Global is at Ion, Labour Flexibility and Employment In India

8/9/2019 Global is at Ion, Labour Flexibility and Employment In India

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GLOBALISATION, LABOUR MARKET FLEXIBILITY AND EMPLOYMENT:

A MACRO VIEW

A.Venkateswarlu*

Globalisation (including liberalisation and privatisation) has made its dent on several aspectsand one of them is employment. In India, the labour market flexibility has been voiced fromthe organised sector employers, with a view that labour laws increases unemployment. Infact, the labour laws are applicable to organised sector workers, forming only 8 percent ofthe total workers But it is shown that unions and protective labour legislations, are notharmful to employment and income growth. Many other studies also showed in thedeveloped world that labour legislation is helpful to the increase in productivity as well.Therefore labour legislations, which depend on ILO conventions, have to be madeapplicable to both organised and unorganised sectors.As regards the impact of globalisation,in India, in the organised sector there were retrenchments or retirements to the extent of 1.3million workers, between 1995-96 and 2001, though its growth was good in the periodimmediately after liberalisation, 1990-91 to 1995-96. Organised public sector and privatesector employments have been nearly stagnant or on the verge of slide down (Papola, 2007).In India, nearly 92 percent of the workforce is in the unorganized sector and so the overall

employment growth depends on this sector only. Based on the NSS Reports, the growthrates of overall employment for males, females and persons in both rural and urban areas,have fallen down in the post reform period, 1993-94 to 1999-00 (compared with the period,1983 to 1993-94). However, the growth rates have improved for the latest period, 1999-00 to2004-05 for all those categories. But it is distressing to note that when the entire post-reformperiod is considered, i.e., 1993-94 to 2004-05, the growth rates have declined both at thenational level and among the states (Bhalla, 2008).

I. INTRODUCTION

Globalisation has been the new economic policy, professing more liberalisation ofthe economy, beyond the borders of nation-state at a particular phase, since early 1980s.

Historically, globalisation is not a new phenomenon. It began in 15th century, throughconquest and exploitation of Asia, Africa and Latin America. It is associated withimperialism. Globalisation, in the past, was confined to selected geographical areas andsmall populations (Petras and Polychroniu, 1997). In the past, it is related with the phaseof internationalization of capital, where nation-state has some independence in regard toeconomic activities. But, at present the globalisation of capital has undermined thecontrol area of a nation-state (Prabhat Patnaik, 1993, 1995). Now, transnationalcorporations (TNCs) have also to be recognized as constituent units, in addition to nation-state (Kurien, 1993).

The important aspects of present globalisation are (i) liberalization, i.e., rolling

back of state intervention in economic activities; (ii)privatisation, i.e., public sector alsois to be governed by competition through marketisation; iii) globalization, i.e., export-orientation and import liberalization. Thus, this neo-globalisation is a combination ofliberalisation, privatisation, and globalisation (LPG), though we call it simplyglobalisation.

_________________________* Associate Professor, Centre for Economic and Social Studies, Hyderabad. The author thanks his

teacher, Prof. G.K.Chadha for encouragement


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This present globalization is dependent on the revolution in the technologies ofcommunications and transport, particularly in micro electronics and satellite-relatedtelecommunications (Bhorat and Lundall, 2004). Interestingly the latter technologicalchanges have started showing their impact since the early 1980s, by the time of

implementation of structural adjustment programme (SAP) in the developing world (dueto debt crisis) under the auspices of IMF and World Bank. Their impact have given animpetus to liberalisation and globalisation since the fall of Berlin Wall (November 9,1989), when the communist project seemed to have failed, marking the so called end ofhistory (Fukuyama, 1989), the first flattener of the ten flatteners of the Flat World(Friedman, 2005).

Thus, globalisation project has made its dent on several economic aspects (apartfrom other socio-political and cultural aspects). In this paper, we confine to one of theeconomic aspects, viz. employment. The second section analyses foreign trade, itsnecessity and theory; the third deals with foreign trade and its impact on employment;

the fourth examines the liberalization and privatization and its impact on employment;the fifth takes up labour market flexibility, security and flexicurity; the sixth examinesthe labour flexibility issues in India; and the seventh and eighth sections describe thedimensions of employment at global and India levels respectively; and the last oneportrays conclusion.

II. FOREIGN TRADE - ITS NECESSITY AND THEORIES

1. Necessity of Foreign Trade under Capitalist Production

In mercantilism, the states intervention and export-orientation were stressed. But,Adam Smith argued in favour of laissaiz faire, as he opposed mercantalist stateintervention, by 1776. With this the first phase of liberalisation was initiated. Thisliberalism is associated with competitive markets as capitalism started developing.Production (supply) and consumption (demand) were thought to be balanced by Smithsinvisible hand and such balance was ensured as per Says law of markets. The capitalistsconstantly revolutionised the instruments of production to increase production thatnecessitated search for markets. Marx and Engels (1975, pp.37-39) say:

Modern industry has established the world market This market hasgiven an immense development to commerce, to navigation, tocommunication by land.The need of a constantly expanding market forits products chases the bourgeoisie over the entire surface of the globe. Itmust nestle everywhere, settle everywhere, establish connexionseverywhere The cheap prices of commodities are the heavy artillerywith which it batters down all Chinese walls.

However, there is a theoretical question as regards realization of social product(value) within the closed capitalist economy. Luxemberg expresses doubts and insists onthe necessity of the foreign markets, because the capitalist production takes place on an


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extended scale which compels the capitalist economy to open itself to foreign market.(Emmanuel, 1984, p.169). Emmanuel says that the schema of extended reproduction ofMarx were adjusted by Lenin, in terms of predetermined rates of growth of theorganic composition of capital to show possibility of realization of social product. But,depending on Marx, Lenin says:

That is why Marx says that in examining the problem of realisation, theforeign market, foreign trade must be entirely discarded, for theinvolvement of foreign commerce in analysing the annually reproducedvalue of products can only confuse without contributing any new elementof the problem, or of its solution. Lenin (1967, p.46-47).

However, Lenin was conscious of the tendency of capitalist overproduction andits consequent search for the markets, thus leading to anarchy of production. In thisconnection, Lenin describes the inherent tendency of capitalism to be after markets,even beyond the borders of the domestic country, as follows:

The need for a capitalist country to have a foreign market is notdetermined at all by the laws of the realisation of the social product (andof surplus-value in particular), but, firstly, by the fact that capitalismmakes its appearance only as a result of widely developed commoditycirculation, which transcends the limits of the state. It is thereforeimpossible to conceive a capitalist nation without foreign trade, nor isthere any such nation. The capitalist enterprise, on the contrary,inevitably out grows the bounds of the village community, the localmarket, the region, and then the state. Since the isolation and seclusion ofthe states have already been broken down by commodity circulation, thenatural trend of every capitalist industry brings it to the necessity ofseeking a foreign market Lenin (1967, pp.65-67).

Though theoretical possibility is there, capitalist economy is bound to go in searchof foreign markets also, because inherent tendency of its overproduction, which becomesdifficult to be realized in the home market. In regard to economic development of SovietRussia in the aftermath of revolution of 1917, there was debate on primitive accumulationand primitive socialist accumulation, which also formed basis for internal and externalterms of trade (Mitra, 1979; Dandekar, 1981).

2. Foreign Trade Theories

(i) Classical Theory of Trade

Adam Smith proposed absolute cost advantage theory, but Recordo propoundedcomparative cost advantage theory which became most popular. In Recardos model, acountry, which is capable of producing one commodity at a relatively lower cost thansome other commodity, can specialise in the former commodity and export it whileimporting the latter commodity. In this model, labour is the only major factor of


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production. This was criticised for its assumptions: (i) full employment, (ii) perfect andfree trade, (ii) factors of production are mobile internally and wholly immobileinternationally, (iii) it is concerned with two-commodities and two-countries, and (iv)technological knowledge is unchanged.

