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Case For Temporary Staffing Reform To reduce Unemployment
A White Paper By Teamlease Services
This white paper is a confidential document of Teamlease Services prepared for private circulation. No part should be reproduced without permission and/or acknowledgement
Teamlease White Paper Confidential – for private circulation
INDIA’S LABOR MARKET o Labor force participation is a low 400 million of a 1 billion population o Organized employment has been stagnant at 30 million for thirty years (22 million in public sector, 8 million in private sector) o Unorganized employment is the bulk of the labor force (340 million) o Given that 269 million people are below the poverty line, even the majority of those employed can barely sustain themselves o Given India’s employment elasticity (0.15) and ICOR (3.75), the 8 million new jobs needed to freeze unemployment require an impossible annual GDP growth rate of 13.6% and investments of $125 billion LABOR REFORM BACKGROUND o Labor laws are a prisoner of a vocal minority of organized labor (mostly not poor, middle-aged, men) against the majority (poor, low skilled, women, self-employed, young and unemployed) o Unorganized employment is exploding with its low productivity, investment and lack of labor law enforcement o Unemployment, at 30 million, is more than organized employment o Jobless economic growth since 1990 has weakened grassroots social and political support for economic reforms CASE FOR LABOR REFORM o The coming unemployment explosion o India’s labor environment o Global trends in work CASE FOR TEMPORARY STAFFING o Temp jobs form up to 10% of employment in some countries o Ineffective public sector matching (of the 40 million people registered with employment exchanges in 2004 only 100,030 got jobs) o Globally 40% of temps find permanent jobs within one year o The International Labor Organization reversed its fifty-year-old position opposing temporary staffing in 1997 (Convention 181) o Temporary staffing accounted for 50% of the reduction in US unemployment and 11% of job creation in the EU in the 1990s o A study of US firms found that earnings, margins and stock returns improved with the increased use of temporary staffing o Temping gives outsiders (women, young, old, lower skilled, lower educated, poor, and unemployed, etc) access to labor markets. JOB POTENTIAL o A survey finds that reform to the Indian Contract Labor Act could create an additional 12 million temp jobs in five years.
Teamlease White Paper Confidential – for private circulation
India’s Labor Market
Population 1 billion
Labor Force 400-420 million
Agriculture Manufacturing Construction Services
60% 13% 5% 24%
Agriculture Manufacturing Construction Services
5% 26% 4% 59%
Organized Employment 30-50 million
ELASTICITY Agriculture Manufacturing Construction Services Overall
0 0.26 1 0.57 0.15
Agriculture, Construction, Retailing
Unorganized Employment 340-360 million
Low or no labor law enforcement Low productivity Low wages Low Skills
Not literate Literate upto primary Middle Graduate and above
0.2% 1.2% 3.3% 8.8%
Unemployed 30-50 million
Age 15-30 Female Men
12.1% 10% 7.2%
0.01% of employment relative to 10% in some countries
Temporary Staffing 0.08 million
Largely Sales, Technology, Admin, HR
Teamlease White Paper Confidential – for private circulation
SUPERVISION Reverse current over-regulation and under-supervision Industrial Relations Framework Wage determination Framework Job Security provisions Working condition provisions Mandatory Payroll Deductions Education and Skill development Gender Issues Lack of ability to afford broad social security CREATING VS. women.more than organized employment and growing rapidly POVERTY REDUCTION Given 269 million below the poverty line. MANUFACTURING VS. low skilled. PRIVATE SECTOR The organized private sector is only 3% of employment ORGANIZED VS. UNORGANIZED SECTOR Small Organized (large scale) with low employment and large unorganized (small scale) with low capital AGRI. Permanent COSTS/ ENFORCEABILITY End legislating ahead of enforcement capacity and payment capability SKILL DEVELOPMENT 44% of labor force is illiterate and only 5% estimated to have vocational skills Demographics Equity-Growth trade-off Teamlease White Paper Confidential – for private circulation 4 . SERVICES Negative elasticity of agriculture and labor saving bias of manufacturing OUTSIDER ACCESS Bias against outsiders (poor. URBAN SECTOR Rural job growth 25% of urban and fallen more than half since 1980 REGULATION VS.India's Labor Market Policy Issues Regulatory Issues UNEMPLOYMENT 30 milion officially. and young) by insiders (not poor. VS. middle-aged. men) RURAL VS. even employed barely sustain themselves PUBLIC VS. PRESERVING JOBS Shift from employment to employability Temporary vs.
growing youth Unorganized employment explosion Organizational and Supply chain deconstruction End of public sector job machine Internal & External Competition Intellectuallization Negative employment elasticity of agriculture Offshore markets/ FDI Rising female workforce participation Labor saving bias of manufacturing Nature of job opportunities Internationalization Inability to afford social security Effective & Incentivized HR industry Flexible work structures Low Skill levels China's reform Role of Employer Teamlease White Paper Confidential – for private circulation 5 .Case for Labor Reform Coming Unemployment explosion India's Labor environment Global trends in work Low Employment Elasticity of GDP Changed Role of Government Changing worker expectations Demographics.
skill development and experience Liquidity provider.Case for Temporary Staffing Public Policy Perspective Employer Perspective Employee Perspective Unemployment Reduction Just in time labor. handling fluctuating demand Keep in touch with the job market Outsider Access Auditioning permanent candidates Springboard to permanent employment Limited Permanent job substitution Improved Competitiveness Improved employability. Better matching of demand and supply Strategic Flexibility Lifestyle choice Stepping Stone role Differential pay for special skills Supplemental income Economic Value and job creation Matching expertise and Diversity Access Employer Access Competitive economy Handling planned and unplanned absences Training Teamlease White Paper Confidential – for private circulation 6 .
