Labour Market in India

LR Dagar,

Indira Gandhi Institute of

Development Research,

04/07/23 2

Labour market size

• Consists of 430 million workers in 2004-05, growing 2% annually, with a stable worker-population ratio (40%).

• Low level of open unemployment (3.1%) – high level of disguised unemployment, mostly in rural areas and in agriculture.

• Low level of women’s participation in workforce.• Child labour’s share in workforce declining, but

in absolute numbers still quite large.

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Labour market structure

• Labour market consists of 3 sectors.• Rural workers constitute about 60% of the

workforce.• Organised sector employing 8% of

workforce, and declining – producing 40% of GDP.

• Urban informal sector – the growing sector – represents the residual.

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Employment growth

• Structural transformation – agriculture's share declining from 62% in 1993-94, to 54% in 2004-05.

• Low or negative employment elasticity.• Employment is shifting towards services,

not industry.• Between 1997-04, 1.8 million (6.4%) jobs

lost in organised sector including 1.2 million (18%) in manufacturing.

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Wages

• Agricultural Wages have ↑ since 1980s

• Yet lower than minimum wages.

• Casualisation of employment contracts in all sectors.

• Decline in self employment.

• Wages still low to overcome absolute poverty.

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What are the major concerns?

• Deteriorating employment scene, despite acceleration in output growth since 1980 – need for massive employment generation effort, especially in rural areas.

• Deceleration in agriculture since 1990 (Figure 1).

• Agrarian distress – suicides, extremism• Labour market rigidity.

– Cannot hire and fire.

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Labour legislations

• Mostly deal with the organised sector. Extent of protection and benefits increase size of firm or factory.

• Minimum wages practically ineffective; no national minimum wage; no social security.

• Job-security law in organised sector reportedly makes it “impossible” to lay-off and retrench workers.

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Rigid labour market?

• Small and declining organised sector workers with high and growing wages with job security – amid an ocean of unorganised, and competitive labour market.

• So what?Leads to labour market rigidity:– substitution of capital for labour,– reducing economic growth, – hurting labour intensive exports.

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Policy implications

• Dismantle state intervention in labour market – pay and perks to be market driven; wage bargaining to be decentralised.

• Repeal job-security laws and contract labour act.

• National minimum wage.

• Social security.

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Inflexible labour market ?

• No nominal or real wage rigidity.

• ↓ in unit labour cost (Figure 2).– True in public sector too (Figure 3).

• No evidence of adverse effects of job security law.

• Secular ↓ in union strength.

• More lockouts than strikes (Figure 4).

• ↓ in wage-rental ratio (Figure 5).

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What does the evidence tell?

• There exists functional flexibility, which the unions are prepared to negotiate.

• Job-security law does not have much bite.– 18% of organised industrial workers lost jobs.

• Does it mean everything is fine? No, I do not think so.

• Need for rationalisation of laws.

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Employment concern

• Declining employment elasticity.

• Related to it declining agricultural growth, and agrarian distress.

• Poor rural infrastructure

• Employment guarantee scheme.

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In sum

• Reformists believe lack of flexibility in industrial labour market is holding up industrial out and export growth.

• Evidence does not seem to support such a proposition.

• But it does not mean that the labour market is working fine – far from it.

• Need to move towards income security, more rational labour laws, and greater shop floor democracy.

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In sum

• Perhaps the bigger concern is agricultural deceleration, agrarian distress, and inadequate rural employment growth.

• Employment guarantee scheme hold promise, but faces political and bureaucratic resistance.

• These two alternatives perspectives hold divergent visions of India.

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Figure 1: Growth in Agriculture output, 1980-05

3.22.9

3.8

3

3.6 3.6

2.32

2.72.2 2

3.6

1.2 1.1 1.3 1.31

2

All Crops Foodgrains Non-foodgrains

Cereals Rice Wheat

Crops

Per c

ent p

er y

ear

1981-90 1991-00 1991-05

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Figure 2: Unit labour Cost in Registered Manufacturing

0

20

40

60

80

100

120

140

Year ending

Inde

x

Unit labour cost

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Figure 3: Unit labour cost in public sectorExcluding electricity

0

0.2

0.4

0.6

80 82 84 86 88 90 92 94 96

Fiscal year ending

Rat

io

Unit labour cost

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Figure 4: Mandays Lost by Disputes

0

10000

20000

30000

40000

50000

6000019

82-8

3

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

Strikes Lockout

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Figure 5: Wage-rental ratio

0

20

40

60

80

100

120

81 83 85 87 89 91 93 95 97 99

2001

Year ending

Inde

x

Wage-rental ratio