(ii) Modern Theory of Trade

Heckscher-Ohlin (H-O) trade theory is the modern one. H-O theorem states thatsome countries have much capital and other have much labour and so the countries thatare rich in capital will export capital-intensive goods and the countries that have muchlabour will export capital labour-intensive goods. It is said that Heckscher-Ohlin (H-O)trade theory operates with Stolper-Samuelson theory of factor-price equalisation. It isclaimed as superior to Recordian theory, as it takes two-factors into account and makesinternational differences in factor endowments the crucial and sole factor determiningcomparative advantage. Moreover, whereas Recordian theory attributes to internationaldifferences in production functions the explanation of comparative advantage, the H-O

theory explicitly postulates the international identity of production functions. It is alsoacclaimed that H-O theory makes international trade as a special case of interregionaland inter-local trade. However, it is also criticized for its assumptions. As H-O theory isbased on the assumption of a homogeneous production function which does not hold inthe real world leads to multiple equilibria. Also it is criticized for its unrealisticassumptions of perfect competition and full employment.

(iii) Role of Political Domination and Strategic Interests on Trade

(a) The history shows that international trade is not always mutually beneficial,as it could be imposed by the political and military domination. This was proved incolonial exploitation. Utsa Patnaik (1996) subjected Recordos comparative advantagetheory. She portrays the factual account how Britain succeeded through a combination ofnaval bullying and diplomacy in wresting from Portugal the highly lucrative slave tradefor supplying slaves to the Spanish empire in South America from Potuguese WestAfrica, while making Portugal to accept for the exchange of their wine for cloth ofEngland. This compulsive trade between Portugal and Britain was portrayed ascomparative advange by Ricardo. Thus, the competition is never fair and free. Similarlycolonial exploitation in the period from eighteenth century to the middle of the twentiethcenturies was a reality. Thereafter also some dominant forms of exploitation haveprevailed, as 132 countries of the Third World were the colonies of the North, not verylong ago (Tandon and Krishnan, 1997).

Trade between two unequal partners may result in exploitation of the weaker bythe stronger. In this context, it may be noted that the Secretary of Defence, RichardCheney, reported to the President in 1993 that the African nations were to be stabilised,not to have any disruption in the production and distribution of strategically importantresources. African nations produce 90 and 100 percent of the four minerals - platinum,manganese, chromium and cobalt - which are vital to US industry (Wilson, 1994).Further, World Bank study observed: Terms of trade of the exports of the LDCs have


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been falling since early 1980s, and for the non-oil commodities, had fallen by 45 percent,in real terms, between 1984 and 1994. The index of real commodity prices fell by halfbetween 1980 and 1993. As per Lewis T. Preston, President of World Bank (Dasgupta,1997):

Today the real price of many non-oil commodities are the lowest they have been since1945; in many cases prices are so low that they do not cover production costs. For 1993,the transfer in purchasing power from the developing to the developed countries due tothe fall in non-oil commodity prices between 1980 and 1993, was about $100 billion more than double the net aid flows to developing countries in 1993.

(b) Further, trade also depends on the strategic and military interests.The South East Asian countries, Japan, South Korea and Taiwan were providedmarket access to the goods produced by them in the Western world (mainlyUSA), as they allowed military bases of the USA. Even now, military bases ofthe order 40,000 each are placed in Japan, South Korea and Taiwan.

III. FOREIGN TRADE AND ITS IMPACT ON EMPLOYMENT

1. Exports and their Impact on Employment

As per H-O theory, increased trade should lead to increased employment ofabundant labour in the labour surplus economies thereby generating more employmentand income. However, the impact of trade on employment is country specific and sector-sepcific and so the prediction of the HO theorem either has not been fulfilled or partiallyfulfilled (Bhalla, 2008). Such trade may create more employment in manufactures but itdoes not apply to capital intensive primary products (Lall, 2002). Reddy (2006) says thattrade liberalization is likely to raise the real rate of return to the factor of production thatis relatively abundant in poor countries labour - and lower the rate of return to thefactor of production that is relatively scarce in poor countries capital. As per Hoevenand Lbker (2006), the developing countries, with their relative abundance in unskilledlabour, would gain from trading in products produced with unskilled labour. Further, theposition of unskilled labour in the labour market would improve vis--vis other factors ofproduction, leading to a reduction in the skills premium. As per Rama (2003), in relativeterms, skilled labour is the abundant factor in the industrial world and unskilled laborthe abundant factor in the developing world. Therefore economic integration couldincrease inequality within industrial countries, while reducing inequality withindeveloping economies.

The increase in direct export of goods and services can create new employment

opportunities. The goods and services, which are found to be exportable as aconsequence of opening up of the economy, may ensure the new employment. Indirectemployment may also be generated from the exporting goods sector as well as serviceproviding sectors: (i) The export goods sector creates demand for the raw materials inminerals and agricultural and or non-agricultural inputs. (ii) Export service sector bringsin new employment in provision of skills, training and technical education (includingcomputer related aspects) and managerial education. The most important danger is thatthe prices of exportables go down due to glut in the international market and become less


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competitive when all the developing countries export similar goods, as happened foragricultural commodities (Utsa Patnaik, 1996).

2. Imports and their Impact on Employment

The import of goods and services in the import-competing industries leads todeindustrialization with consequent reduction of employment in such sectors. In the non-tradable sector, there is a possibility of getting imports, due to liberalization and this canadversely affect the employment in such sectors. This is possible particularly when thegoods so far reserved for SSI sector are de-reserved, as happened in India after 2000 inthe aftermath of WTO regime. Another danger possible with opening up is the captureof demand for the goods and services not produced domestically and thus it preemptsthe domestic production of such goods and services and consequent cutting of potentialdemand for labour in such sectors. This latter demand becomes possible due to (i)changes in tastes and preferences of the domestic consumers, (ii) availability of varietyof goods at relatively cheap prices from abroad, (iii) demonstration effect from exposure

to the outside world from the media sources, and (iv) rising incomes of certain sectionsof the society. We have witnessed this type of demand for several consumer durables,TVs, cars, refrigerators and so on.

However one positive impact on employment can be witnessed if the increase inthe import of capital goods and raw materials, used in export-oriented industries, leads tomore exports, as such exportables are import-intensive; and thus this is a gain for theemployment.

IV. LIBERALISATION AND PRIVATISATION: IMPACT ON EMPLOYMENT

The liberalization leads to deregulation and decontrol of certain sectors of theeconomy and privatization of pubic sector, on the one hand and liberalization of thefinancial sector, on the other, so that baking and insurance are open for the private sectorsand stock market operations are extended with introduction of a variety of instruments.The idea of such liberalization of the economy is to improve competitiveness andefficiency in these fields.

1. Financial Sector and Employment

The financial sector has been subjected to internal and external liberalization. Theinternal liberalisation makes the credit access easy for (i) consumers and (ii)industrialists and the businessmen. The credit to the former generates demand for a widerange of goods (non-durable and durables). All such sectors create ample employment.Most important categories are housing sector and transport vehicles (including two-wheelers). The demand for housing leads to create employment in the manufacture ofsteel and cement and also to indirect employment in the construction of buildings andstructures. The credit to industrialists and the businessmen induces to supply a variety ofgoods (non-durable and durables) through establishing industries and businesses; and thisin consequence creates employment.


