The current issue and full text archive of this journal is available at www.emeraldinsight.com/1446-8956.

htm

IJDI 8,2

Globalisation and labour market exibility: a study of contractual employment in India

Meenakshi Rajeev
Institute for Social and Economic Change, Bangalore, India
Abstract
Purpose The purpose of this paper is to understand the status of a class of non-permanent labour in the globalised era in India. Design/methodology/approach To understand this the paper uses both secondary level information and primary data collected through a survey. Secondary level data are analysed using a panel data model. Here, the hypothesis is: contribution of contract labour to production is greater than that of the regular employees. The primary level survey is conducted to know whether they are exploited due to their non-permanent stature. Findings It is observed from secondary data analysis that the hypothesis is not rejected. Contract labour makes a signicant contribution to production, while the regular employees do not. Primary survey also shows that they are exploited in many ways including through non-payment of minimum wages. Practical implications The paper indicates that, while regulations are in place, they are abused and hence it is the implementation part on which government needs to focus. Originality/value Analysis shows how rationalization of employment does not take place due to labour regulations for the regular employees. It also brings to light through primary survey various lacunae in the implementation of the Contract Labour Act. Since survey of such labour class is difcult there are limited studies in this eld. Keywords Contract workers, Temporary workers, Globalization, India Paper type Research paper

168

1. Introduction In a globalised and ever expanding market, most rms require labour exibility. Large modern rms of today, rather than being vertically integrated, believe in and survive on outsourcing. Decentralization of production, in turn, has enabled many rms to enjoy wage and employment exibility and risk diversication. A rms activities are now characterised in dualistic terms as core (directly production-related) and non-core or peripheral. For example, core activities may involve working with machines in the shop oor while loading-unloading can be considered as a peripheral activity. Accordingly, labour market has also been categorized as primary and secondary or core and peripheral, depending on the kind of work labour is involved in. Some of the labour classes that have emerged and ensured such exibility are, casual labourers, consultants, sub contractors, contract labour, tele-workers, etc. Such categories of
International Journal of Development Issues Vol. 8 No. 2, 2009 pp. 168-183 q Emerald Group Publishing Limited 1446-8956 DOI 10.1108/14468950910997701

JEL classication J31, 41 This paper is a part of a research project funded by the Sir Ratan Tata Trust at ISEC. The author thanks the Trust for its support. She also wishes to acknowledge many useful discussions with G.K. Karanth and B.P. Vani.

labour were not altogether unfamiliar in the labour market in India, prior to globalisation, although tele-worker is a recent phenomenon. It has increasingly been argued that stringent labour regulations, which make retrenchment or lay-off rather difcult or expensive for a rm, not only put domestic producers at a disadvantage but also deter foreign direct investment, and eventually impact adversely on investment, output and employment. Over the last two decades, a number of countries have attempted to liberalize their labour markets and amended their labour laws so as to make them more investment- and employment-friendly a process that has weakened job security and collective bargaining (Agarwal, 2001). In Bangladesh for example, with globalisation it is found that the number of employees working under permanent contracts have declined, while non-traditional employments including part time, casual and contract labour have increased (Khan, 2005). In the context of the Philippines, McGovern (2005) mentions that [. . .] labour exibilization is used synonymously with contractualization or casualization of labour. In India too we observe an increasing use of such non-permanent employment over time (Table I). Theoretical models in economics, in this context, reveal that labour regulations will typically create adjustment costs in hiring and ring labour, and in making adjustments in the organization of production. One should therefore expect the formal sector to keep away from permanent labour (thereby reducing regular employment) and move towards other labour saving inputs (including capital). Besley and Burgess (2002), while empirically examining the effect of labour regulation on performance of the industrial sector in Andhra Pradesh, India, argue that regulations do lower rms optimal output level since they tend to raise the marginal cost of production. In the Indian context labour regulations leading to increase in cost for the producers can be seen for example, from the Industrial Disputes Act of 1947. The act enjoins upon a factory owner that a worker who is in the master roll of a factory and has worked for not less than one year, cannot be simply laid off. He/she needs to be given compensation equal to half his/her salary for the period the worker is not engaged in the work of the factory. In case of retrenchment, proper notice showing the cause for the same should be served well in advance. A workmen needs to be paid appropriate compensation for retrenchment, which often could be a large sum of money. Factories Act of 1948 ensures all facilitates to the regular employees (who are in the master roll) including leave with pay, safety measures and other compensations. For overtime work, regular employees need to be paid a wage that is higher than their regular wage rate. Thus, the labour regulations for regular employees are rather stringent. Expectedly, in regard to non-permanent workers like badli, casual labourer or contract workers, retrenchment or laying off is allowed without paying such compensations; their wage rates are also considerably low. Contract workers for example, can be hired
Year 1977-1978 1987-1988 1993-1994 1999-2000 Self-employed 59.9 56.0 54.8 52.9 Regular salaried 13.9 14.4 13.2 13.9 Non-permanent (casual/contract, etc.) 27.2 29.6 32.0 33.2

