Employment Protection Laws and Privatization
By Krishnamurthy Subramanian, William Megginson
The Journal of Law and Economics | February 2018
DOI
www.journals.uchicago.edu/doi/epdf/10.1086/698212
Citation
Subramanian, Krishnamurthy., Megginson, William. (2017). Employment Protection Laws and Privatization The Journal of Law and Economics www.journals.uchicago.edu/doi/epdf/10.1086/698212.
Copyright
The Journal of Law and Economics, 2017
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Abstract
Is privatization in a country related to the stringency of its employment protection laws (EPL) – and, if so, how? We address this question using privatization deals in fourteen European countries over three decades and all the changes in EPL within a country. Using traditional difference-in-difference tests exploiting major changes and generalized difference-in-difference tests for the entire sample, we find that stringent EPL discourage privatization in a country. For identification, we use two sets of triple-difference tests that control for all country-level omitted variables using fixed effects for each (country, year) pair. First, using cross-sectional differences across industries within a country, we find that the effect of EPL on privatization is disproportionately greater in industries where separation rates and relocation rates are higher. Second, using productivity measures for U.S. industries as an instrument, we find that the effect of EPL on privatization is disproportionately more in less productive industries.

K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.

As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.

His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”

Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.

Krishnamurthy Subramanian
Krishnamurthy Subramanian