The Impact of Changes in Job Security Regulations in India and Zimbabwe

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Abstract
Employment laws in India and Zimbabwe require employers to obtain permission from the government to retrench or lay off workers. The effect of these laws on the demand for employees in 64 manufacturing industries is examined using time series data. Little evidence is found indicating slower adjustments in employment levels and hence retardation in any structural adjustment following the new laws. However, in both countries a substantial decline in the demand for employees (other things equal) followed the new legislation. In Zimbabwe it is difficult to be precise about a causal connection between the drop in the demand for labor (allowing for concurrent increased wages) and the new legislation because enactment occurred simultaneously with Independence; however, the current economic climate induced high levels of investment in capital but not investments in long-term commitments to employees. But in India further evidence supports a causal connection: larger establishments covered by the job security regulations tended to experience a decline in the demand for labor while smaller, uncovered enterprises in the same industries did not; moreover the decline in demand for employees across industries in India was larger where the private sector predominates, where larger establishments covered by the new laws are important, and where a smaller proportion of employees are union members. Thus in both countries the policy implemented to protect jobs may have resulted in far fewer jobs.

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