Abstract
An analysis of recent employment trends shows a systematic and massive increase in labour flexibility in India’s organised sector. Firms have achieved increased flexibility not only by employing more of temporary and contract labour but also by making the regular workforce more flexible and reducing the role of labour unions and collective bargaining– thereby achieving “in-fact” informality/flexibility – and by outsourcing, and subcontracting down the value chain. Employer strategies have adapted existing informal social institutions and the legal framework to achieve their goals. How can the quest for a reasonable degree of flexibility be subordinated to labour rights and core labour standards? We argue that the answer lies not in the supposed legal constraints on flexibility in the organised sector but also in addressing infirmities in the Indian labour market as a whole.
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Notes
Since the mid-1990s, labour “reforms” are seen as a key plank of what is called “second generation reforms”. The case of increased flexibility under an externally liberalised regime was presented by the Task Force on Employment Opportunities (Planning Commission (2001a, b), which also called for changes in specific labour laws. It has been reiterated in annual Economic Surveys of the Government of India, with a detailed case made out in the Economic Survey of 2012–13 (Economic Survey 2013, chapter 2). Since 2014, there has been a resurgence in interest in labour reforms among policymakers and commentators.
To this list, Van Eyck (2003) adds labour force flexibility (less attachment to sectors, companies or occupational groups, erosion of “collective labour” and greater tendency for workers to move in and out of the labour market), and locational flexibility (increasing ability of enterprises to relocate all or part of their production process to different locations within countries and around the world).
In 2004, for instance, about 30 per cent of the employees in Korea were considered non-regular workers (Brimon 2010). In China, one-fifth (60 million) of the 300 million urban employees in 2011 were dispatched workers, an increase from the 27 million reported in 2007 (Li and Wan 2015, cited in ILO 2015). But the ILO (2015) notes that despite its general proliferation in many regions of the world, the “standard employment relationship” remains the dominant form of employment in industrialised countries, accounting for 70 per cent of jobs in Europe and the US. Moreover, in emerging economies such as Brazil and Argentina, most jobs created in the 2000s were formal jobs with indefinite contracts (Maurizio 2014).
Van Eyck (2003) cites Betcherman, Luinistra and Ogawa (2001) who summarise the outcome of their research on labour market regulations in 17 countries as follows:“The impacts [of protective legislation] on employment and unemployment levels are modest and, in the case of unemployment, often statistically insignificant. … However, the empirical findings are much stronger for the ‘dynamic effects’ on labour turnover and job tenure, job creation and destruction, and unemployment duration – and on the types of jobs created.”(p. 12)
The Economic Survey of 2012–13 quotes the World Bank (2013): “A careful review of the actual effects of labor policies in developing countries yields a mixed picture. Most studies find that impacts are modest – certainly more modest than the intensity of the debate would suggest.” (p. 26).
Galli and Kucera (2004) have questioned the explanation that higher labour standards in the formal sector may lead to a higher share of informal employment. Using panel data on specific categories of formal and informal employment for 14 Latin American countries in the 1990s, they find that countries with higher labour standards (in terms of freedom of association and collective bargaining rights, and higher wages in the formal sector) tend to have higher shares of formal employment and lower shares of informal employment.
Standing (1987) identifies several forms of insecurity that are associated with labour flexibility: labour market; employment; job; income; and work.
Our interviews with workers and unions between 2011–12 suggested that the employment records of such workers are maintained by employers in a fashion that, in the event of a dispute, it is extremely difficult for them to provide evidence of continuity of employment as required under law.
There is also a gradation of laws depending upon the size of employment. But NSS data do not allow us to draw distinction by size classes within the organised sector.
In the analysis which follows, we take the current official definition of “organised sector” and include all manufacturing enterprises with 10 or more workers operating with electricity, and all other establishments with 20 or more workers.
Ramaswamy (2013) infers that the restrictive clauses of the IDA apply to firms with more than 100 directly employed workers. As a matter of fact, the definition of “workmen” in the Act includes workers engaged through contractors, but the retrenchment provisions apply to workers who are on the rolls of the employer. In the results shown in Table 3, we have used both his classification of firms as well as a classification based on the number of total workers (as defined by ASI).
