using panel data (household or firm) and time-series models. Some of this research has been conducted on developing countries. A collection of these studies was compiled for a number of Latin American and Caribbean countries in Heckman and Pagés (2004). The results were not conclusive, with some studies identifying a negative employment effect of job security rules (e.g., Kugler 2004 for Colombia; Saavedra and Torero 2004 for Peru; Mondino and Montoya 2004 for Argentina) and others (Paes de Barros and Corseuil 2004 for Brazil; Downes, Mamingi, and Antoine 2004 for three Caribbean countries) finding no significant effect. Using a similar approach, Petrin and Sivadsadan (2006) find that changes in EPL in Chile had no significant impact on employment. Using a sample of developed and developing countries, Micco and Pagés (2006) show that negative employment effects are concentrated in more volatile sectors. They also identify the driving force as a decline in the entry of new firms rather than decreased firm size.

Outside Latin America, there has been very little analysis of the employment impact of EPL in developing countries. The major exception is India, where a number of studies have been conducted (see Box 1).

# _Box 1: Does India’s EPL have harmful effects?_

India has a widely held reputation for restrictive job security rules that constrain output, productivity growth, and job creation while encouraging informality. Indeed, India’s labor regulations are often considered one of the major obstacles limiting the country’s progress, specifically by discouraging the creation of labor-intensive manufacturing jobs that have been to the key to the rapid development of other labor-abundant Asian countries. Emblematic of this view is Panagariya’s (2008) assertion that the “most important factor that still holds back large firms from entering [labor-intensive] products is a set of draconian labour laws in India”. Does the empirical evidence support this view?

When measured against other countries, India does offer substantial protection to regular workers against dismissal. For example, the OECD (2013) has applied its EPL index methodology to its 34 member countries and nine major emerging economies and rated India’s rules for protecting permanent workers against dismissal as more stringent than all but one of the countries included.<sup>14</sup> The legislation that is most relevant for dismissals is the Industrial Disputes Act (IDA), which governs procedures for layoffs and retrenchments and dispute resolution, among other things. The most controversial part of the IDA is Chapter V.B, which imposes restrictions on the ability of firms to dismiss workers. Particular attention has been paid to amendments in 1976 and 1982 that required government approval for layoffs, retrenchments, and closures in the factory sector, initially for all firms with at least 300 employees and subsequently for firms with 100 workers.

Although the IDA is national legislation, states have the right to make amendments. This situation has led to variation within the country regarding the rigidity of India’s EPL. Many researchers have exploited this variation to analyze the effects of job security rules. The starting point for this line of research was Besley and Burgess (2004), who reviewed amendments to IDA to classify states as pro-employer, pro-worker, or neutral in terms of their job security rules and then analyzed the effect of this classification on different economic outcomes. They found that states with pro-worker (more protective) reforms had lower output, investment, productivity, and employment growth in formal manufacturing than states with pro-employer 14