People's Democracy

Regulating Labour Markets For More Employment

Jayati Ghosh

THE Second National Labour Commission has released its report at a time when inadequate productive employment generation is clearly one of the most pressing problems in the economy. The composition and terms of reference of the Commission have already excited much controversy, and there are suggestions that the membership of the Commission has been heavily skewed in favour of those who are members or supporters of a particular rightwing social formation. For this reason, a number of trade unions and other progressive organisations who would normally be involved in the process, had chosen to boycott the work of the Commission. Nevertheless, since the government is likely to take on board the recommendations of the Commission, it is necessary to take the report very seriously.

 DISTURBING TENDENCIES

 The Commission has also recognised that patterns of employment in general over the recent past brings to light some disturbing tendencies.

These may be briefly summarised as follows:

1. Overall employment growth has decelerated substantially. It is estimated to have grown at around 1.01 per cent per annum in the 1990s compared to 1.55 per cent per annum in the 1980s.
2. Open unemployment emerged as a major problem, even as disguised unemployment continued to be significant. The number of unemployed in 1997 was more than the number employed in organised sector.
3. The levels of protection to workers in the economy have been minuscule. Only around 7 to 8 per cent of the workforce in the organised sector is protected while 92 to 93 per cent is in the unorganised sector, is unprotected and vulnerable.
4. There is a trend in growth of casual labour in the total workforce during all these years. The proportion of self-employed has come down from 59 per cent in 1977-78 to 53 per cent in 1999-2000. But the number of casual workers has gone up substantially from 27 per cent to more than 33 per cent.
5. Employment is not growing in the organised sector.
6. The quality of the workforce continues to be a problem, in terms of skill development and education. 44 per cent of the labour force in 1999-2000 was illiterate. Only 5 per cent of the work force was estimated to have the vocational skills required in the productive sectors.

The other important data to be gleaned from the NSS Surveys relates to the changing responsiveness of employment to output growth in different sectors over the recent period. It is evident that there has been a substantial decline in the responsiveness of employment to output growth in almost all the major productive sectors except for transport and finance related activities.

  In agriculture, the employment elasticity has dropped to near zero, while it has turned negative for mining, utilities and social and community services. In most other sectors, including manufacturing, it has declined. The latter two reflect the impact of Pay Commission recommendations, which increased public sector wages and restricted additional employment in the public sector over this period.

Besides this, the deceleration in organised sector employment was one of the more disturbing features of the 1990s, especially given that industrial output increased manifold and the service sector in which much of the organised employment was based, was the most dynamic element in national income growth. This was due to the collapse in public sector employment, a process that was in turn greatly welcomed by economic liberalisers who saw in this downsizing tendency a reflection of greater “efficiency”. While public sector employment fell especially in the latter part of the decade, private organised sector employment continued to increase, albeit very slowly. But this increase was not really enough to compensate for the decline in public employment.

  SECTOR EMPLOYMENT

Indeed, by the end of the decade the organised sector accounted for only 8.3 per cent of total employment. For the private sector as a whole, it accounted for only 2.5 per cent of total employment. This of course creates a significant problem for labour policy, because the traditional forms of regulation affecting workers’ conditions typically can be effectively applied only to workers in the organised sector. The dominance of the unorganised workforce means that a labour policy regime needs to be worked out bearing in mind this crucial consideration.

  The evidence suggests that the growth of organised employment in manufacturing was pitifully slow over this period, amounting to an average annual rate of only 0.87 per cent between 1993 and 2000. This is compared to a growth rate of employment of 2.95 per cent in the unorganised sector. This in turn meant that the share of the organised sector in total manufacturing employment decreased even over these seven years, from 18.3 per cent to 16.5 per cent.

  While the low and falling proportion of the organised sector in total private employment also questions the assumption that excessive regulation has restricted employers in Indian manufacturing activity in the aggregate, it does suggest that employers have been less likely to increase workforce in the organised sector.

  This is the basic concern that the Second National Labour Commission has sought to address. It is in this particular context that the argument (which, as mentioned above, tends to have wider resonance) is made that investment has been constrained, and employment growth has been insufficient, because of rigidities in the labour markets that adversely affect employers’ sentiments particularly as regards organised sector activities.

  Three types of regulation are seen as especially constraining for employers in the Indian context: first, fairly stringent rules relating to firing workers and also for closing down enterprises, along with requirements of reasonable compensation for retrenchment; second, laws governing the use of temporary or casual labour which enforce permanence of contract after a specified time of employment; third, minimum wage legislation which raises the cost of hiring workers.

  The Labour Commission has sought to deal with these issues, while suggesting desirable conditions of work and pay for unorganised labour in general. In the process, while its intentions are clearly progressive, it has ended up making recommendations that will hit organised labour even as they are not likely to improve the conditions of the vast majority of other workers in the country.

LABOUR MARKET POLICIES IN INDIA

It is a common misconception among academics and policy makers, that social realities can be altered by legislative fiat. The relationship between laws and social change is complex, multi-directional, many layered and frequently contradictory. But it is always shaped more definitively by political economy and social configurations than by imposition from above, however well intentioned and analytically convincing such imposition may be.

It is also the case that the formulation and implementation of laws themselves are hugely affected by social pressures of various sorts.  Throughout history and across countries, the recognition and granting of workers’ rights have not occurred because of the benign intentions of governments, but because workers and other social movements have struggled and fought for such rights. That is also why, even when such rights are “officially” accepted at both national and international levels, they can be systematically denied to large numbers of citizens because of the prevailing political and material realities.