Globalisation and labour market exibility 169

Source: Deshpande et al. (2004)

Table I. Distributions of workers (usual status) by category of employment (per cent): India

IJDI 8,2

170

and red by a rm as and when necessary without giving any explanation. Such provisions are found to give greater exibility to the production unit. Our survey also reveals (Section 4) that in practice they do not enjoy paid leave, appropriate overtime wage rate or bonuses. Among various kinds of employment that have evolved in different economies to circumvent labour laws, contract labour is one of the favoured forms. If we concede that such a exible form of employment is indeed necessary in a competitive world, then the question is how do we extend social protection to this section of labour? It has been observed in Bangladesh that with unrestrained informalization of labour, social security of workers in general has decreased, and workers are often dismissed without terminal benets (Khan, 2005). Commenting on Asian women workers in general, Agnes Khoo[1] remarked that such contratualization has made women workers highly vulnerable to and unprotected against the whims of management. In India, a contract labourer is regulated by the Contract Labour Regulation and Abolition Act, 1970. A contract labourer is dened in the Act[2] as one who is hired in connection with the work of an establishment by a principal employer through a contractor. While a contractor is the supplier of contract labour for the organisation, a principal employer is the person responsible for the control of the establishment. This act applies to any establishment in which 20 or more workmen are employed on a contract basis on any day of the last one year and also to all contractors who employ or have employed 20 or more workmen on any day of the preceding 12 months. Every principal employer to whom this Act applies, should necessarily register his/her establishment in the prescribed manner for employing contract labour. If the government at any point of time is dissatised with the practices followed, it can revoke the registration of an establishment. Contract workers need to be paid as per the Minimum Wage Act of the current year. To safeguard the health and welfare of contract labourers, certain provisions have been made mandatory by the Contract Labour Act. Amongst other provisions, facilities required to be provided under sections 18 and 19 of the Act are, sufcient supply of wholesome drinking water and sufcient number of latrines and urinals. If contract labourers are required to halt at night in connection with the work, the contractor is bound to provide hygienic rest rooms with separate rooms for women workers. If the number of contract workers in an establishment exceeds 100, canteen facilities need to be provided as well. First-aid facilities should also be available to the contract workers with a person trained in rst aid in attendance. It is the primary responsibility of the contractors to provide all facilities to the workers as mandated in the Act. However, the principal employer should ensure the presence of his authorized representative at the place and time of disbursement of wages by the contractor to the workmen and it is the duty of the contractor to ensure the disbursement of wages in his/her presence. The authorized representative of the principal employer shall record under his signature a certicate at the end of the entries in the register of wages, and all registers are required to be maintained as per the Act. However, if the contractor fails to pay wages or provide other facilities, the responsibility falls on the principal employer to provide the same within 30 days of the expiry of the time allowed to the contractor. Field ofcers of labour department are bound to conduct regular inspections to detect violations of the provisions of the Act.

Apart from the regulatory measures provided under the Act for the benet of contract labour, the government can prohibit employment of contract labour in any establishment in any process operation or other work. Such restrictions are often decided on the basis of whether the work is perennial in nature, or the work is incidental or necessary for the work of an establishment. In such cases it is also examined whether the work is being done ordinarily through regular workmen in that establishment or a similar establishment. In order to ensure proper adherence to the regulations there are government ofcials for inspection to detect violations of the norms. But because of the involvement of two separate entities, viz. the contractor and the principal employer in management, employer-employee relationship often becomes blurred. Consequently, contract labour often does not get its due and this gives rise to avoidable litigations. An unresolved and emotive controversy is whether contract labour can be used in the core activities of an establishment together with regular employees. A set of perennial or core activities is dened in terms of what a company had declared as its main activities at the time of registration under the Factories Act of 1948. Several litigations arose because of the use of contract labour in the so-called core activity and a number notications were issued prohibiting the companies from employing contract labour for some specied work. At present, no establishment is prohibited, in general, from employing contract labour for the core activities. If need be a state government, can amend this provision of the Act. A few state governments have gone ahead with such amendments. In this context, it is often argued that not only is the law under-protective, but also it is hard for workers under this form of employment to prove their identity as workers under the labour law, and the employer-employee relationship is also not easy to establish (Kumar, 2002). Furthermore, whatever little is provided for under the law, is often not adhered to in practice. This is because a contract worker seldom has the means to get legal support and to seek redress against violations; any complaint would only result in loss of his/her job. This lack of proper enforcement mechanism is not specic to India. In the context of South Africa, Theron (2002) points out that despite enacting several laws like Basic Condition of Workers Act, the Equity Act, etc. lack of enforcement makes them futile. On the surface all is well. On the ground, things could hardly be worse (Theron, 2002). The situation is no different in Bangladesh. Khan (2005) observes that labour laws are not implemented in most of the privately owned industries in Bangladesh. Given this background, this paper examines the extent of use of contract labour across various industry groups in India. Using a panel data model for a cross-section of 60 industry groups (classied according to the products), we propose to study the contributions of different sections of labour, viz. contract workers, regular workers (shop oor level workers; not ofcial or supervisor category) and managers, supervisors and other ofcials. Given the under-protective labour laws, the study also tries to examine the actual status of labour through a eld survey in an industrially prominent state of India viz. Karnataka. The survey is mainly focused on the manufacturing sector. The paper is arranged as follows. In Section 2, an analysis of secondary data relating to the use contract labour at all India level is presented. While Section 3 examines the secondary data to assess the contribution of contract workers to the total production, Section 4 is devoted to summarize the ndings from the eld relating to the status and

