Reforming labour laws: Grasping the nettle
More importantly, 90% or more of India’s workforce is unorganised and is completely out of the ambit of protective legislation. They comprise those who work in big factories on a nonpermanent basis and the vast multitude of casual labourers and selfemployed in informal and unincorporated enterprises. While there is a steady stream of migration from villages to the towns, only a small fraction of jobseekers get absorbed in factories or bigger establishments
The reform of India’s labour laws still remains a major lacuna of economic liberalization since the early 1990s. While industry has sought greater flexibility to adjust the workforce with the ups and downs of the business cycle, protecting the interests of workers with a social safety net has proved elusive. The trade unions have resisted any effort to make regulations less restrictive as they considered it an unbridled license to hire and fire. For such reasons, successive governments have shied away from such reforms. The re-elected NDA government, however, appears ready to firmly grasp this nettle.
Aimed at helping industry to boost GDP growth, the union budget for 2019-20 announced that the Narendra Modi-led government is proposing to streamline multiple labour laws into four labour codes: wages; social security; occupational safety, health and working conditions; and industrial relations. The union cabinet has already approved the bills on wages and occupational safety which have been introduced in the Lok Sabha. Those on industrial relations and social security are to be taken up later. With various labourrelated definitions getting standardized, it is expected there will be less disputes.
Streamlining the 44-odd central labour laws into four codes is long overdue and per se is unlikely to be controversial with the unions. The devil is of course all in the details. The unions are concerned about the provision that allows employers in the organised sector employing up to a higher threshold number of workers to lay off or retrench workers without government permission. Also, about laws that impinge on the right to form a union regardless of membership. But many of these battles are long over. As labour is on the concurrent list of the Constitution, state governments can enact similar legislation.
Rajasthan was in fact first off the blocks in 2014 with flexible labour legislation that allowed employers employing up to 300 workers - from the earlier limit of 100 - to reduce the workforce without government’s nod. To form any trade union, the requirement of membership was also raised from 15% to 30% of total workmen.
Rajasthan’s example was later followed by several other states ruled by the BJP. This particular state’s labour laws may have perhaps served as the template for the NDA government’s current effort to merge all central-related laws into four codes.
The unions’ concerns, however, pertain to less than 10% of India’s workforce that already has some form of institutional protection. Labour reform is more wideranging than just amending threshold limits for organised sector employers to hire and fire workers. Even within the organised manufacturing sector, there is a growing incidence of contract and non-permanent forms of labour performing regular work at much lower wages and without basic rights. Employers find ways of circumventing existing laws to minimise costs with temporary workers. Clearly, such workers also need protection on par with permanent workers.
More importantly, 90% or more of India’s workforce is unorganised and is completely out of the ambit of protective legislation. They comprise those who work in big factories on a non-permanent basis and the vast multitude of casual labourers and selfemployed in informal and unincorporated enterprises. While there is a steady stream of migration from villages to the towns, only a small fraction of job-seekers get absorbed in factories or bigger establishments. The bulk has no option but to join the unorganised sector. The proposed streamlining of the existing laws in four codes breaks down the silos of organised and unorganised, extending benefits to all.
This is indeed the promise of the bill on wages that replaces the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. According to the union labour minister, more than 400 million workers are expected to benefit from such legislation. This code provides for a mandatory minimum wage floor for the various states to implement, besides a uniform definition of wages in 36 central laws. The various states in the country are of course free to set wages rates higher than this but the floor level will definitely reduce wage inequalities.
Minimum wages are considered distortionary in textbook economic theory as wages that are higher than the level that clears supply and demand in the labour market only creates unemployment. True to form, some economists consider the
proposed code on wages to be adverse for employment in labour-intensive enterprises.
The empirical work of the late Princeton economist Alan Krueger suggested the opposite; notably, that while minimum wages might cause unemployment, a booming market might result in employers raising minimum wages. The Economic Survey for 2018-19 also cites academic work that suggests that minimum wages have had no effect on employment; that they serve as a benchmark pulling up unorganised sector wages by enhancing their bargaining power.
The code on occupational safety, health and working conditions subsumes 13 central laws including the Contract Labour (Regulation and Abolition Act, 1970. The labour ministry earlier unsuccessfully sought to amend this Act to extend “same work same pay” and similar social security benefits to contract workers if they perform similar work as the directly employed. But in the latest code, contract labour can even be prohibited if the employment is of a perennial nature; or is ordinarily done by regular workers and whether it is sufficient to employ a considerable number of wholetime workers.
All eyes will be on the progress of NDA’s labour bills into law. The regime is in a territory that has proved daunting for previous governments. The four codes will certainly help Indian industry and revive investments if they provide greater flexibility while also protecting the interests of all workers. If they encourage retraining of workers for new jobs as also upgrading their skills to make them mobile and adaptable to change, they would be efficacious. Above all, they would serve the cause of greater inclusion by providing a social safety net to the vast majority of the country's unorganised workers.