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The external liberalisation of finance makes a way to get finance from abroad intwo channels: (i) foreign direct investment (FDI) and (ii) portfolio investment. The DFI,which is meant for production, can increase employment (as well as income) in twocases: first when it substitutes a good that would otherwise have been imported, i.e.,when it contributes to domestic import-substitution, and secondly, when it is exported.

FDI is more beneficial if the investment is in the 100 percent export-oriented industries.But if DFI would buy up public enterprises or even buy up private enterprises controlledby the domestic capitalists, this does not per se contribute to the growth of the economyand employment. Rather sometimes, the technological upgradation would cut down theemployment. If DFI enterprises are set up to meet the domestic market, no net higheremployment will be there because they substitute the production of already-existingfirms, as the latter may dissipate or decimate in competition with DFI companies (PrabhatPatnaik, 1993).

Portfolio investmenthowever is hot money, which flows in today and flows outtomorrow. It is very precarious investment in the stock markets. It cannot increase

employment. But it may bring in adverse effect on the overall domestic economy. As theprime lending rates are quite low in the developed countries, the foreign institutionalinvestors (FIIs) take the advantage of the stock market operations in the developingworld. Further, such flight of capital inside the country may bring in theappreciation/depreciation of the domestic currency due to over supply/demand. Speed ofmovement of exchange currency has increased recently. When the world GDP was of theorder of $25 trillion per annum in 1993, foreign currency turn over in the internationalmarket was rising fast with $1.3 trillion a day. The ratio of foreign exchange to thevolume of world trade in goods and services jumped from 10:1 in 1983 to 60:1 in 1993.This type of transactions became easy because of development of the satellite andcomputer-based communications network called the Society for Worldwide InternationalFinancial TelecommunicationsSWIFT (Tulpule, 1996). George Soros, the successfulHedge Fund Manager, has been insisting on the government regulation in theinternational financial markets, basing on his theory of reflexivity (Soros, 2008). It isfrom this perspective only Bhagawati (2004), Krugman (2007) and some othereconomists support only free trade in goods and services but oppose unbridledliberalization of financial markets.

To maintain a stable exchange rate, Central Bank involves in holding foreignexchange reserves, just as in India sometimes. This entails a burden on the economy inthe form of interest losses. If they are used for importing goods and services, thedomestic employment may be reduced in the short run. Recently, Ashok Kherka(Economic Times, August 23, 2008) estimated that nearly $6.0 - $9.0 billion per annumare the losses at current reserves in India. In this connection Prabhat Patnaik (2004) says:

Foreign exchange reserves with the Central Bank typically earn very littleinterest (no more than 1 or 2 percent for instance in the case of India); onthe other hand, the finace capital which flows into the country earns ratesof return (including capital gains) which are quite hefty (which after all isthe reason for its flowing in). The country in other words is borrowing


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from abroad at high rates and using the funds to earn low rates, which isindefensible. On the other hand the usual avenues, which one can thinkof, for the using up of such reserves are either not available or arepositively harmful (or both) in the context of the pursuit of neo-liberalpolicies. The existence of foreign exchange reserves can be used to

using short-term domestic consumption of imported goods.

2. Privatisation and Employment

The privatisation of public sector industries, banks and insurance leads tocompetition and improved efficiency; which can lead to pruning the size of labour,thereby reducing the employment due to VRS and sale of the companies to domestic andforeign private capitalists or companies. This is clearly a negative impact. But there isalso positive impact in some of the sectors, though the employment is somewhat urbanoriented. Further, decontrol and deregulation of the internal economy also has bothpositive and negative impacts on employment, just as happened in India by removal of

license-permit raj. There is positive impact when the bureaucracy gets streamlined. Forex. The privatisation of telecommunication sector improves the efficiency andemployment in that sector. Also it has increased employment in several ways (includingthe public sector telecommunications). For ex. in the telecommunication sector, mobilephone services, TV channels and internet. A number TV channels provides employmentto the anchors, actors, correspondents and news readers. Telephone booths and internetcafes. Further, print media services are flourishing. But these sectors are highly capitalintensive and less labour absorbing.

V. LABOUR FLEXIBILITY, SECURITY AND FLEXICURITY

1. Labour Markets

A labour market is the place where labor services are bought and sold. The termlabor is equated to the term work, not only manual work but also knowledge work.Labor markets are defined in overlapping ways - by geography, occupation or skill level.Labor markets always have two sides: labor demand and labor supply (Fields, 2007). Bythis definition, the labour market consists not only of wage and salaries employment butalso self-employment (Fields, 2005). According to the ILO Thesaurus, the labour marketis system consisting of employers as buyers and workers as sellers, the purpose of whichis to match job vacancies with job applicants and to set wages. This definition precludesits strict application to developing economies which are characterized by unpaid family

work and self-employment.

2. Labour Market Flexibility and Regulation

The labour flexibility is opposed to labour regulation (government legislation).The labour market regulation favours the workers with the employment security (jobsecurity), along with social security in terms of minimum wages, retrenchment benefits,retirement benefits and better working conditions. Workers security is enhanced through


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collective bargaining and social dialogue. There are two opposite views on the labourmarket regulation. The distortionist view opposes the labour market regulation whereasthe institutionalist view favours the regulation.

(i) Distortionist View against Labour Market Regulation

Distortionists (i.e. most neo-classical labour economists) argue that minimumwage and employment security regulations discourage hiring and favour insiders withgood jobs against outsiders with bad jobs or no jobs at all. Thus, internal labour marketsget strengthened, by reducing new employment and so increase unemployment in theeconomy. The employment security regulations make it more difficult and costly todismiss unsatisfactory workers, and more difficult to increase labour productivity andrestrain or reduce labour cost per unit of output. It increases the incentive to adoptcapital-intensive techniques. All kinds of labour market regulations encourage employersto bypass them (i) by depending on informal labour - casual or temporary workers, and(ii) by putting out work to women and children in households (Godfrey, 2003).

According to the distortionist view, labour market regulations are majorobstacles to growth and employment mainly because regulations in the labour marketprevent wages to equal their marginal product in equilibrium, which leads tounemployment of labour. Further, regulations may create redistribute economic rentsfrom capital to labour (e.g. collective bargaining schemes, and expansionary fiscalprogrammes to fund public employment etc.), reducing profitability of the investors.Consequently, this may discourage investment and, hence, dampen the prospects ofeconomic growth (Jha and Golder, 2008).

(i) Institutionalist View favours Labour Market Regulation

Institutionalists take the opposite view. They support minimum wages, basing onthe 'efficiency wage' argument, that employment can increase as there is a positiverelationship between wages and productivity, in which case the demand for labour mayincrease in response to a wage increase. Further, they would argue that employmentsecurity regulations may yield increases in productivity by: improving workers'commitment to the enterprise and thus raising work motivation and productivity (with aneffect similar to that of the efficiency wage); reducing labour turnover and thusincreasing on-the-job learning; encouraging workers to accept productivity-raisingrationalization and modernization measures, as well as occupational and work-environment changes; inducing greater acceptance of disciplinary measures; andencouraging managers to find ways of increasing efficiency and competitiveness otherthan laying off workers (Godfrey, 2003).

The institutionalist perspective favours labour regulations, because they: (i)redistribute incomes in favour of labour, while providing necessary insurance fromadverse market outcomes, (ii) expand growth as well as employment for Keynesianreasons (i.e. for boosting economic demand), and (iii) create desirable pressures on the


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employers to focus on the enhancement of their labour productivity whether it is throughtraining or technical innovations (Jha and Golder, 2008).

Thus, distortionists think that there is conflict between (i) improving wages andother conditions of work and (ii) increasing employment. They believe that assuring highwages and labour standards for some can harm others. Institutionalists find no necessaryconflict between these two sets of objectives.