Globalisation and labour market exibility 171

IJDI 8,2

deprivations of this class of workers. The concluding section provides certain policy suggestions. 2. Increasing use of contract labour in the registered manufacturing sector The annual survey of industries (ASI) of India provides data on different indicators relating to the registered manufacturing sector, using National Industries Code classications (NIC)[3]. However, data on contract labour was not available in these reports till 1997-1998. Fortunately, the reports provided with information on employment details of contract workers in addition to information on regular employed workers for the years 1998-1999 to 2000-2001. This has enabled us to examine the extent of use of contract labour in different industries in the country as a whole. By examining different industry groups, we found that the use of contract labour, as measured by the ratio of contract workers to contract plus direct (regular) workers (total), varied widely across them. Expectedly, the percentage of contract workers to all workers has shown an increasing trend (Table II) over the years, revealing the increasing popularity of this form of labour-use in the manufacturing sector. While Table II presents an overall picture, a disaggregated analysis conrms that there are wide variations in sectoral level gures. 2.1 An industry level analysis Expectedly, there has been a steady increase in the use of contract labour by almost all major industrial groups. The rankings of industry groups in terms of share of contract workers in total workers during these three years have more or less remained static except for the tobacco industry; whereas, the metal and the mineral industries show higher than average use of contract labour. Industrial groups at the all India level that use almost no contract labour are those dealing with wood and wood products, recorded media operations, photographic equipment aircraft manufacture, etc. At the all-India level, textile and textile product industries have reported relatively lower use of contract labour, i.e. between 8 and 10 per cent. On the other hand, enterprises engaged in metal products manufacture, recycling of metal wastes, food processing and animal feed processing are the highest (above 40 per cent) users of contract labour (Table III). Some of the higher-end industries like ship or aircraft building (mostly under public sector), photographic equipments making, etc. need workers with specialized skills, who cannot be replaced at short notice. Apparently, for this reason, these rms do not depend generally on contract workers. On the other hand, sectors like textiles, leather goods, etc. are dominated by comparatively smaller rms that do not go through contractors to employ labourers. As they directly employ the workers, even though
1998-1999 1999-2000 19 14 0 72 2000-2001 20 13 0 63

172

Table II. Summary statistics of percentage of contract labour to total workers in the manufacturing sector of India

Mean Standard deviation Minimum Maximum

14 13 0 73

Source: Compiled from ASI Reports (1998-1999 to 2000-2001)

1998-1999 Percentage of contract to all workers Industry group Textile Textile products Machinery (non electrical and electrical) Wood and wood products Transport equipment 12 14 15 16 19 19 21 22 34 63 12 Transport equipment Wood and wood products 12 11 10 12 12 13 15 16 19 Food products 20 20 24 28 33 60 8 8 Textile Textile products 8 9 Industry group 7 9 10 11 11 11 13 13 14 17 18 18 20 22 34 Other manufacturing industries (not included elsewhere) Machinery (non electrical and electrical) Percentage of contract to all workers Percentage of contract to all workers

1999-2000

2000-2001

Industry group

Textile products Machinery (non electrical and electrical) Textile

Other manufacturing industries (not included elsewhere) Leather and leather products Wood and wood products Rubber, plastic and petroleum products Paper and paper products Leather and leather products

Rubber, plastic and petroleum products Paper and paper products Mfg. of beverages, tobacco and tobacco products

Metal products

Chemical and chemical products Transport equipment Food products Basic metals and alloys Basic metals and alloys Metal products Non-metallic mineral products Mfg. of beverages, tobacco and tobacco products

Leather and leather products Rubber, plastic and petroleum products Paper and paper products Other manufacturing industries (not included elsewhere) Chemical and chemical products Food products

Non-metallic mineral products

Chemical and chemical products Basic metals and alloys Metal products Non-metallic mineral products Mfg. of beverages, tobacco and tobacco products