  The rather chaotic regime of labour laws that currently operates in India reflects these tendencies very clearly. On the one hand, the laws are mostly commendable in their declared intentions and acceptance of fundamental rights of workers. However, they are hardly implemented in any meaningful way for most workers in the country, and are generally honoured only in the breach. On the other hand, the laws themselves were legislated at different times in response to particular pressures and with varying motivation, which makes them sometimes sit uneasily together.

 These tendencies are so marked that the Report of the Second National Commission on Labour is quite severe upon them: “It can be said that our labour laws have not flowed from any vision of a harmonious and just social order that takes into account the needs of an efficient and non-exploitative society, or a vision of the rights, duties and responsibilities of the different social partners to themselves, to each other, and to the totality of the community. They have been criticised as being ad hoc, complicated, mutually inconsistent, if not contradictory, lacking in uniformity of definitions and riddled with clauses that have become outdated and anachronistic, in view of the changes that have taken place after they were introduced many years ago.” (Report of Second National Commission for Labour, Chapter 1, page 12.)

 Going by the statute books alone, workers in India are heavily protected and their rights are quite thoroughly recognised. Thus, the Fundamental Rights enshrined in the Constitution of India include: Right to Equality (Article 14- 18); Right to Freedom (Article 19-22); and Right against Exploitation (Article 23-24).

 In addition, there are the Directive Principles of State Policy enshrined in the Constitution, which also are supposed to provide major guidelines for state action. These include: the State should aim to secure a Social Order for the promotion of welfare of people (Article 28); Principles of the Policies to be followed by the States (Article 39 which includes the issues relating to equal pay and child labour); Equal Justice and Free Legal Aid (Article 39A); Right to Work; to Education and to public assistance in cases of unemployment, old age, sickness, disablement and undeserved want (Article 41); Provision of Just and Humane Conditions of Work and Maternity Relief (Article 43); Living Wage etc for workers (Article 43); Participation of Workers in the Management of Industry (Article 43A).

  The Directive Principles are not justiceable in a court of law, but they are supposed to indicate the general direction of the policies of the State. For example, the Directive Principles of State Policy in the Constitution have specifically referred to ‘living wages’ in Article 43, which is as follows: “The State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work, ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities and, in particular, the State shall endeavour to promote cottage industry on an individual or cooperative basis in rural areas”.

  Clearly, the stated intentions of the Constitution, and therefore of the legal system which it underlies, are inclined to recognised, uphold and protect the rights of workers as far as possible. The actual implementation, is of course another matter.

  The ILO declaration on Fundamental Principles and Rights at Work, adopted by the International Labour Conference in June 1998, declares inter alia that all Member States whether they have ratified the relevant conventions or not have an obligation to respect, to promote and to realise the principles concerning the fundamental rights which are the subject of those conventions, namely: (a) freedom of association and the effective recognition of the right to collective bargaining (b) the elimination of all forms of forced or compulsory labour; (c) the effective abolition of child labour; and (d) the elimination of discrimination in respect of employment and occupation.

  The Indian government ratified Convention 122 on Employment and Social Policy in 1998. Article 1 of the Convention lays down that:

 (1) With a view to stimulating economic growth and development, raising levels of living, meeting manpower requirements, and overcoming unemployment and underemployment, each Member shall declare and pursue, as a major goal an active policy designed to promote full, productive and freely chosen employment.

(2) The said policy shall aim at ensuring that: (a) there is work for all who are available for and seeking work, (b) such work is as productive as possible (c) There is freedom of choice of the employment and the fullest possible opportunity for each worker to qualify for, and to use skill and the endowments in a job for which he is well suited, irrespective of race, colour, sex, religion, political opinion, national extraction or social origin.

On the basis of such commitments, the Second National Labour Commission actually declares that the following rights of workers have been recognised as inalienable and must, therefore, accrue to every worker under any system of labour laws and labour policy. These are:

  a) Right to work of one’s choice

(b) Right against discrimination

(c) Prohibition of child labour

(d) Just and humane conditions of work

(e) Right to social security

(f) Protection of wages including right to guaranteed wages

(g) Right to redress at of grievances

(h) Right to organise and form trade unions

(i) Right to collective bargaining, and

(j) Right to participation in management.

            While these add up to a formidable array of rights accepted by the Indian Constitution for workers, the problem is that they are rarely achieved or enforced. This is one of the most common – and most effective – criticisms of labour legislation in India, that it is applied only very selectively, does not cover most workers, and thereby ends up penalising those employers who employ relatively larger numbers of workers and thereby fall under the legal and administrative net.  

In fact, it is not the case the various provisions are actually applicable only to workers in the formal sector. Laws like the Minimum Wages Act, the Equal Remuneration Act, the Contract Labour Act and so on apply to workers in both the organised and the unorganised sector; even the Industrial Disputes Act applies to large sectors of unorganised labour. However, the sheer practical difficulties and high costs associated with implementation and enforcement of such legal provisions ensures that most workers do not benefit from them. Further, the fact that informal or unorganised activities are growing in terms of total employment, and that in any case a substantial part of unpaid household work is still not even recognised as employment, means that the problem of enforcement of such provisions is becoming more rather than less difficult.

  Nevertheless, there are sectors of the economy – notably formal activities in industry and services – where labour laws are enforced. It is precisely with regard to this segment, that the current debate on labour legislation is centred. Currently, there is no uniformity of pattern in the employment limits prescribed by various labour laws. They range from covering establishments employing 5 persons as in the Motor Transport Workers Act and Inter-state Migrant Workers Act to 10, 20 or 100 as in the Factories Act, Building and other Construction Workers Act, Payment of Bonus Act, Contract Labour (Regulation and Abolition) Act, Industrial Employment (Standing Orders Act). There is even a history of wage limits being prescribed in laws like EPF Act, ESI Act, Payment of Bonus Act etc.

(  To be continued)