3. Labour Market Flexibility: Contradictory Perceptions

With globalisation, after more opening of the economies, developed countriesbegan to insist on imposing the implementation of international labour standards on thedeveloping countries, so that latter may not have competitive edge in their exports. Adichotomous situation arises between the demand of domestic industrial capitalistemployers for more labour flexibility; and the demand of the developed countrycapitalist employers for more labour regulation (i.e., labour standards).

(i) Developing Country Perception

The labour flexibility is understood mainly as numerical flexibility. The usualneo-liberal argument is that labour markets must become more "flexible" to solve theproblem of unemployment. This is done by weakening unions, reducing (or abolishing)the welfare state, and so on. The "free market" capitalist (or neo-classical or neo-liberal)argument is that unemployment is caused by workers real wage being higher than themarket clearing level. The argument is that by increasing flexibility, making the labourmarket more "perfect", the so-called "natural" rate of unemployment will drop.

High labour market flexibility usually entails low security for workers. While inadvanced economies flexibility is supposed to facilitate the creation of more jobs andeconomic growth and is therefore sought; in developing countries the labour market is insome sense already quite flexible, because the labour laws cover only a minority of theworkers called formal sectoremployment and even the so called labour legislationsconfine to be on papers (De Gobbi, 2007; Vandenbrg, 2008).

The market flexibility as applicable to the product market may not work in thecase of labour market, because labourers are humans and labour market is a socialinstitution. Thus, excess supply of labour may not result in reducing wages, because ofthe class position of the workers associations, that prevent wages from falling.Therefore,

The forced introduction of labour market flexibility, and the overcomingof the labour markets social institution character, will, far fromovercoming unemployment, worsen the problem, even while impartinggreater instability into the functioning of the system. It would onlysucceed in increasing the degree of monopoly (to use Keleckianterminology), shift income distribution from wages to profits (PrabhatPatnaik, 2006).


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In fact, such inequality of incomes has been well portrayed in both developed anddeveloping countries by Paul Krugman, who is the latest Nobel Laureate in Economics,Krugman (2007).

(ii) Developed Country Perception

In globalisation era, with the intensification of free trade and reduction of tariffand quota restrictions, the developed countries at a disadvantage look for ways to restricttrade by imposing non-tariff barriers such as labour standards in developing countries..But labour standards are opposite to labour flexibility. The developed countries argue forthe harmonisation of labour standards to eliminate the so called unfair economicadvantage of countries with low standards. In contradistinction to this, in developingcountries, the domestic and foreign capitalist employers demand for the labourflexibility reforms for achieving the competitive edge for their exportables, particularlyin the aftermath of WTO regime (Badri Narayanan, 2005).

But the developed countries insist on the ILO labour standards (including socialsecurity measures) to be implemented in the developing countries, so that the goods andservices produced there will not be cheaper enough to be imported into developedcountries, so that de-industrialisation will not occur in the former. Steingart (2008) inhis recent LSE lecture accounts for this reasoning and consequence as follows:

With globalisation, 1500 million workers of the Asian countries can competewith the 500 million workers of the developed countries (Canada, Australia, USA, GreatBritain and the rest of Western Europe). The competition is because of outsourcing, in-sourcing and offshoring mechanisms in developing countries. Thus, the workers of thelatter countries will not regain their employment opportunities, due to inflation ofworkers from the former countries. In a decade, it is the labour of 4 times that of theavailable in the latter countries. The goods imported from them (ex. China and India)become cheaper because the labour in the former countries have no proper socialsecurity measures (of welfare state). An example, in the car production of Ford car,British Leyland, where $1.6 thousand per car are being incurred for health insurance,unemployment allowance, welfare state provisions together in the USA and otherdeveloped countries. So the workers of the developed countries argue that the importeddurable consumer goods such as washing machines and other goods are to be marked dotpoints in red (not following Kyoto protocall) and green.

Some developed countries also advocate extra-national intervention to adoptinternational labour standards. This has led some developed countries to considerlegislation and other actions in their own countries which could curb child labour indeveloping nations. For example, the so-called Harkin's bill, which has been debatedextensively in the US Congress, that seeks to disallow the import into the US of goodsthat have been produced by child labour. The trouble with such extra-nationalinterventions is that these can come to be misused by lobbies and protectionistsrepresenting narrow, sectarian interests (Basu,1999).


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4. Labour Market Flexicurity

Flexicurity is a term coined in the late 1990s to characterise specific aspects oflabour market governance. The first part of the term refers to the flexibility of employersto adjust the workforce based on their needs as determined by market fluctuations. While

de-regulation may increase flexibility for employers it tends to reduce security forworkers. Flexicurity focuses the analysis on how the needs of employers and workersmight be balanced through a judicious combination of various employment policies.Flexicurity model is a combination of employment security and labour market security.Employment security is defined as the security of remaining with an employer. Labourmarket security includes a moderate level of employment security along with support formaking employment transitions (Vandenberg, 2008).

In developed countries, the elements of flexicurity are grouped into three maincomponents: employment protection legislation (EPL); passive labour market policies(PLMP) and active labour market policies (ALMP). The elements of these are providedin Table-1.

Some say employment protection legislation (EPL) has both costs and benefits forboth players and to the society. The costs of EPL are: create dualism in the labour market(protected and unprotected), increases the chances of long duration unemployment, andlock protected workers into poor jobs as mobility is restricted, with no new recruitmentand absence of dynamism in the labour market, leading to lower wages (as a trade-off to job security). The benefits are: (a) long-term contracts, (b) enable investments intechnology and workers, (c) force employers to be careful in choosing workers (d)prompt workers to accept technological changes (if jobs are secure), (e) win workersloyalty, trust and commitment, all these translating into higher productivity (ShyamSundar, 2005)

However, the notion of "flexicurity", as a good balance between flexibility in thelabour market and a reasonable level of employment security for workers, has then beenextended to countries which are moving from planned economies to market-based onesand whose labour markets are somehow more similar to those of advanced economiesthan the labour markets of developing countries (De Gobbi, 2007).

For many developing countries, flexicurity becomes problematicoperationalisation, because of the five characteristics of labour markets and theirgovernance: (1) The passive labour policy, unemployment insurance, often does notexist or if it does exist it may cover only a small portion of the workforce, (2) A large

portion of the labour force works in the informal economy, including smallholderfarming, (3) The informal economy tends to be characterized by a very large number ofvery small productive units, comprising of own-account workers, (4) Due to the threecharacteristics, trade-offs between various policies cannot be worked out, and (5) Socialdialogue is often weak in developing countries (Vandenberg, 2008).

In the developing economies, therefore a first step towards a higher level ofsecurity can be the correct observation of international labour standards and fundamental


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principles and rights at work (of ILO conventions). In these countries, very oftenworkers are not aware of their own rights and do not exercise them, as they areunorganised. The legal means may not be of much help to the workers. But, someeconomic-oriented measures, for instance, could enhance security levels for all workers,formal and informal regardless of their being unionized (De Gobbi, 2007).

Table 1: Components of Flexicurity SystemS.No. Components Specific Measures Nature of Labour Market Security

I. Employment Protection Legislation (EPL)1 Notice period Notice given by employers to workers, trade

unions and/or government prior toretrenchment

Time to make transition tonew employment

2 Retrenchment

authorisation

Need for approval (administrativeauthorization) from government forretrenchment

Employment security when approvaldenied; when granted provides time toorganize transition to new employment.

3 Non-regular

employment

Protection for part-time, casual, fixed-termand contract labour

Employment and benefits security

4 Wrongful

dismissal

Protection against wrongful dismissal (forreasons other than negligent or lax conduct(gender, pregnancy, race, colour, religion,trade union membership, etc.)

