    12. Rupayan Pal & Bibhas Saha, 2016. "Entry Threats and Inefficiency in ‘Efficient Bargaining’," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(3), pages 258-277, July.
    13. Ahsan, Reshad N. & Mitra, Devashish, 2014. "Trade liberalization and labor's slice of the pie: Evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 108(C), pages 1-16.
    14. Veeramani, Choorikkad & Banerjee, Purna, 2022. "Exchange rate fluctuations, labour laws, and gender differences in job flows: Analysis of manufacturing industries across Indian states," World Development, Elsevier, vol. 152(C).
    15. Worku Gebeyehu, 2017. "Trade Reforms, Mark-Ups and Bargaining Power of Workers: the Case of Ethiopian Manufacturing Firms," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 25(1), March.
    16. Paolo Epifani, 2003. "Trade liberalization, Firm Performances and Labor Market Outcomes in the Developing World, what Can We Learn From Micro-Level Data?," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 455-486.
    17. Mertens, Matthias, 2020. "Labor market power and the distorting effects of international trade," International Journal of Industrial Organization, Elsevier, vol. 68(C).
    18. Sabien Dobbelaere & Mark Vancauteren, 2014. "Market imperfections, skills and total factor productivity : Firm-level evidence on Belgium and the Netherlands," Working Paper Research 267, National Bank of Belgium.
    19. Mitra, Arup,, 2013. "Can industry be the key to pro-poor growth? : An exploratory analysis for India," ILO Working Papers 994843463402676, International Labour Organization.
    20. Sly, Nicholas & Soderbery, Anson, 2014. "Strategic sourcing and wage bargaining," Journal of Development Economics, Elsevier, vol. 109(C), pages 172-187.

    More about this item

    Keywords

    Workers bargaining power; firms markup; industrial deregulations; trade liberalisation; labour regulations; India;
    All these keywords.

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ind:igiwpp:2014-037. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shamprasad M. Pujar (email available below). General contact details of provider: https://edirc.repec.org/data/igidrin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.