There has been a lot of discussion on changing the “archaic” labour laws, replacing them with more dynamic, investor-friendly legislation.
Much has been written about these changes and how they will attract investment and subsequently increase employment. These views are not new. The World Bank has been propagating them for a long time. The World Development Report of 1995, “Workers in a Globalising World”, put forth similar reasoning. It mentioned that countries like India and several Latin American ones were unable to increase employment because of their inflexible labour laws. These proved to be strong disincentives for foreign investment that would increase employment.
Liberalisation policies were introduced in Parliament on June 22, 1991, by the then finance minister, Manmohan Singh. An exit policy was suggested that would allow industries to close down without invoking the provisions of the Industrial Disputes Act (IDA). It could not be implemented because the national trade union federations opposed the move. In 1996, the government led by the Shiv Sena and the BJP in Maharashtra mooted increasing the threshold number of workers below which factories could close down without referring to the IDA to 250 (the IDA rules that no factory employing 100 workers or more can close down without government permission). It was estimated that nearly 80 per cent of the factories in the most industrialised state in the country would fall outside the ambit of the IDA. All trade unions, including those supporting the ruling parties, strongly protested and the state government withdrew the amendment.
A few years later, when the NDA was the ruling coalition at the Centre (1999-2004), the then finance minister, Yashwant Sinha, had suggested in his budget report that the labour ministry raise the threshold number of workers in a factory to 1,000. This would mean that over 90 per cent of factory workers would not come under the IDA. The most vociferous opposition to this came from the RSS-sponsored Bharatiya Mazdoor Sangh, the largest trade union in the country. At the time, the NDA did not press the matter any further. The point that comes out clearly is that representatives of labour are clearly opposed to any move that will reduce the security of workers.
There is no doubt that if labour laws granting protection to workers are liberalised, employment would increase. However, one must ask, what type of employment? Employment propagated by any civilised government must fit into the criterion of “decent work” put forth by the International Labour Organisation. The four pillars of decent work are: rights at work, adequately paid employment, social protection and social dialogue. Work should be a source of dignity.
The present trend of increasing employment without taking into account decent work can only spell disaster in the long run. Not just in terms of labour unrest but in terms of a future healthy and productive workforce. Increase in employment without considering a minimum wages for existence may lead to higher employment but at what cost? For example, in metropolitan regions like Mumbai and Delhi, the minimum income for covering the basic needs of a family living in a slum is Rs 12,000 a month. If the main earner in the family earns Rs 8,000 as a worker in a small factory or a security service, the remaining amount has to be covered by other family members. His wife, for instance, would have to work as a domestic worker, ragpicker or home-based worker to cover the gap. If this is not enough, the children would have to seek employment as child labourers in the informal sector. In this way, we can proudly claim there is full employment in the family. Hence labour reforms that increase employment by lowering or ignoring the issue of minimum wages can be self-defeating.
It would be a folly to believe that secure employment, better wages and greater social protection could increase costs of production and thus deter investors. A recent book by Jody Heymann and Alison Earle, Raising the Global Floor, published by Stanford University Press has studied working conditions in 70 countries. Their findings show that countries with low unemployment (with the exception of the US) are also those that provide maximum facilities for their workers. They argue that costs of decent employment are offset by higher labour productivity.
Most people want permanent jobs because it guarantees security of employment, decent living conditions, health and sanitation benefits, education of children and retirement benefits. If the state can provide these forms of social protection then labour can be flexible. The focus should be on social protection for all rather than on labour reforms alone. This will lead to a healthier and skilled workforce that would be highly productive.