This article investigates whether employment protection legislation (EPL) restricts producers
from adjusting their workforce in response to exogenous demand shocks. The study is based on a
state-wise panel dataset from the Indian manufacturing sector for the period 2000-01 to 2011-12.
The authors use labour turnovers as a proxy for employment adjustments, in the context of
demand shocks. The estimates of differential effects of demand shocks on employment
adjustments across high versus low EPL states suggest that EPL does not hinder employment
adjustments.