Source: Compiled from the ASI reports

Globalisation and labour market exibility 173

Table III. Industry wise use of contract labour: all India

IJDI 8,2

174

often on terms and conditions of employment that are contractual in nature; these workers cannot be categorised as contract workers. In the tobacco industry, the work is often contracted out and hence one may observe involvement of more number of contract workers. However, varying though in percentage terms, an increasing use of this exible form of labour has been clearly visible in most industry groups during 1999-2001. Thus, one would expect this form of labour to be economically benecial for the industry. The next section examines this issue using secondary data from ASI covering 60 industry groups for the three consecutive years. 3. Contract labour as a factor of production? A panel data analysis To examine the contribution of contract labour to the total production, we have taken the cross-sectional data for different industrial groups classied according to the three-digit level NIC code at the all India level. We here consider a regression model of the form[4]: Log Y it b0 b1 log X 1it b2 log X 2it b3 log X 3it b4 log X 4it b5 log X 5it uit where Y, value of output; X1, invested capital ( xed capital working capital); X2, fuel used; X3, number of contract labourers used; X4, number of direct workers[5], X5, number of other employees (supervisors, managers, etc.) and u, the error term satisfying the usual conditions. Year-wise regressions (1998-1999, 1909-2000, 2000-2001) are run to examine whether the impact of the factors has changed over the years. Given the fact that we are dealing with cross-sectional data, before running the regressions we had to ensure that there was no heteroscedasticity present, and the test revealed absence of the same. The results are presented in Table IV. Thus, we observe that capital, contract labour and other employees (which incorporate managerial staff and other ofcer level employees) signicantly contribute to the output level. However, it is also interesting to note that direct worker category (the regular shop-oor worker), i.e. the class of workers who are neither ofcer or supervisor nor contract labourer is not a signicant factor for production. The regression results of 2000-2001 convey similar messages (Table V). The above two regressions reveal certain interesting features. The coefcient of direct worker being negative in a log linear frame-work, is indicative of negative
df 5 55 60 F 82.40 Coefcient 2.23 * 0.53 * 0.05 0.11 * 2 0.14 0.45 * Signicance 0.00 p-value 0.00 0.00 0.55 0.01 0.19 0.007

Table IV. Regression results for determinants of output-all India, 1998-1999

Regression Residual Total Variables Intercept Invested capital Fuel used Contract labour Direct worker Other employees

Notes: Signicant at *1 per cent level; dependent variable: value of total output; R 2 0.91; adjusted R 2 0.90

elasticity (though the coefcient is insignicant). Thus, there may be need for rationalization of this category of labour, but rigidities arising from labour regulation comes in the way of the required rationalization. Ofcer level employees as well as contract labourers have signicant contributions; but the signicant level of ofcer level employees is seen to be declining over time. Increasing contribution of contract workers over the years may be due to the fact that they are being increasingly used for production purposes (core activities) in addition to being employed for peripheral tasks[6]. While year-wise regressions give us an idea about the changing nature of the coefcients, with cross-section data for three consecutive years, for econometrically more rigorous results one can run a panel data regression model. 3.1 Panel data analysis A xed effect log linear panel data model is tested to mainly examine the signicance of contract labour as a factor of production[7]. Hausman test shows that a xed effect model is preferred to a random effect model. The model under consideration is as follows: LogY it b0 b1 log X 1it b2 log X 2it b3 log X 3it b4 log X 4it b5 log X 5it uit where Y, value of output; X1, invested capital ( xed capital working capital); X2, fuel used; X3, number of contract labourers used; X4, number of direct workers; X5, number of other employees (supervisors, managers, etc.); u is the error term satisfying the usual conditions; i, index for an industry group; t, time index, 1998-1999 to 2000-2001. Results are summarized in Table VI. Thus, it is evident that among different categories of labour, contract labour is gaining more signicance. It also suggests that the other two categories of labour can be reduced without hampering the level of output. Hence, the argument given above on rigidities arising from regulations strengthens. If such exible form of labour is providing value additions to the entrepreneurs (in terms of production), are the employers compensating the contract workers appropriately through wages and other benets? To examine this, however, there are no secondary sources of data available at a macroeconomic level. This led us to carry out a primary survey on a case study basis in an industrially developed state in India, viz. Karnataka.
df 5 55 60 F 92.66 Coefcient 1.70 * 0.71 * 0.01 0.14 * 2 0.14 0.30 * * Signicance 0.00 p-value 0.0001 0.00 0.90 0.004 0.33 0.09

Globalisation and labour market exibility 175

Regression Residual Total Variables Intercept Invested capital Fuel used Contract labour Direct worker Other employees

