ployment size threshold at which IDA Chapter V-B starts to apply to a factory was raised from 100 to 300 workers. The amendments also imposed more stringent minimum membership size requirements on unions. Furthermore, they exempted factories with fewer than 50 contract workers from the Contract Labor Act (CLA), the law which regulates the hiring of contract workers.

We first conduct a comparative case study of the amendments using the synthetic control method. This technique is suited for studying the aggregate impacts of changes that effect a small set of large economic units. It uses a weighted combination of potential comparison units -in our case, Indian states other than Rajasthan- as the control group, with the choice of weights being data-driven (Abadie and Gardeazabal 2003).<sup>6</sup> For this exercise, we use official state-level estimates of the formal manufacturing sector for the 1980-2018 period. The availability of 35 years of pre-treatment data is advantageous as it potentially improves the quality of the synthetic control.

The results suggest that contrary to expectations, the amendments did not have a sizable aggregate impact on employment and output in the formal manufacturing sector. There is some evidence of a positive impact on output, but it is not robust to standard checks.<sup>7</sup> Next, we use factory level panel data from 2010 to 2018 to conduct a difference-in-differences analysis of the main policy change, the repeal of IDA Chapter V-B. This strategy exploits the fact that the amendment affected factories with 100-300 workers.<sup>8</sup> We compare outcomes before and after the amendment across factories with 100-300 workers and those with more than 300 workers, across Rajasthan and other states. This comparison is important as there may have been nationwide shocks that varied systematically by firm size.

Consistent with the synthetic control results, the panel data analysis indicates that the IDA amendment did not affect total employment, output, capital and output per worker in treated firms.<sup>9</sup> But, there was a significant increase in their employment of contract workers. There is

> 6The synthetic control method has been used in comparative case studies across a wide range of contexts, such as tobacco taxation in California (Abadie, Diamond and Hainmueller 2010), German reunification (Abadie, Diamond and Hainmueller 2015), economic liberalization episodes (Billmeier and Nannicini 2013), natural disasters (Coffman and Noy 2012), affirmative action policies (Hinrichs 2012) and political connections (Acemoglu, Johnson, Kermani, Kwak and Mitton 2016).

> 7Having only three years of post-treatment data, we focus on outcomes such as employment and output that are likely to respond to the policy change within this relatively short time frame, as opposed to more long-term outcomes such as firm entry and investment.

> 8We are not the first paper to examine the impacts of Rajasthan’s amendments using firm level data. The amendments were first examined in an annual report of the government (G.o.India 2019). Goswami and Paul (2021) employ firm level data and panel analysis methods similar to that used in this paper to examine the amendments, with similar findings.

> 9We use the terms factory, manufacturing establishment and firm interchangeably; the primary unit of analysis is a factory.

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