The workers recorded by factories as contract workers would be those who were reported as such workers by employers as well as contractors under the Contract Labour Act. Unregistered workers or workers engaged through unregistered contractors would not figure here.
The verified union membership reported by the Labour Bureau show large gaps each year, with complete non-reporting by several states. For example for 2012, twelve states did not file returns and those from four other states were defective (Labour Bureau 2015).
This is mainly because of the relaxation of the contract labour legislation, and the permission granted through a central government notification to allow fixed-term contracts for white-collar workers and in principle for other regular workers, and a Supreme Court judgment of 2006 that cleared the ground for the renewal of temporary contracts, subject to payment of severance payments as per the law (Dougherty 2009).
Deshpande et al. (2004) find that between 1991 and 1998, total employment in the nine industry groups studied increased at 2.8 per cent per annum. While 60 per cent of the employers increased their total employment, 27 per cent downsized their workforce. An almost equal proportion of employers undertook the expansion and contraction of manual employment. Firms that experienced an increase in demand and consequently increased production were more likely to increase – rather than decrease – both manual and total employment. Total employment increased more than manual employment.
The study found that, by and large, the statutory minimum wage prevailed as the basic wage in most firms, and collective bargaining played an insignificant role in determining the basic wage. Although it is generally believed that in the formal sector, the earnings of a worker consist of a basic wage, dearness allowance (DA) and a bonus, the study showed that more than 80 per cent of firms paid a consolidated wage. Only 28 percent of these firms had unions, although larger firms were more likely to be unionised. The study concluded that state regulation – be it in the form of the Minimum Wage legislation, the Bonus Act, or the employment of flexible categories such as contract labour – did not appear to be effective.
Van Eyck (2003) has discussed different organisational restructuring strategies and their implications, including business process re-engineering (BPR). The latter divides the workforce into “core” and “periphery” segments. Increased wage and numerical flexibility is gained primarily in the periphery through the increasing use of part-time, subcontracted and temporary labour.
The Economic Survey proposed that the provisions for existing permanent workers could remain unaltered, but the remaining workers could be encouraged to move into contractual employment. These contracts can be terminated, but give the worker some protections, including severance pay, unemployment insurance and the right to reverse unfair dismissal through appeal. Meanwhile, the government should continue to create a minimum safety net for informal workers (in the informal sector and in informal work arrangements in the formal sector) by, for example, extending the reach of national-level schemes such as the Rashtriya Swasthya Bima Yojana and the New Pension Scheme and introducing unemployment insurance schemes.
Vandenberg (2010) has studied the experience of six Asian countries, including India, to see whether they have moved from the concept of employment security to labour market security as envisioned in the concept of “flexi-security”. The three key aspects of flexi-security are: employment protection legislation (EPL); passive labour market policies (PLMPs); and active labour market policies (ALMPs). The two north-east Asian countries (China and the Republic of Korea) are shown to have managed the transition from employment security to labour market security as envisioned by the approach and have recently established or greatly expanded unemployment insurance. But the two south Asian countries (India and Sri Lanka) have not. The two south-east Asian countries (Malaysia and Singapore) have mostly made that transition, but do not provide unemployment insurance (UI), the key passive labour market measure. Retrenched workers are provided with 30 days of severance pay per year of service in China and the Republic of Korea, which is in the middle range for the six countries surveyed. Employers in Korea have access to a number of employment subsidy programmes promoting the hiring of the long-term unemployed and vulnerable groups.
