Not much is heard about labour unions in India these days. Labour or trade unions, a salient feature of the pre-liberalisation industrial market, are fast losing relevance as the labour market has witnessed a sea change in recent times. To know why unionisation is on the wane, understanding the economics of labour unions is pertinent.

Both demand and supply forces determine the amount of unionised jobs or union membership in a labour market. Workers demand unionised jobs when the union promises a higher wage and a reduction in unemployment. The supply side factors include the costs of organising or mobilising a workforce, the legal environment that permits or prohibits certain types of union activities, how strongly the company management resists collective bargaining, and the ability of a union to capture excess rents the firm generates.

Some sectors like construction, manufacturing and transportation are conducive for unionisation, whereas agriculture and finance seldom see unionisation. Sectors wherein most of the output is produced by a few companies are also likely to see higher unionisation as the companies’ market power is almost always harmful for labour rights and welfare. In such markets where firms can earn excess profits, labour unions can extract some of the rents for the workers.

Macroeconomic conditions and the legal environment also influence the unionisation rate. When the unemployment rate is high and workers seek to alleviate job insecurity, the demand for unionisation increases. Similarly, when inflation rate is high, real wages fall and therefore the unionisation rate increases. Also, labour laws regulate the employer–union relationship and impact the ability to unionise.

All of the aforesaid factors le to a proliferation of labour unions in the 1960s and 1970s.

Structural transformation

In the post-liberalisation period, however, several factors have led to a precipitous decline in labour unions across industries. The economy has undergone a structural transformation, with the services sector coming to the fore. The remit of labour unions in the tertiary sector is almost insignificant.

The unionisation rate has fallen also because converting non-union jobs to union jobs has become increasingly difficult. The number and rate of creation of permanent jobs are also declining, further restricting the role of labour unions. The last couple of decades have seen most manufacturing firms circumventing the labour laws that protect labour rights by employing, and outsourcing to, contract labour. Contract labour cannot be unionised because of the very uncertain nature of labour contracts.

While until 2020, these factors have played a critical role in making labour unions almost ineffective, what has compounded their problems is the emergence of a new set of labour codes legislated by the Central Government last year. Armed with several new provisions, these codes have made the unions almost redundant. For instance, strikes used to be a critical weapon to bargain with the management for benefits. Over time, the laws and processes have drastically diluted unions’ ability to go on strike.

In the Industrial Relations Code 2020 (IRC), which is yet to be notified, the government has introduced more conditions restricting the rights of workers to strike, alongside an increase in the threshold relating to lay-offs and retrenchment in industrial establishments — steps that may provide more flexibility to employers for hiring and firing workers without government permission.

Strikes almost impossible

The IRC proposes that no person employed in an industrial establishment shall go on strike without a 60-day notice and during the pendency of proceedings before a Tribunal or a National Industrial Tribunal and 60 days after the conclusion of such proceedings. Earlier, workers could go on strike by giving between two weeks and six weeks of notice. Flash strikes are now outlawed.

New concepts of ‘negotiating union or negotiating council’ have been introduced in the IRC which has formally recognised labour unions for the first time. If there is only one functional labour union in a company, that union will be recognised by the company as the ‘sole negotiating union of the worker’. If there is more than one trade union functioning in a company, the union having 51 per cent or more workers on the muster roll of the company concerned will be the sole negotiating union. When no labour union has 51 per cent or more workers on the muster roll, the employer will constitute a negotiating council.

While it is unclear how these new laws would protect labour rights, they may improve the ease of doing business and further promote contract labour. The provisions facilitating contract labour may further shrink the scope of labour unions.

In the new-age economy, labour unions still have an important role to play. Even, behemoths like Amazon and Google have unions. To face the current challenges, labour unions must embrace newer operating methods, be technologically updated, less politically motivated, and speak the language of the new age worker whose work environment is drastically different from the old-world praxis.

The writer is Assistant Professor of Economics, IIT Bhilai. Views are personal

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