Macro and Micro Evidence: Labour Reforms Do Not Facilitate Growth in the Manufacturing Sector

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Abstract

Three Indian states (Uttar Pradesh, Madhya Pradesh and Gujarat) recently adopted new and significant labour reforms amidst the COVID-19 pandemic - supporting companies and businesses willing to more easily hire and fire employees in the hope that this will unshackle industries and attract investments. However, some economists and workers’ unions argue that these changes may affect labour markets, reduce productivity and even lead to anarchy. This article aims to explore whether labour reforms actually facilitate the growth of the manufacturing sector in India, and to achieve this through both macroeconomic and microeconomic analyses. We will review past labour reforms and their influence on the labour and manufacturing sectors, asking whether new measures could actually increase productivity - given that to a great extent they only formalise existing practices.