Employment security

5 Maternity,

parental leave

Provides income support and/or right toreturn to work after an absence for birth andpost-natal care

Employment security, alsoconsidered a social right

II. Passive Labour Market Policy (PLMP)1 Unemployment

insurance

Monthly monetary payment to thosetemporarily out of work, funded bycontributions.

Short-term income/transition security

2 Severance Pay

(Gratuity Pay)

Payment provided by employers in a lumpsum at the end of employment based onyears of service

Short-term income security

3 Early retirement Lump sum or monthly payments provided byemployer prior to normal retirement

Income security

III. Active Labour Market Policy (ALMP)

1 Job search Job search assistance through the publicemployment service (i.e. job centres),including job and career counseling

Transition to new employment

2 Skills training Training or re-training to increaseemployability

Transition to new employment

3 Self-employment Promotion of self-employment throughbusiness management training, mentoring,credit access, tax breaks, etc.

Transition to newly (self) createdemployment

4 Wage subsidies Wage subsidies to encourage hiring ofunemployed

Transition to new created employment(or employment security)

Source: Vandenberg (2008)

VI. LABOUR FLEXIBILITY ISSUES IN INDIA

It is argued that more than 100 developing countries have reformed their labourlaws in response to competitiveness in the era of globalisation, but India remains among aselect few countries with a rigid system of labour protection (Sharma, 2006). But inIndia, the protective labour laws are mainly applicable to organized sector workers, thatforms only 8-9 percent of the total workforce. The remaining wokforce, working inagriculture mainly in rural areas and in non-agriculture of both rural and urban areas, isthe informal (unorganised) sector employment. India has the highest informal market


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employment among the eight largest countries in developing world, 1990s-2000s, as inTable-2.

Table-2: Changes in Informal Market Employment , 1990s-2000s

Country Period Informal Share (%)

ChinaIndia

IndonesiaBrazil UrbanPakistan UrbanNigeria UrbanMexicoPhilippines

1990 to 20051993/4 to 2004/5

1990 to 20031990 to 20031997/8 to 2001/21970s to 19901991 to 19981999 to 2003

51.0 - 52.892.7 - 94.1

28.2 - 28.240.6 - 44.664.6 - 66.550.0 - 65.061.2 - 63.678.0 - 81.0

Source: Freeman (2007)

Several economists, industry associations and mainstream media believe thatthere has been inflexibility in the labour market, which is believed to have increased thelabour costs for enterprises and caused deceleration in employment growth in India(particularly in the organised industrial sector). But, social security for labour, of alimited kind, is enjoyed by only 8 to 9 per cent of the workforce of organized sector.

Thus, some argue that over-protection of a small section of workers is not only ostensiblyinimical to the growth of employment, but also goes against social justice as more andmore workers are faced with deplorable working conditions (Sharma, 2006). Only insome aspects and some sectors, labour protection laws adversely affect the employers.For that sake, absolute labour flexibility is being insisted on by the employers in India.This demand of the employers has arisen, due to new international economic order afterthe fall of the socialism in USSR and East Europe and aftermath of adoption of LPGmore or less all over the globe.

If we look at the contemporary discourses on labour laws in India, it is almostnever the case that one hears the employers in the informal sector complaining about any

rigidity in labour market. The problem with more than 90 percent of Indias labourmarket is that of inadequate laws in the de jure sense and almost a picture of lawlessnessin the de facto sense (Jha and Golder, 2008). The government in India also began to thinkin favour of the employers, as is reflected in The Economic Survey 2005-06: (i) IndianLabour Laws are highly protective of labour, (ii) labour markets are relatively inflexible,(iii) these laws apply only to the organised sector, and (iv) consequently, these laws haverestricted labour mobility, have led to capital-intensive methods in the organised sectorand adversely affected the sectors long-run demand for labour (Sharma, 2006).

Trade unions and certain economists claim that labourcannot be treated like anyother commodity, and measures like minimum wages, job security, separation benefits,

social security, trade union rights, etc., are socially and politically necessary even forsustaining the process of globalisation, as they increase labour productivity.

1. Employers Reform Agenda

The most controversial issue is employment protection law in India is ScheduleVB of the ID Act against which the employers point out. Changes in the IndustrialDisputes Act, 1976 made it necessary for enterprises employing 300 or more workers to


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seekgovernment permission to effect lay-offs, retrenchments and closures, and later in1982, these provisions were made applicable to establishments employing 100 or moreworkers. It has been argued that due to these rigid provisions, the employers were highlyreluctant to increase the number of employees, because they were unable to reduce theirworkforce (Sharma, 2006, Shyam Sundar, 2005).

Employers argue that there should be change in the employment law(Employment (Standing Orders) Act] and the judicial process (emphasising the principlesof natural justice) which have made difficult removal of even bad workers. Employersclaim that the provision of items 10 and 11 of the fourth schedule relating to section 9Aof the ID Act can delay or obstruct all worthwhile change in technology, workload,manning, shiftwork, etc. Employers claim that firms should have the freedom to contractout operations and employ contract labour; thus remove the prohibitive aspect of theContract Labour (Prohibition and Regulation) Act, 1970. Their other demands are:permission to include in the standing orders flexi-categories of labour, linking pay andbonus with productivity, delinkage of dearness allowance with consumer price index,

relaxation of labour laws in export processing zones, permission to employ women innight shift, and so on (Shyam Sundar, 2005).

2. Recommendations of SNCL

The Second National Labour Commission actually declares that the followingrights of workers have been recognized as inalienable and must, therefore, accrue toevery worker under any system of labour laws and labour policy. These are: (i) right towork, (ii) right against discrimination, (iii) prohibition of child labour, (iv) just andhumane conditions of work, (v) right to social security, (vi) protection of wages, (vii)right to redress at of grievances, (viii) right to organize and form trade unions, (ix) rightto collective bargaining, and (x) right to participation in management. The Commissionrecommends on the part of wages: (a) minimum wage payable to anyone inemployment, in whatever occupation, should be such as would satisfy the needs of theworker and his family; (b) every employer must in addition pay each worker one monthswage as bonus, before an appropriate festival; and (c) there should be a nationalminimum wage that the Central Government may notify (Jayati Ghosh, 2004).

The commission tried to maintain balance between providing flexibility toemployers and providing safety net cushions to workers to lessen the pain of adjustments,in the context of globalisation of the economy and rapid technological progress.

For employers, it recommended to restore the original threshold limit (1976amendment), under schele VB of the ID Act, for the need to get prior approval from thegovernment for closure, i e, it requires firms employing 300 or more workers need to get prior permission from the government for closure; i.e., a case of limited flexibility.Further, it recommended use of contract labour for conduct of non-core activities and forsporadic and seasonal demands it is permissible even for core activities. ThoughYashwant Sinha, the then finance minister, in his budget speech in 2001 suggested theapplicability of Chapter VB only to those units employing more than 1,000 workers, the


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Second National Commission on Labour (SNCL) in its report in 2002 recommended torestrict to 300 only (Shyam Sundar, 2005).

For workers, the commission recommended that (i) the firm should clear all duesto workers before effecting retrenchment or closure; (ii) the government has to closely

scrutinise employers actions for example, assess whether the employer effectedretrenchment in the relevant period before closure to scale down the workers strength toless than 300 to avoid the obligation to take governments permission; and (iii) workersneed to be paid a higher compensation, so that there can be differential rates ofcompensation, lower rate of compensation in case of sick firms and higher one forhealthy firms ((Shyam Sundar, 2005).