Note: Signicant at *1 and * *10 per cent levels, respectively

Table V. Regression results on determinants of output, all India, 2000-2001

IJDI 8,2

176

4. Contract workers in selected manufacturing enterprises: a survey-based analysis While the use of contract labour helps a company to bring down costs, according to the HR Manager of Hindustan Latex, a public sector enterprise, the main advantage is in terms of enhancing labour exibility rather than cost-saving. At times when the workload is high, this can become essential, as permanent employees cannot be easily compelled to work overtime, even with compensation. Use of contract labour in such situations can help a rm to meet production deadlines, which may be crucial to the very survival of the rm. In addition, exibility in hiring and ring procedures insulates the employers from the different legal obligations. This phenomenon is true of both private and public enterprises. For example, an automobile-body building company in Karnataka, India, reports that it was able to nish body building of four buses in a month by using regular employees, whereas, by engaging equal number of contract workers, the rm was able to turn out about 20 buses a month. Thus, while a rm either public or private is beneted by the use of contract labour, the question that arises is, whether the contract labourers receive wages and benets commensurate to their contribution? Given the general concern about casualization and consequent exploitation of labour in the less-developed countries, it is important to examine the status of this segment of the Indian labour market. To study the status of contract labour in the registered manufacturing sector, a survey of 200 contract employees spread across different manufacturing rms in Karnataka, in particular those located in the capital city Bangalore, was been carried out. This section delineates some of the ndings of the survey. 4.1 Approach to information We may classify the manufacturing sector broadly into two categories: public and private enterprises. Public enterprises are sub classied as Central and State Government public sector units in view of their distinct characteristics. Private enterprises are stratied as large and small. A large manufacturing unit is considered here as one having 100 or more employees or one with investment more than Rs 10 million or a subsidiary unit of a multinational company[8]. On the other hand a small manufacturing company is one with less than 100 employees and/or with investment less than Rs 10 million. Using the list of companies obtained from the labour department, a multi-stage sampling design was evolved. First, a company is selected and then all the contract
Fixed effect within regression: no. of observations 180 Overall R 2 0.91 Prob. . F 0.000 Dependent variable log (output) Independent variables in log form Coefcients Standard error Capital 0.285 * 0.07 Fuel used 0.528 * 0.065 Contract labour 0.103 * 0.017 Direct worker 0.128 0.079 Other employees 0.733 0.068 Constant 2.88 0.602 Note: Signicant at *1 per cent level

Table VI. Fixed-effect panel data regression results for determinants of output India

t-values 4.08 8.09 6 1.62 1.08 4.78

p-values 0.000 0.000 0.000 0.11 0.28 0.000

workers of the unit are interviewed. The number of companies selected from each of these subgroups is in proportion to the number of companies in the group. Though most of the companies selected are from Bangalore, companies from other towns of Karnataka such as Mangalore, Mysore, etc. were also included. Any study on contract labour is beset with problems. Firms employing them are not always forthcoming with facts or are willing to cooperate with the researcher et al., 2004). Our experience with employers was no exception. We had to (Deshpande wait for the workers at the gate of these industrial units as done in Exit Path, to interview them. Owing to work fatigue, their eagerness to return home and for fear of retribution of their employers, employees were reluctant to answer our queries. Nor were they able to foresee any immediate benet from this research. Though we had planned to divide the population into several strata incorporating different features of contract labour, e.g. type of job they are engaged in, etc. the problems faced in the pilot survey compelled us to use only a simple sampling technique. A structured questionnaire is used to interview the contract workers and the data are processed using the SPSS package. 4.2 Extent of contract labour Of the selected enterprises, about 20 per cent were found to be not using contract labour. Only a few of the remaining 80 per cent enterprises gave us access to their contract workers for the survey. We have collected data from 30 companies out of which six were public enterprises; of the remaining 24 companies, 18 were comparatively smaller enterprises and six large rms. As reported by the respondents, use of contract labour varies widely across different enterprises, starting from about 6 per cent to as high as 80 per cent. However, it is found that public sector rms depend on contract labour to a lesser extent than private enterprises. This may be due to the fact that the public enterprises do not always work under a strict prot maximization drive. Public enterprises are also apprehensive of demand for regularisation of contract labour. Large private rms try to provide better incentive to their employees and generally do not hire their core workers through a contractor. Small enterprises however, compete in the market on the basis of low labour cost. This category of enterprises therefore depends heavily on contract workers. The jobs that are handled by these workers vary widely, but security guards, house-keepers and helpers are the most common categories. In our sample, we found around 11 per cent (Table VII) of workers as having engaged in technical jobs and these were usually actual production-related tasks (perennial in nature)[9]. In addition, there were a sizeable number of contract workers engaged in loading-unloading work. 4.2.1 Educational level. Our study also reveals certain disturbing features regarding the educational background of contract workers. Nearly, 50 per cent of the contract workers have a minimum of 10-12 years of education. Only 25 per cent have education of less than ten years, and illiterate were only 12 per cent. Surprisingly, 10 per cent of the contract workers were found to have university degrees. What is unusual about this pattern? A few years ago, especially prior to the on-set of globalisation, in popular perception a contract worker was usually a semi skilled, less-educated, migrant employed through contractors to perform menial tasks. Instead what is emerging in the liberalized and globalised industrial economy is that more and more well-educated persons are coming as contract workers through contract agencies.

Globalisation and labour market exibility 177

IJDI 8,2

Type of job Gardening Canteen Security Technical Loading and unloading/packaging House keeping Helper Others Note: Others include tailoring, painting, etc. Source: Field survey

