Relevance: GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Key Phrases: Poor quality of employment, Labour reforms, V.V. Giri National Labour Institute, Impact Assessment Study of the Labour Reforms undertaken by the States, Industrial Disputes Act 1947, Formal employment, Informal Employment.

Why in News?

• The debate on India’s labour market reforms has acquired a new vigour and significance over the last few years as many Indian States have undertaken substantive legislative and administrative reforms in their respective labour and industrial relations laws.

Poor quality of employment:

• India’s gravest socio-economic problem is the difficulty a vast majority of citizens have in earning good livelihoods.
• Their problem is not just employment. It is the poor quality of employment: insufficient and uncertain incomes, and poor working conditions, wherever they are employed — in factories, farms, service establishments, or homes.

Impact Assessment Study of the Labour Reforms:

• The V.V. Giri National Labour Institute’s interim report, “Impact Assessment Study of the Labour Reforms undertaken by the States”, provides insights into the impacts of the reforms so far.
• The report spans the period 2004-05 to 2018-19.
• The study put sample states under three buckets:
  1. early movers in 2014-15 - Rajasthan, Andhra Pradesh and Maharashtra,
  2. those who checked in later between 2017 and 2020 viz., Uttar Pradesh and Jharkhand, and
  3. finally states like Tamil Nadu did not undertake any reforms.

Labour reforms to improve employment:

• The dominant ‘theory-in-use’ to increase employment is to improve the ease of doing business, with the expectation that investments in businesses will improve citizens’ ease of earning good livelihoods.
• In this theory, large and formal enterprises create good jobs, and labour laws must be ‘flexible” to attract investments. But Investors say the laws protect labour too much
• Their principal thrust of reforms was to improve administration by simplifying procedures and digitisation.
• Those improvements were appreciated by employers as well as workers. However, they did not make the labour laws more employer-friendly.

Labour is not the only factor to affect business:

• Labour laws cover many subjects - payment of wages, safety conditions, social security, terms of employment, and dispute resolution.
• The report reminds readers that labour laws are only one factor affecting business investment decisions. Investors do not go out to hire people just because it has become easy to fire them.
• An enterprise must have a growing market for its products, and many things must be put together to produce for the market — capital, machinery, materials, land, etc. not just labour. Therefore, it must be worthwhile to employ more people before firing them.

Employment in states:

• As far as employment is concerned, all states witnessed a steady increase in absolute terms between 2004-05 and 2018-19.
• Four states — Maharashtra, Rajasthan, Andhra Pradesh and Uttar Pradesh — saw a larger increase in employment in the first block of seven years (2004-05 to 2011-12).
• Other states such as Tamil Nadu, Rajasthan, Maharashtra and Jharkhand saw a larger increase in the second block of seven years (2011-12 to 2018-19).
• Andhra Pradesh (an early mover) and Uttar Pradesh (which amended labour laws much later in 2020), however, recorded a marginal decline in employment in the second block of seven years between 2011-12 and 2018-19.

What is clear?

• Reforms of labour laws have had little effect on increasing employment in large enterprises.
• The effects of labour reforms cannot be revealed immediately: they will take time. Therefore, it is telling that Rajasthan, the first State to implement the reforms, seems to have benefited the least from them.
• The share of employment in plants employing more than 300 people increased from 51.1% to 55.3% between 2010-11 to 2014-15 (the period when the emphasis was on administrative reforms), and then increased less, from 55.3% to 56.3%, in 2017-18, when some States made the bolder reforms favourable for employers.
• Though overall employment is affected by many factors, the bolder reforms post-2014 were designed to promote larger factories.
• This hardly happened because labour reforms that increase the threshold of application of the Industrial Disputes Act are conceptually flawed.
• They cannot induce the creation of large enterprises to whom the laws will continue to apply.

Formal employment is turning informal:

• Large investors can afford to use more capital and are also employing increasing numbers of people on short-term contracts, while perversely demanding more flexibility in laws.
• The report defines “formal” employment as the grant of paid leave, a written contract, and some “social security”.
• Along with the right to be heard and dignity at work, these are the minimal “essentials” all employers must provide to all those who work for them, whether in small enterprises or domestic help.
• Increasing the threshold of the laws dilutes the rights of association and representation of workers in small enterprises.

A widening gap:

• The gap between where our economy is and where it needs to be is increasing.
• Between 1980 and 1990, every 1% of GDP growth generated roughly two lakh new jobs; between 1990 to 2000, it decreased to one lakh jobs per cent growth; and from 2000 to 2010, it fell to half a lakh only.

Conclusion:

• Fundamental reforms are required in the theory of economic growth : more GDP does not automatically produce more income at the bottom.
• The paradigm driving employment and labour policies must also change to enable the generation of better-quality livelihoods for Indian citizens, now and in the future. To achieve this, fundamental reform is required in the ways policies are made.
• The benefit of reforms is supposed to be the improvement of ease of earning, better livelihoods for all citizens and more dignity, but labour reform for long has framed labour as an adversary, now may be the moment to see it through labourer’s prism — this is the only way to make enduring progress.

Source: The Hindu

Mains Question:

Q. “The paradigm driving employment and labour policies needs to change for better-quality livelihoods”. Comment.