3. Trade Union Perceptions

The current provisions providing for obtaining permission to lay off, retrench orclosure should be retained. There should not be ordinarily any retrenchment due to

introduction of automation, computerisation and modernisation. However, if surplusexists on account of these factors surplus workers should be redeployed by the same firmwithout affecting the existing service conditions. More importantly, if unavoidablesurplus labour exists after exhausting all the above processes then the surplus workerscould be retrenched by giving higher compensation. Layoff compensation should be 50per cent of wages and allowances for the first month, 75 per cent for the second monthand full salary subsequently. Finally, in the case of closures, workers claims should besettled first. In India there is no right to work and no general unemployment assistance;in such a situation it is not practicable to give a blank cheque to the employers government or private, to operate exit policy. Freedom to use contract labour wouldeventually result in sacking of regular workers and use of contract labour. The principleof equal pay for equal work should be applied ((Shyam Sundar, 2005).

4. SEZs and Labour Laws

SNCL has opposed the view that labour laws should not be applied to SpecialEconomic Zones (SEZ). But in India, so far more than 250 SEZs have been approved, ofwhich 56 are in AP only. If Labour laws are not applicable to SEZs, there is a greaterpossibility for the workers to suffer from adverse working conditions, leading to a typeof wage slavery (Sawant, 2007). As per SEZ Act many changes in the existing laws ofIndia are made particularly under section-50 of SEZ Act. Accordingly, in AndhraPradesh, Karnataka, Maharastra, Madhya Pradesh, and Uttar Pradesh, the DevelopmentCommissioner has been delegated to amend many Acts relating to labour underminingthe authority of the Labour Commissioners of the respective states (Singhvi, 2006).

5. Suggestions for Improving Labour Security with Flexibility

Labour market institutions have to exist to offer social protection to workers andmaintain social peace. But it is neither desirable nor feasible to eliminate the rigidities ina wholesale manner, as per Solow. The two warring labour market actors make noises


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for reforms suiting their sectional interests. The law should provide flexibility and yetextend security, a kind offlexicurity. The objectives of regulatory exercises should beto: (a) facilitate the growth of the enterprise and make it sustainable in the competitiveenvironment; (b) promote employment; (c) offer sufficient protection to workers; and (d)ensure social peace (Shyam Sundar, 2005). Simplification and rationalization of the

existing labour regulations; and unification and harmonization of labour laws must betaken up on a priority basis. Further, improving the infrastructure and processes for theenforcement and implementation of labour laws. A core of labour standards can certainlybe envisioned for the country as a whole in both organized and unorganized sectors (Jhaand Golder, 2008).

Laws like the Minimum Wages Act, the Equal Remuneration Act, the ContractLabour Act, the Industrial Disputes Act and so on apply to workers in both the organizedand the unorganized sector, as per ILO conventions. However, the sheer practicaldifficulties and high costs associated with implementation and enforcement of such legalprovisions ensures that most workers do not benefit from them for favouring employers.

Thus implementation and enforcement are to be strictly practised (Jayati Ghosh, 2004).

6. Labour Union Activism - Not for Adverse Impact on Employment

If the unions are highly active, some times there may be adverse impact on theemployment and growth the economy, particularly when the economy is on thedevelopment path. In this respect a case of Kerala of late 1980s and early 1990s may bementioned as an example (Kannan, 1998).

The labour unions which are active in Kerala led to non-adoption of technologicalupgradation in the small-scale industrial economy of the state. The labour union activismcaused the disincentives for the establishment of new industrial firms, on the one hand;and the transfer of the existing firms to the neighbouring states particularly Tamil Nadu,on the toher hand. It had happened in the industries of the textile, and garments and alsothe cashewnut production to the neighbouring state Tamil Naadu to locate inCoibatore?Tirpur and so on.

Thus Kerala was thought to be a labour problem state, which led to thedicouragement of the entry of private capital. Further, in the existing industries began toinvolve in more casual/ informal sector operations, thereby cutting regular employment.As a consequence, the youth, who wanted more regular employment, started migrating toother states(six other states of India) and abroad (Gulf countries.). Migration to Gulf hasbeen providing remittance income to the people in the state; and this has created demandfor more services in the economy of the state.

VII. EMPLOYMENT LEVELS GLOBAL SCENARIO

In the globalisation era, the developed countries mostly formulate internationalagreements to work in their favour, through supra-national institutions. The most obviousis the asymmetry between the freedom of movement of capital, especially financial


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capital on one hand, and the restrictions placed on the other, on the movement ofespecially unskilled labour from developing countries. Despite vast improvements intravel and communications technology, available estimates suggest that labour migrationas a proportion of the total world population has been lower in the current phase, 1973-98, compared to the earlier phase of globalization, 1870-1913. The theory of factor-

price equalizationand the more recent convergence hypothesisare being professedto make believe that factor price equalisation and growth catching-up are possible in thedeveloping countries on par with the developed ones (Bhaduri, 2005).

The developing countries have now begun raising the issue of labour mobility(paralleling the rich country demand for mobility of capital) and the easing ofimmigration laws in the rich countries to allow poor country labour export as acountervailing measure, in view of the stress of equal treatment status for the inflow ofinvestment from the developed into the developing countries on the basis of TRIMS(Trade Related Investment Measures) under WTO regime (Dasgupta, 1997). Until theFirst World War, governments operated relatively few restrictions on immigration In the

period covering a century 1815-1915, which includes the first phase of globalisation.Around 60 million people left Europe for the Americas, Oceania, and South and East ofAfrica. About 12 million Chinese and 6 million Japanese emigrated to East and SouthAsia. An estimated 10 million migrated from Russia to Central and Asia and Siberia.A 1 million went from Southern Europe to North Africa. 1.5 million left India for SouthEast Asia and South and West Africa (Wolf, 2004, p.116).

The growth rates of GDP and merchandise exports were high in the periods 1950-73 and 1973-98; the GDP growth rates being 2.93 and 1.33 percent per annum andmerchandise exports being 7.88 and 5.07respectively. These growth rates were quite less(0.90 percent) for both in the period 1913-50. This period (1913-50) experienced twoword wars and one great depression and this was the worst period for growth in standardsof living of 130 years, 1870-2000 (Wolf, 205, p.106). The low growth rates period 1913-50 was attributed as collectivist era by Lorenzo Bernaldo de Quirs (2004), due to twosocialist revolutions (Russia and China).

The period, 1950-73, is the Keynesian era which is related with the highemployment objective, whereas the period, 1973-98, is Monetarist era related with theprice stability objective, especially favoured by the financial markets. At least partly as aresult of this policy regime, the world economy slowed down visibly almost in all regionsin the latter period of 1973-98, compared to the period 1950-73 (Bhaduri, 2005). Thishappened despite rapid increases in the trade of goods and services, from a ratio of exportto world GDP at 5.5 per cent in 1950 to 17.2 per cent in 1998 (Wolf, 2004, p.110).Though the later period is generally treated as liberal phase of globalisation era, thegrowth rates have come down.

Now we have a birds eye view of the impact of labour protection measures,based on conclusions of a few studies.


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1. Impact of Labour Protection Measures

In a series of studies coming from the International Labour Organisation, it isshown that the trade union activities and the provision of the minimum wage have nothad adverse impact on growth, trade competitiveness, employment etc. Based on the

information for 162 countries, it is shown that stronger trade union rights do notgenerally hinder trade competitiveness, including trade of labour intensive goods; further,the study offers a stronger conclusion that the countries with stronger trade union rightstend to do comparatively better in several respects such as aggregate trade flows, totalmanufacturing exports etc. Further, the fact that deregulation of the labour market, evenin most of the advanced capitalist countries, has not been able to contain highunemployment even after years of implementation, ought to increase scepticism aboutderegulation and its supposed benefits (Jha and Golder, 2008).