Percentage 0.55 2.75 8.79 10.99 12.64 19.78 39.01 5.49

178
Table VII. Percentage of workers classied according to the job type

With the exception of highly qualied professionals, it appears that the avenues available in the emerging industrial sectors are largely contract labour. 4.2.2 Migration. In addition to the educational situation of contract workers, their iteneraul nature also gives out disturbing signals. Our survey of the contract workers in particular, and other workers in general, indicate that Bangalore City is attracting a large section of vulnerable workers, as migrants. Our sample of contract labourer indicates that nearly 86 per cent are migrant workers. In particular, 60 per cent migrants are from north Karnataka (dry and drought-prone region of the state) and 25 per cent are from southern parts of the state. The rest (14 per cent) are from other economically backward regions of the country. The drought-prone areas of the country , 2002; are also known for farmers suicide due to crop failure and debt (Deshpande Vasavi, 1999). These migrant workers use social networks for sponsored migration, which by itself is a theme for a detail investigation and in depth sociological research. Having migrated in search of employment, they tend to become victims of manipulation and exploitation by the labour contractors (self-styled or professional), and end up as contract labourers in the emerging industries. In the absence of any legal support, these contract labourers tend to be at the mercy of either the contractors or those who sponsored their migration. 4.2.3 Wages and other incentives. There are three categories of rms as far as wage payment is concerned (Rajeev, 2006b). First is the large private rms that pay more than market wages as efciency wage. The efciency wage hypothesis (Solow, 1979) in economics states that if work effort depends positively on the wage level, a prot maximizing rm would nd it protable to pay above the market clearing level. The second category of rms are those which strictly adhere to the prescribed minimum wage norms. Public sector rms fall in this category. The third category comprises the large number of small private rms who prefer to employ less educated workers who can be paid even less than minimum wages. Most migrant labour, especially from northern Karnataka, and the eastern and north-eastern regions of India fall in this category. Legal or illegal migrants from Bangladesh or Nepal too fall within this category. Contract workers in the third group of rms are the most vulnerable ones; they are often the victims of corrupt practices through collusive agreements between the principal employer and the contractor or the labour inspectors[10]. Our survey reveals

that only 6.5 per cent of workers earn more than Rs 2,500 per month. A majority of contract employees (above 80 per cent) earn below Rs 2,000 and there are quite a few earn below Rs 1,000 (i.e. approximately, $ 25)[11] per month. This is clearly below the minimum wage and hence lack of compliance with the law is apparent. Though the Labour Department ofcials like labour inspectors are supposed to control these violations, abuse of laws appears to be rampant. Further, these workers are paid only for the days they work, and if and when a worker is unwell, it is the responsibility of the contract agency to send a substitute (badli) to the rm. Neither the principal employer (the rm owner), nor the contractor is obliged to offer benets such as leave with pay, etc. as are usually offered to regular employees. Although the respondents in our study were aware that the work hour per day is eight, they all worked beyond eight hours, and more often than not did not receive any extra payment. In case of payment of additional wages for over-time, workers are seldom aware whether what they get conforms to wage norms or are on ad hoc basis. Further, periodic increment in wage is often viewed by the employees as a mark of appreciation of the hard work and provides incentive for harder work. However, in case of contract labourers, over 70 per cent has no experience of receiving any wage increment. Though regular employees in the factory sector get yearly bonuses, usually during festival time, contract employees are rarely given any bonus. Indeed, 61.3 per cent of them have never had the experience of receiving bonus, while 30 per cent reported having received a nominal bonus of less than Rs 3,000 and the rest nothing at all. Thus, contract workers are deprived of a number of incentives enjoyed by the regular employees. This is found to have created a feeling of discrimination among the contract workers (Rajeev, 2005). As far as stipulated benets are concerned, 100 per cent workers reported having provident fund (PF) benets, and 68 per cent getting medical facilities through the Employees State Insurance (ESI) scheme (Table VIII). These workers reported availing of ESI facilities when their family members were sick. It is heartening to note that about 40 per cent of the workers enjoy the facility of free or subsidized food during the working hours. 4.2.4 The irony of having PF benet. Though contract workers enjoy PF benets, contributing to the fund is often a burden to them rather than an aid. It is a burden in the sense that each month a xed amount is deducted from their meagre salary as PF contribution. However, these workers often change the contractor for whom they work
Benets ESI Earned leave Medical leave Incentive/gift Free food Subsidized food Transportation facility Uniform Note: Since these benets are not mutually exclusive they may not add up to 0 Source: Field survey Percentage 68 2 12 12 7 33 0 14