Reviews of changes in labour laws relating to the more flexible forms of employment (fixed term employment, temporary agency work, contract labour, etc.) show that many countries have made changes to these laws to reduce gaps with standard employment. A comparative overview of national labour laws (ILO 2008) shows that many countries have adopted different approaches to prevent abusive recourse to FTCs. Three major dimensions of such provisions are (a) the prohibition of fixed term contracts (FTCs) for permanent tasks; (b) a limitation in the number of successive FTCs; and (c) a limitation of the cumulative duration of FTCs. Several countries provide for the principle of equal treatment of temporary-agency workers and comparable workers of user firms with regard to employment terms and conditions, although the principle of equal treatment varies significantly in scope, being limited to pay in some countries and covering all the basic terms and conditions of employment in others. In Europe, the growth of non-standard employment over the past decades has led to concerns over heightened labour market segmentation. Policymakers and institutions, including the European Commission (EU Commission 2006, 2013), advocated labour reforms to reduce the regulatory gap between workers in standard and non-standard forms of employment. As a result, efforts were made to increase protections for part-time workers and those in dependent self-employment (ILO 2005). Several countries in Asia, including China, Vietnam, Korea, the Philippines and Japan, as well as several countries in Latin America, have reformed their labour dispatch system. In 2013, China reformed its labour contract law to restrict the use of labour dispatch to auxiliary positions outside the user firm’s core business, as temporary positions (maximum six months), and for replacing absent workers. The reform also established an equality of treatment principle concerning the pay of dispatched workers. Tighter regulations governing the operation and functioning of labour dispatch agencies (e.g., registered capital, adequate premises) and sanctions in cases of breach were also introduced.
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Appendices
Appendix 1
See Table 14.
Appendix 2
See Table 15.
Appendix 3
The main law which governs industrial disputes and industrial relations is the Industrial Disputes Act (1947). Sections 5A and 5B of the law cover the lay-off or dismissal/retrenchment of individual workers as well as collective dismissals of workers, and apply to undertakings employing 50 or more workers. The law provides employment protection to any worker who has been in continuous employment for more than a year. The term “continuous” has been defined in a fashion such that it can also cover casual workers who have worked with an employer for more than a certain period during a given year. Section 5A provides for compensation to laid off workers, grounds of retrenchment, provision of notice and compensation to retrenched workers as well as workers affected by closure. In each case, notice also has to be served to the appropriate authority. Section 5B of the Act provides for special provisions for lay-offs, retrenchment and closure in factories with more than a hundred workers, which additionally require prior permission from government. This provision was introduced by an amendment in 1976, and originally pertained to factories employing 300 or more workers, but this ceiling was brought down to 100 by a further amendment in 1982. Chapter 5B, requiring prior consent of government, is at the heart of the debate on labour rigidity in India. The intent of the Industrial Dispute Act is undoubtedly to provide employment protection to all workers employed for a certain period, raising the cost of dismissal for employers.
Although employers can make purely temporary appointments, the position of fixed term appointment remains ambiguous. The Model Standing Order under the Industrial Employment (Standing Orders) Act 1946 provides that employers submit draft Standing Orders for certification of authorities which contain the class of employee, working hours, shifts, procedure for termination, suspension, closure etc. The Standing Order classifies workmen as permanent, probationers, badlis or substitutes, temporary, casual, and apprentices. In the classification of workmen, the category of ‘fixed term employment’ was added through an amendment dated December 10, 2003, but withdrawn through another amendment in October 2007. Section 2 (oo) (bb) of the Industrial Disputes Act, 1947, also addresses the issue of fixed term employment by specifically excluding from the definition of retrenchment “termination of the service of the workman as a result of the nonrenewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein.” However, with the 2007 amendment eliminating explicit mention of this category, the legal position of fixed term employment has become unclear, although recently the courts have stepped in and have given significant freedom to employers to hire workers on fixed term contracts (Dougherty, 2008).
The Contract Labour Act, the main aim of which is to regulate the employment of workers engaged through contractors, provides limited flexibility (in law) to employers to adjust fluctuations in the supply/ and demand of labour. However, under Section 10 of the Act, contract labour can be prohibited by the government in any process, operation or work in an establishment after examining whether the work or process is perennial in nature and whether it can be carried out by regular workmen in that establishment.
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Srivastava, R.S. Myth and reality of labour flexibility in India. Ind. J. Labour Econ. 59, 1–38 (2016). https://doi.org/10.1007/s41027-016-0048-x
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DOI: https://doi.org/10.1007/s41027-016-0048-x