Storm and Naastepad (2007) has taken eight indicators as measures of labourmarket regulation: (i) the employment protection legislation index, (ii) the percentage of

the non-agricultural workforce, (iii) union density, (iv) collective bargaining coverage (v)the unemployment benefits index, (vi) the extent of coordination in wage bargaining, (vii)the replacement ratio (unemployment benefits /average earnings), and (viii) the totallabour tax rate. Based on OECD countries data, the study made a cross-countryregression analysis and confirms that excessive labour regulation is not the major causeof slow labour productivity growth. Their results have been stable even in the twoperiods prior to 1997 and for the complete period (1984-2002). From the study, it hasbeen clear that deregulation and flexibilisation of OECD labour markets may lead to adeteriorated productivity performance, because it fails to effectuate the contribution thatworkers can make to the process of organisational and technological innovation whichraises labour productivity.

Kopsos (2005) consider data of 160 countries and finds no evidence regarding alink between employment rigidity (employment protection) and the job intensity ofgrowth. This may mean that employment protection policies do not have a broad impacton economies job creation potential, but it could also be due to a lack of enforcement ofemployment protection legislation.

2. Employment Elasticity and Employment Growth

Along with the slowing down of the growth rates in most countries, the rate of jobcreation has also slowed down in varying degrees in the Monetarist era (1973-98)compared with the Keynesian era (1950-73). A summary statistic capturing this trend isthe output elasticity of employment, particularly in manufacturing. In a comparison of thetwo decades of 1970s and 1980s, this elasticity for the manufacturing sector declinedfrom 0.54 to 0.39 in East Asia, from -0.07 to -0.08 in OECD, from -0.07 to -0.43 in LatinAmerica, and most remarkably from 4.72 to 0.86 in Sub-Saharan Africa (Bhaduri, 2005).

It is from this perspective that we consider the findings on the pattern ofemployment elasticities and employment growth rates from Kapsos (2005) for 160


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countries. He has considered three periods 1991-95 (I) , 1995-99 (II) and 1999-03 (III).If period-I is the immediate post liberalization phase, period-III may be treated assomewhat ripened liberalization phase, while period-II is an intermediate phase.

At the global level, the GDP growth increases from 2.90 percent in period-I to

3.60 percent in period-II and then reaches 3.50 percent in period III. The correspondingemployment elasticities are 0.33, 0.38 and 0.30. Similarly growth rate of employment ishigh in the intermediate phase(II) with 1.37 percent and the labour productivity growth isalso higher in second phase (II) being 2.23 percent. Thus, at global level, intermediatephase is good in its performance. The decline in the employment intensity of growth inthe period from 1999 to 2003 is most likely a reflection of poor employment performancefollowing the global economic slowdown that took shape in 2001.

In terms of broad global trends among demographic groups, given expectations inlabour force growth, youth employment elasticities are low in all the three periods.Another significant trend in the global labour market is evidenced by higher female

employment elasticities in each of the three time periods than the correspondingelasticities for men. This result appears to indicate a catching up in terms of womenslabour force participation relative to mens.

The cross-country findings are: (i) There is positive relationship between laboursupply and the employment intensity of growth. (ii) There is a positive relationshipbetween economies share in services and their employment elasticities. (iii) Measures ofglobalization and export orientation showed no strong correlation with employmentintensity, except in the case of women, i.e., among women, greater export-orientationmay lead to a higher employment intensity of growth.

VIII. EMPLOYMENT LEVELS IN INDIA

There are two types of studies on employment in India to asses the impact ofeconomic reform process on employment: (i) the studies based on NSS Reports and (ii)studies bases on organized sector employment.

1. NSS Report based Studies

An exhaustive study has been by Chadha and Sahu (2002). This deals withdifferent types of employment, both in rural and urban areas. The period 1983-93 istreated as pre-reform period and the period 1993-2000 as post-reform period. It showsdecline in the employment growth rates between the periods and lends support to thethesis of a negative fallout of economic reforms:

The overall rate of growth of employment for rural workers declinedfrom 1.75 per cent per annum during 1983/1993-94 to a low of 0.66 percent per annum during the post-reform years; for rural males, it declinedfrom 1.94 per cent to 0.94 per cent, and for rural females it declined from1.41 per cent to low of 0.15 per cent. All this is hardly a reflection of an


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employment-friendly scenario. A varying degree of decline was witnessedfor urban areas also; from 3.22 per cent to 2.61 per cent for urban males,from 3.44 per cent to 0.94 per cent for females, and from 3.27 percent to2.27 percent for urban persons.

It is observed that the rate of open unemployment in rural India has not gone upduring the post-reform period, as there is no decline in the lobour force being convertedinto workforce. But, there are no clear signals for the rural workers to shift to non-agricultural avenues, showing their incapability of gaining access to these jobs, becauseof the low level of their human capital index. Another important feature in rural India isthat there is increasing casualisation of the rural workers as (i) the incidence of self-employment has been consistently on the decline and (ii) regular salaried jobs have beenalso on the decline. This casualisation process has been observed among most of thestates in India.

There are studies which extended the period to 2004-05 (up to the latest NSS

Report). We refer to a few important studies among others: Chandrasekhar and Ghosh(2006, 2006a), Bhalla (2008) and Dev (2008).

Chandrasekhar and Ghosh (2006) have observed that the employment growthrates increased between 1999-00 and 2004-05 and labour force rates also improved in thisperiod. They note that around half of the workforce in India currently does not work for adirect employer and it leads to lack of decent work conditions due to self-exploitation. Inthe study (2006a), the authors point out that (i) in regular work rural female, urban maleand urban female workers real wages have declined, and (ii) real wages of regular womenworkers declined for every category of education level.

Bhalla (2008) also find that the employment growth rates under UPSS (usualprincipal and subsidiary status) record increases at the overall employment, non-agricultural employment and employment of non-manufacturing workers between 1999-00 and 2004-05. It is true across all the major sectors except in trade. It also notes thatamong almost all the states the employment growth accelerate between 1999-00 and2004-05, as against the deceleration between 1993-94 and 1999-00. Another distressingpoint is that if we compare entire post-reform period 1993-94 to 2004-05 with the pre-reform period (1983 to1993-94), the employment growth rates have declined both at thenational level and among states. As against decrease in the self employment for theperiod 1993-94 to 1999-00, as observed by Chadha and Sahu (2002); it is noted thatthere has been increase in the number of self-employed regular workers.

Dev (2008) notes that work participation rates for UPSS workers have increasedbetween 1999-00 and 2004-05 with increase of 1.5 and 2.8 percentage points for ruralmales and females respectively; and 3.1 and 2.7 percentage points for the urban male andfemale workers. The increase in the WPR for females may be due to their engagement inthe short duration work, where females are preferred over the males in both rural andurban areas. It points out that though the child labour ratios are lower for urban areas,they are higher in rural areas; for the age group 10-14, under UPSS, the ratio for rural


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boys declines from 14.0 percent to 6.8 percent between 1993-94 an 2004-05 and similarlyfor rural girls it goes down from 14.1 to 7.4 percent in the same period. It also highlightsthe problem of working poor.

2. Organised Sector Employment and Labour Flexibility

In India, the labour flexibility argument has been voiced from the employersperspective only mainly from the organized sector. As has been seen in section-6, the VBof ID Act became the villain. The study of Fallon and Lucas of 1991, about the joblessgrowth of the organized sector (-0.3 percent for 1979-87), came out with a conclusionthat in India, the employment in organised manufacturing failed to increase by 17.5percent, due to the presence of job security regulation (VB of ID Act). Then onwardsstudies came in India to test their hypothesis.