Globalisation and labour market exibility 179

Table VIII. Benets enjoyed by the workers

IJDI 8,2

180

for, and a new PF account is then opened. Unfortunately, once a worker leaves a contractor, he/she never gets any cooperation from the latter in retrieving the money contributed. Many contract agencies also close down, and then retrieving the PF due becomes very difcult. It is also the duty of the principal employer to verify the PF details, which is seldom complied with. In order to recover the PF amount, a contract worker has to have a bank account in which the sum due would be deposited. Contract workers generally nd it difcult to maintain accounts because of minimum deposit stipulations of banks. This makes recovering their PF dues even more difcult. In addition, there are a number of unregistered contract agencies that deduct PF contributions from the workers but seldom deposit the money in the PF ofce. In our study, we observed that 64 per cent of the contract workers have not been able to recover their PF amount due to them (Rajeev, 2006a, b). What does the future hold for these workers with meager salaries and no social security? 4.2.5 Training, skill formation and job options. As far as training is concerned, we observed that as high as 92 per cent of contract workers have not received any training either from the contract agency or elsewhere, before taking up their jobs; this implies that there is not much value addition in quality by the agencies that supply labour, except in reducing the search cost for the principal employer. These agencies appear to exist more as middlemen to facilitate labour exibility to the principal employer. Some of the bigger contract labour agencies (security providers), however, do impart some training to their security guards, mainly on formal behaviour and maintenance of registers. Further, skill formation during the period of employment (average years of working being ve years) is also reported to be almost nil. In fact 86 per cent of the workers reported that no skill formation took place. Thus, for the workers, future career options appear to be highly limited. A few selected contract labour agencies follow promotion policies and promote some of the security guards to supervisory levels with an increment in the wage levels. To a question as to what job they would like to be engaged in, given a choice at their present skill level, most workers replied that they were ready to do any kind of job with no specic eld or skills in mind. Only 2 per cent employees expected a better job, meaning better emoluments than the present job; on the other hand, 8 per cent employees still wished to go back to their villages to get back to agriculture if the draught situation improved. Most of the workers engaged in technical jobs preferred to do similar jobs, if available. But interestingly, as high as 79 per cent contract workers were willing to undertake any work that is available. Their education level made no difference in such a preference. This indicates that they have either not developed an afnity towards any profession or they are so pessimistic about job prospects that anything that ensures some income for daily survival appears to be acceptable to them. This situation prevailed in the liberalized regime which witnessed even 8-9 per cent growth. Thus, one expects the conditions to worsen further in the face of current recessionary trend. In this background it is not surprising that the opportunity costs for these workers are not higher than their present earnings. In fact, most of the employees including educated workers (graduate and technical persons) are ready to do any job they get and 70 per cent of the employees are even ready to work for wages below Rs 2,000 a month. The rest are willing to work for Rs 2,000-3,000. This percentage is only slightly better than what is prevailing now, where 90 per cent contract employees earn below Rs 2,000.

It is clear that though contract labour makes signicant contribution to the production of a rm they are often deprived of many basic facilities that regular employees enjoy. Not only their wage levels are lower, but they do not get wage increments, appropriate compensation for overtime work and bonus. Social security net-work for this class of labour is found to be inadequate or ill-functioning. Developed countries that follow the market economy model also provide extended social security for workers to tide over the periods of unemployment or sickness. With more and more contractualization of labour, it is not only necessary to ensure a reasonable wage level, but also to strike a balance between the two crucial concerns relating to industrial development, viz. exibility in production and social security for the labour. If our experience is any indicator, even what little is ensured by the law is seldom provided in practice. 5. Conclusion The process of liberalisation as pursued in India and the consequent globalisation of market economy has bestowed certain peculiar features to Indias formal/organized sector. While in the west outsourcing of service delivery is exceedingly becoming common, what is becoming common in Indian industry is outsourcing of labour. Small time registered and unregistered rms are gradually evolving into suppliers of labour both skilled and unskilled. These labour contracting rms or agencies form part of an informal sector, with no visible difference from an agency engaged in real estate buying and selling. They combine the principle of rent seeking both from the vulnerable workers and the gullible entrepreneurs. In the process, the contract workers become chattel-like on one hand, and a replaceable factor of production on the other. Finally, at the work place, they face several hardships. The regular workers look at them with suspicion, because potentially such workers may one day displace all the permanent workers. Second, either due to the above suspicion or lack of inclination on their part, they are not included in the collective bargaining process in any way. Despite the problems faced by this class of labour, contract labour has come to stay. Post-liberalisation growth in India, often termed as Jobless Growth has not been able to create sufcient regular employment till the recent past, though the situation has shown improvement subsequently. However, the recent global recession is going to put more pressure on labour. Further, with over 60 per cent of the population being dependent on agriculture, a large part of the agricultural work force has very little to fall back if the weather gods play truant. Thus, from the policy perspective there are several challenges to face. First, it is essential to strengthen the agricultural sector with proper technologies and irrigation facilities so that farmers dependence on the monsoons is not so critical. Development of smaller towns is another necessary step. These measures would stop the inow of surplus agricultural labour to the metros in search of livelihood; in fact they constitute the bulk of contract labour. It has been the general feeling of a large number of rms that contract labour is indeed paid very low wages. Many enterprises revealed during our eld survey that they are ready to enhance the wage level of contract workers provided minimum wage norms are revised accordingly. While public sector always go by minimum wage norms, as mentioned earlier, many of the comparatively larger private companies pay more than the minimum wages to attract skilled labour. Smaller companies on the other hand are often unable to pay higher wages. Thus, rather than xing a uniform

