Labour reforms will hurt employment

R Karumalaiyan | Updated on: Jul 06, 2022
 The job situation in the country is dire

The job situation in the country is dire | Photo Credit: SRIBHARATH G

Labour laws’ deregulation has worsened labour productivity and incomes, thereby hurting economic growth 

Labour Minister Bhupender Yadav, in the article ‘Labour reforms and the rise of jobs’ ( BusinessLine, June 24), argues that “India’s labour regulatory framework has been rigid and hindered the growth of output, investment and employment expansion”. He buttressed his arguments with the reports of four big employer associations — Assocham, CII, FICCI and PHDCCI — along with a study of VV Giri National Labour Institute.

He then cites the labour reform undertaken by the BJP government in Rajasthan in 2014-15 and how that has paid off. Before getting into the debate on labour reform vis-a-vis the growth stories that have repeatedly been dished out since the 1990s when the LPG (liberalisation, privatisation and globalisation) policies were first rolled out in India, it would be relevant to assess the current unemployment scene. The Minister has portrayed a rosy picture, whereas the reality is alarming.

Thirty-one years after that watershed moment in India’s socio-economic history, the country is battling acute unemployment and job losses.

Informal sector jobs

In a 2019 report, data analysts at IndiaSpend reveal that the country had not created adequate jobs since liberalisation, and 92 per cent of jobs created were in the informal sector.

Thus the unemployment situation has been alarming even before the huge dislocation unleashed by the unplanned lockdowns imposed in 2020-21 in the wake of the Covid-19 pandemic. Much before the pandemic, the National Sample Survey Office (NSSO) reported a 6.1 per cent unemployment rate in 2017-18, the worst in over four decades. The picture has become more dismal in the ensuing months since April-May of 2020.

For instance, in December 2021, the Centre for Monitoring Indian Economy (CMIE) estimated that nearly 53 million Indians were unemployed, a large proportion of whom were women. The unemployment rate was hovering at 7.91 per cent in December 2021.

The recent agitations by the youth against the Agnipath scheme are a reflection of the gravity of the situation. Recently, the Railway Recruitment Board received 1.25 crore applications for a mere 35,000 posts. Many a time a few government jobs, that too at the bottom level, have attracted thousands of applications.

Clamour for govt jobs

Why is there this scramble for government jobs? Labour historian Prof Maya John says it stems from the fact that bulk of the jobs in the private sector is characterised by high job insecurity (easy hire and fire), poor basic pay, and long hours of work. Historically, only a small number of employer-employee work relations — associated mostly with the formal sector — have been subject to state regulation. However, in recent decades, there has been a steady decline of even that.

This deregulation has been coupled with a concerted push towards rapid privatisation of the public sector.

Together, these developments have contributed significantly to periodic and permanent mass unemployment among both skilled and less skilled workers.

In addition, avenues of gainful employment for new entrants in the job market have fallen drastically.

Contrary to the Minister’s claims, the VV Giri National Labour Institute study (No 122/2017), led by Sanjay Upadhyaya and Pankaj Kumar, did not find any evidence that previous labour law reforms initiated in Rajasthan and other States had succeeded in attracting investment and boosting investment leave alone create jobs.

Rather it had concluded that that “so far as expected outcome/impact is concerned from the effected amendments in these States… the strains on labour are already clearly visible which warrant attention to ameliorate and to offset the resultant hardships and uncertainty faced by the workers at least in the interim period.”

Rajasthan’s labour reforms

As the Minister has referred to the Rajasthan experiments in labour law deregulation as the most ideal, it would be in order to cite a more recent research on this. The Azim Premji University’s Centre for Sustainable Employment has done an exclusive study on the Rajasthan experiments under the title ‘Labour Reforms in the Indian State of Rajasthan; a boon or a bane?’, by Diti Goswami and Sourabh Paul and published as the CSE Working Paper in January 2021.

In this paper, the authors conclude thus: “Our empirical analysis shows the reforms to have an unintended consequence of the decline in labour use... The implications regarding employment are similar to those presented by D’Souza (2010); Kapoor (2014); Chandru (2014); Chatterjee and Kanbur (2015); Deakin and Haldar (2015); Roychowdhury (2019); Roy, Dubey and Ramaiah (2020) in the sense that higher flexibility (of labour laws) is associated with weaker employment growth. Also, worryingly, the increased flexibility results in a disproportionate reduction in the directly employed workers. Heyes and Lewis (2015) and Avdagic (2015) find similar results for the European Union.”

Importance of human capital

According to the ‘Ease of Doing Business’ study published by the World Bank in 2014, only a little over one-tenth of the respondent firms in India had perceived labour regulations as a major constraint (World Bank Group 2014).

Research by Kucera (2002) showed that core labour standards of the ILO produce better human capital (that is, the elimination of child and bonded workers), greater efficiency through the labour cost-productivity nexus, and more social and political stability via freedom of association and collective bargaining. Freeman and Medoff (1991) have argued that trade unions contribute to the productive efficiency of a firm through voice channels and also contribute to equitable outcomes in them.

Hence, to accelerate growth and provide jobs to all the aspirants in the labour market and, thereby, reap the huge demographic dividend, there’s a need to get rid of pro-corporate, both domestic and foreign, policies. Economic growth and employment have nothing to do with labour reform. They are more specifically related to demand constraints, which entail more redistributive measures.

Thus, the implementation of the labour codes and rules has no potential to accelerate India’s journey to lead the world’s strongest economies; rather, it would lead to the enslavement of our workers, besides aggravating the choking of consumption and contributing further to the slump in the job-market as well as employment generating investment. India has achieved higher rate of growth before 2014 without any drastic deregulation in the name of labour law codification.

The writer is National Secretary, CITU

Published on July 06, 2022
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