Kannan (1994) applied the concept of dynamic efficiency over the 18 industrygroups for two periods (i) 1973-74 to 1985-86 and (ii) 1980-81 to 1985-86, from the data

of Annual Survey of India; and arrived at the conclusion that the presence of modernlabour institutions such as unions and labour legislation is not incompatible with theobjectives and growth and distribution. Some other economists, Papola, Nagaraj andBhalotra offered alternative hypotheses: (i) As per Papola, there was faster growth ofindustries with low employment intensity and slower growth of industries with highemployment intensity, and (ii) Nagaraj and Bhalotra attributed to increase in mandaysper worker.

Papola also argues that slowdown in employment in the 1980s was due to declinein employment in food production industries and cotton textiles, which were closed dueto sickness and rationalization to overcome obsolescence. Sharma (2006) says that therewas improvement in the growth of employment in organized manufacturing during thefirst half of 1990s. At the aggregate level, the growth rate of employment was 1.6 percent per annum during the period 1972-73 to 1989-90, which increased to around 3 percent per annum in the period 1990-91 to 1997-98. The employment elasticity also showedan increase 0.33 in the period 1990-91 to 1997-98 as against 0.26 in the period 1972-73to 1989-90. Thus, the protective labour legislations cannot become the cause ofemployment deceleration in 1980s.

Nagaraj (2004) also points out that in the period between 1990-91 and 1995-96 ,the organized sector grew, but only later there were job losses. Between 1995-96 and2001-02, 1.3 million employees (13 per cent of workforce) lost their jobs. Thus,employment in 2001-02 is roughly same as it was eight years earlier. It is mostly workerswho have lost over 1.1 million jobs (15 per cent). But employment of supervisorsincreased more or less steadily, though they too experienced job losses. Between 1980-81 and 2000-01, employment of workers increased by 4.3 per cent (0.24 million), whilethat of supervisors rose up by 39 per cent (0.55 million). On a trend basis, however, theannual growth rates are 0.9 per cent and 2.2 per cent for workers and supervisorsrespectively. The job losses are widespread across industries and states. Of 15 major


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industry groups, 11 representing about 80 per cent of the workforce, witnessed a fall inemployment during 1996-01.

The public sector enterprises were subjected to restructuring by the mid 1990s.Retrenchments were initiated by the voluntary retirement scheme (VRS) of the public

sector enterprises but subsequently the private sector followed suit, as enforcement oflabour laws was relaxed. Until the mid-1990s, job losses did not show up in theaggregate, due to considerable job creation owing to the boom in industrial output andemployment (Sharma, 2006).

As per Papopla (2007), the public sector employment expanded rapidly over theyears, as shown in Table-3. Its expansion was particularly rapid during 197090, due tomany takeovers and nationalizations. Employment in public sector enterprises wasaround 0.7 million in 1969 and increased to 2.2 million by 198990. Public sectoremployment is, of course, dominated by services, which accounted for over 50 per cent(9.6 million out of a total of 18.6 million) in 2003. Transport, contributing another 15 per

cent, is second in importance; and finance, with a share of 7.5 per cent, is third.Manufacturing is a close fourth with 7 per cent of employment. It may be noted thatmanufacturing used to be a much larger segment of the public sector, contributing overtwice as many jobs (1.5 million) than finance (0.75 million) in 1981. Since then financehas seen a continuous rise in employment, reaching 1.38 million in 2003 whilemanufacturing after reaching a peak of 1.85 million in 1991 has seen continuous decline:it employed only 1.26 million workers in 2003.

Table 3. Employment in the organized sector

(million persons as on 31 March)

YearPublicsector

Privatesector

Total

1981 15.48 6.50 22.00

1990 18.77 7.58 26.35

1997 19.56 8.75 28.17

2001 19.14 8.65 27.79

2003 18.58 8.42 27.00

Source: Papola (2007)

IX. CONCLUSION

Globalisation (including liberalisation and privatisation) has made its dent onseveral aspects and one of them is employment. Globalisation imposes opening up of

the economy for trade first and then for capital flows. It has been initiated from thedeveloped countries perception, as the hidden agenda is to exploit the developingcountry markets. But developing countries are not allowed to export their skilled andunskilled labour to the developed countries, in lieu of their allowing capital flows andgoods. Further, when globalisation is under process, the developing country employersdemand for labour flexibility in their countries to produce goods and services at cheaperlabour costs to compete in the developed world. But the developed country employersinsist on the extension of international labour standards as prescribed by the ILO


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conventions, so that the developing country employers, by paying social security benefits,cannot compete with developed country markets.

In India, the labour market flexibility has been voiced from the organised sectoremployers. Here the share of organized sector employment is only 7-8 percent and to this

segment only labour legislations are mainly applicable. Employers claim that labourprotection legislation (as of Schedule VB of ID Act), which makes to seek thegovernment permission to retrench or layoff the workers or close the firm or company,increases unemployment. Thus, it is rigidity and so this is to be removed. Furtherminimum wages and other social security legislations should be scrapped. Though Fallonand Lucas study of 1991 came up with the conclusion that labour protection measures cancreate unemployment, many studies later condemned its results. Kannan (1994) showedthat modern labour institutions, unions and protective labour legislations, are not harmfulto employment and income growth. Many other studies also showed in the developedworld that labour legislation is helpful to the increase in productivity as well.

The claim for labour flexibility is to provide numerical flexibility to theemployers, without providing job security and social security to the workers in thedeveloping world. It may be better to provide security to workers, while extendingcontrolled flexibility to the employers, i.e., flexicurity, as is being practised in theEuropean countries after 1999, with job security, passive labour market policies, andactive labour market policies.

As regards the impact of globalisation, in India, in the organised sector there wereretrenchments or retirements to the extent of 1.3 million workers, between 1995-96 and2001, though its growth was good in the period immediately after liberalisation, 1990-91to 1995-96. Organised public sector and private sector employments have been nearlystagnant or on the verge of slide down (Papola, 2007).

In India, nearly 92 percent of the workforce is in the unorganised sector and sothe overall employment growth depends on this sector only. Based on the NSS Reports,the growth rates of overall employment for males, females and persons in both rural andurban areas, have fallen down in the post reform period, 1993-94 to 1999-00 (comparedwith the period, 1983 to 1993-94). However, the growth rates have improved for thelatest period, 1999-00 to 2004-05 for all those categories. But it is distressing to note thatwhen the entire post-reform period is considered, i.e., 1993-94 to 2004-05, the growthrates have declined both at the national level and among the states (Bhalla, 2008).

The labour legislations, which depend on ILO conventions, have to be madeapplicable to both organised and unorganised sectors. As the Second NationalCommission on Labour (SNCL) upholds ten types of rights to the workers in general(including minimum wages), the existing labour legislations have to be enforced to theadvantage of unorganised sector workers. At the same time, the Bill on social securityfor the unorganised sector has to be passed in the parliament.


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Basu, Kaushik. 1999: Child Labour: Cause, Consequence and Cure, with Remarks on International Labour

Standards, Journal of Economic Literature, Vol. 37, N0.3, September (pp. 1083119)

Bernaldo de Quirs, Lorenzo (2004), Review of Martin Wolfs bookWhy Globalization Works ,Cato Journal, 2004

Bhaduri, Amit (2005), Macroeconomic Policies for Higher Employment in the Era of Globalization,Employment Strategy Papers, Employment Analysis Unit, Employment Strategy Department,ILO.

Bhagawati, Jagdish (2004),In Defense of Globalisation, Oxford University Press, New Delhi.

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This was presented at 50th Annual Conference of the Indian Society of LabourEconomics, held at Giri Institute of Development Studies, Lucknow, December 13 - 15, 2008.

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Global is at Ion, Labour Flexibility and Employment In India

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