Globalisation and labour market exibility 181

IJDI 8,2

182

minimum wage rate for all rms, wage rates for contract labour should be linked to the wages paid by the rm to the direct worker[12]. This would not only reduce wage disparity between regular and contract workers, but also lessen feelings of discrimination amongst contract workers. More importantly, it should be noted that the provision of PF benets appears to be more a burden than an assistance to workers. Our survey also reveals that labour is often exploited on this pretext. It is therefore necessary to design alternative social security schemes directly benecial to contract workers. A separate survey (Rajeev and Bhat, 2006) of construction workers reveals that their plight is even worse than that of the contract labour in other manufacturing enterprises in terms of social security measures. ESI benet, which is of great help to the contract workers, does not seem to be available to the construction workers. Given the increasing use of non-permanent workers in the economy, it is the responsibility of the state to ensure proper social security measures for this vulnerable class, through regulations, especially during periods of unemployment and sickness. In fact, the labour class is ready to contribute to such funds if they actually benet them. Otherwise, in a labour surplus economy, such lower category of workers would remain as toys in the hands of the employer.
Notes 1. Interview by Agnes Khoo, Program Ofcer of the Committee on Asian Women (1997, www.cld.org). 2. Contract Labour Regulation and Abolition Act, 1970. 3. This classication is done to classify the rms in different industry groups, e.g. manufacture of basic chemicals, foot wares, rubber and plastic products and so on. 4. Apart from labour, other variables are in value terms and in lakhs of rupees (1 million 10 lakhs), labour-related variables are in numbers. Simple linear regression has also been tried and we arrived at qualitatively similar results. 5. Regular employee who is not in the supervisor, manager or other ofcers category. 6. However, due to non-availability of diaggregated data one cannot established this concretely. 7. Variables are considered at constant prices; xed capital is deated using perpetual inventory method. 8. Through our pilot survey, we observed that a subsidiary of a large multinational company, irrespective of employment size or investment, has similar wage and benet policies to the parent company. 9. There exist substantial controversies regarding whether contract labour should be used for perennial work or not. 10. For a game-theoretic modeling of this collusive agreement (Rajeev, 2003, 2005; Marjit et al., 2000). 11. Rs 900-1,500: 29.4 per cent of workers; Rs 1,500-2,000: 49.7 per cent; Rs 2,000-2,500: 13.4 per cent; Rs 2,500-3,000: 3.2 per cent; Rs 3,000-4,000: 4.3 per cent. 12. Which category of regular employees to be considered would vary from rm to rm. References Agarwal, R. (2001), Labour laws and contemporary issues, Manpower Journal, Vol. XXXVII, pp. 39-47.

Besley, T. and Burgess, R. (2002), Can labor regulation hinder economic performance? Evidence from India, CEPR Discussion Paper No. 3260, Centre for Economic Policy Research, London. , R.S. (2002), Suicides by farmers in Karnataka: agrarian distress and possible Deshpande alleviatory steps, Economic and Political Weekly, Vol. 37, pp. 2601-10. , L.K., Sharma, A.N., Karan, A.K. and Sarkar, S. (2004), Liberalization and Labour: Deshpande Labour Flexibility in Indian Manufacturing, Institute for Human Development, New Delhi. Khan, A.S. (2005), Impact of Globalization on Labour Market and Workers, Challenges and Opportunities: Trade Union Action, available at: www.globalnetwork-asia.org Kumar, A. (2002), Labour law reforms in India: some issues for consideration, Manpower Journal, Vol. XXXVII No. 4, pp. 39-47. McGovern, L.L. (2005), Neo-liberal globalization in the Philippines: its impact on Filipino women and their forms of resistance, paper presented at the Women and Globalization Conference, available at: wwwglobaljusticecentreorg/papers2005 Marjit, S., Rajeev, M. and Mukherjee, D. (2000), Incomplete information as a deterrent to crime, European Journal of Political Economy, Vol. 16, pp. 763-73. Rajeev, M. (2003), A search for an optimal policy in a corrupt system: a note, The Journal of Developing Areas, Vol. 37, pp. 159-70. Rajeev, M. (2005), Contract labour act: a pragmatic view, paper presented at the 1st Meeting of the Asian Law and Economics Association, Seoul. Rajeev, M. (2006a), Contract labour in Karnataka: emerging issues and options, Economic and Political Weekly, Vol. 41, pp. 2086-8. Rajeev, M. (2006b), How contract labourers are cheated, Deccan Herald, 16 January. Rajeev, M. and Bhat, V. (2006), Conditions of work for contract workers and construction workers, LabourNet, Vol. II, pp. 9-10. Solow, R. (1979), Another possible source of wage stickiness, Journal of Macroeconomics, Vol. 1, pp. 79-82. Theron, J. (2002), Labour law and the informal economy, paper presented at the Working Group Meeting, WIEGO, Geneva, available at: www.wiego.org/papers/geneva_report.doc Vasavi, A.R. (1999), Agrarian distress in Bidar: market, state and suicides, Economic and Political Weekly, Vol. 34, pp. 2263-8. Further reading Basu, K., Bhattacharya, S. and Mishra, A. (1992), Notes on bribery and the control of corruption, Journal of Public Economics, Vol. 48, pp. 349-59. Gazette of India (1970), Contract Labour Regulation and Abolition Act, 1970, Government of India, New Delhi. Corresponding author Meenakshi Rajeev can be contacted at: meenakshi@isec.ac.in

Globalisation and labour market exibility 183

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints