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Are labour laws to blame for India’s unemployment crisis?

Are labour laws to blame for India’s unemployment crisis?

By Jatin Bavishi

In 2015, the number of jobs created in India stood at 135,000. This is grossly inadequate compared to the millions of people added to the workforce annually. Although there is a simultaneous interplay of various domestic and global factors that have impeded job creation, the primary culprit is labour laws. A report recently released by TeamLease largely resonates this view. According to them, in order to boost job creation process, the government should overhaul the “most regressive” labour laws. There may be some element of truth to this, but it begs a deeper analysis.

The coveted formal sector

Formal sector employees invite the ire of others for allegedly being pampered with preferential treatment. They are protected by higher remuneration, better working conditions, social security provisions, and job security. Large private corporate sectors and government jobs constitute almost all formal sector jobs in India. The charm of such occupations can be understood considering that in 2015, 23 lakh applicants—some of whom even had a PhD—flocked to apply for only 368 Peon posts in Uttar Pradesh. In fact, according to the Seventh Pay Commission, the lowest salary offered in Government Service is Rs. 18000. This is the polar opposite of the informal and unorganised sector, which provides none of the same benefits and protections.

India’s labour force

The Indian labour market is one of the toughest to understand. Close to 93% of the workforce is in the unorganised sector. Agriculture—the largest employment generating activity in India—is entirely unindexed. Official sources have revealed that around 51% of these workers are self-employed, mostly in rural areas, while another 33.5% work in casual labour. Only 15.6% have salaried employment. Additionally, there is likely an underestimation of unpaid women workforce participation and underpaid child labour. The fact remains that most of these demographics get none of the benefits of labour laws despite performing jobs similar to their counterparts in the formal sector.

The paradox of slow job growth

Economic theories such as the Harris-Todaro hypothesis allege that the differential between the formal and informal sectors is a cause of greater informalisation and casualisation. Only enterprises above a certain threshold (having more than a certain number of employees or turnover have to comply with labour laws. Because of this, many do not find it worthwhile to extend their operations beyond that point. At the same time, new technology like automation is increasingly being used as a substitute for labour. After all, it is both efficient and does not fall within the ambit of labour regulations. Even better, robots are unlikely to protest for wage hikes! Ultimately, India is faced with a situation where low employment is generated, and even when jobs are created, workers are often still underemployed.    

The formal sector also exploits the informal sector for its loose regulations and taxation. The irony is evident in that even the government excessively hires workers like railway sweepers on a contractual basis. This allows their employees to escape laws which the government itself has put in place.

Regulatory cholesterol

The Economic Survey has demonised the labour laws as “regulatory cholesterol” and suggested a removal of some of them to cash in on India’s “demographic dividend”.  In the last two years, the central government has put into effect 54 changes in the Apprenticeship Act, Factories Act, and Labour Laws Act. The Labour Ministry is currently in the process of codifying 44 central labour laws that exist at present in 4 labour codes: wages, industrial relations, social security and safety, and health and working conditions. This will not involve any major change, but codifying these laws is envisaged to smoothen compliance. Labour is an extremely contentious political issue, but the onus is on the states to effect positive changes. Rajasthan, Gujarat, Maharashtra, and Tamil Nadu have already taken steps to reform their labour laws.

Are laws solely to blame?

It would be unfair to consider the mere existence of labour laws as the only source of the problem. It is easy to pick out a particular clause from Industrial Dispute Act (IDA) which makes laying off workers next to impossible or provisions that require employers to mandatorily contribute to Provident Fund (PF) as worthy of blame. However, it must be remembered that these are categorically instituted as a result of India’s own experience of exploitation under the Raj. Long drawn out struggles and protests have strived to create a dignified environment for workers. The disappointing part is that these laws have not diffused from the formal sectors. Therefore, policies must be geared towards deepening them. A few labour laws such as the ones mentioned above do make reforms truly exigent, but nonetheless, it must not become a battleground for diluting what is equitable.


Featured Image Source: Pixabay

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