m. 18 months for employees with salary greater than Rs 6500 p.Recommendations for Temporary Staffing Reform in India Issue Consequence Recommendation Increased outsourcing to the unorganized sector Definition of Principal Employer Lower job creation Contract rotation Outlocation Sham consulting agreements Barriers for first-time job seekers and labor markets outsiders Amend Section 2(g). 7 of CLRA Recognize Contract Staffing Companies as the principal employer Amend Section 10 of CLRA Amend Sec 25B of IDA Allow contract/ temporary staffing in all durations. Perenial.12 of CLRA Compliance philosophy & decentrallization Over-regulation and undersupervision. Unorganized job creation. Teamlease White Paper Confidential – for private circulation 7 . industry. transparency. timing and location restrictions Amend Sec 15 of MWA Minimum wage rules for part-time work Lack of part-time work options Allow pro-rata salary payments under the Minimum Wages Act Amend Section 7. functions and industries Core. costs Create national licensing for contract staffing and move away from contract-by-contract Amend EPFO Act ESI Act High Mandatory Payroll Deductions Evasion. enforcement consistency. employee losses Only after 6 months.
Public policy perspective b. Previous Indian Labor reform proposals d. Recommendations for Temporary Staffing Reform in India 8. Reality 6. The coming unemployment explosion b. c. The Case for Labor Reform a. About Teamlease 29 33 37 38 41 42 45 52 60 73 79 97 111 119 Teamlease White Paper Confidential – for private circulation 8 . Employers perspective c. Results of Temporary Staffing Survey 7. The Temporary Staffing Industry a. 1. Global trends in work 3. Background b. Labor Reform in other Asian countries f. Preface 2. Geo-Historic evolution d.Table of Contents Page No. Labor Reform in China e. b. Labor Market Policy/ Regulatory Listing Historical Perspective – Three eras Key Issues 11 14 15 16 18 20 21 24 26 27 4. Global regulation e. Global markets c. Indian Labor Laws c. The Case for Temporary Staffing in India a. Indian Labor Market – Facts b. Bibliography g. India’s employment environment c. India’s a. Annexures a. Negative Perception vs. Employees perspective 5.
While a permanent. old. India’s progress will not be worth the trip if we do not give a majority of our people the strength and self esteem that comes with a job. But there is another side of the coin. Let the journey begin. middle-aged men in org anized labor) against the majority (young. lower skilled. poor. as with broader labor legislation. women. However. unemployed. greater employability. and create jobs. and self-employed). Current temporary staffing laws in India. However.PREFACE India’s economic reforms are on track and she has a new appointment to meet a heavily delayed “tryst with destiny”. staffing companies build stronger societies. and a working life with multiple careers and flexible hours. there is justifiable disappointment with the lack of new job creation or shift from unorganized employment since reforms began in 1991. temporary staffing. This white paper is our attempt to create background for a debate on one of the many possible solutions to unemployment. The much debated exit policy should be forgotten for now in the interest of moving forward. unorganized. for a significant part of public opinion and policy makers. In this way. This is unfair and needs to change. from preserving jobs to creating them and from giving fish to teaching how to fish. full-time job may still be the norm. The Team lease Team Teamlease White Paper Confidential – for private circulation 9 . namely the positive dimensions of flexibility. labor markets are changing. increment al steps are better than no progress. Labor reforms are controversial but equating them with firing workers is wrong. The job-for-life is being replaced with life-long learning. We need a “thought world” shift from employment to employability. favors a vocal minority (largely not poor. We make the case that temporary staffing companies address the flexibility needs of workers and companies. temporary staffing still has the negative connotations of precarious employment. lower unemployment. multi-skilling. outsider access. and increased labor mobility.
CHAPTER 2: THE CASE FOR LABOR R EFORM India’s economic reforms have produced results but the jobless growth of the 1990s needs to change; the case for deeper labor reform can be built on three grounds:
Case for Labor Reform
Coming Unemployment explosion
India's Labor environment
Global trends in work
Low Employment Elasticity of GDP
Changed Role of Government
Changing worker expectations
Demographics; growing youth
Unorganized employment explosion
Organizational and Supply chain deconstruction
End of public sector job machine
Internal & External Competition
Negative employment elasticity of agriculture
Offshore markets/ FDI
Rising female workforce participation
Labor saving bias of manufacturing
Nature of job opportunities
Inability to afford social security
Effective & Incentivized HR industry
Flexible work structures
Low Skill levels
Role of Employer
Teamlease White Paper Confidential – for private circulation
The coming unemployment explosion 1. Low employment elasticity of GDP India’s labor force growth of 2% a year needs 8 million new jobs just to keep unemployment frozen where it is. With an employment elasticity of GDP of 0.15 and an Incremental Capital output Ratio (ICOR) of 3.75, 8 million jobs need a sustained GDP growth of 13.6% and investments of $125 billion. These numbers are practically impossible and we will not have massive job creation unless we raise our employment elasticity of GDP. 2. Demographics; growing youth India is the only country in the world growing younger and more than 60% of our unemployed are youth. Current labor laws are biased against first -time job seekers and we will have a social catastrophe if the youth are not channelized into productive and self-esteem creating employment. 3. End of public sector job machine Public sector employment forms the majority of organized, formal employment. However, with an informal freeze or heavy slow down on recruiting and a tight fiscal situation, this sector is shrinking. Reinforced by privatization of PSUs, deregulation of government monopolies and overall liberalization, this sector cannot drive job growth. 4. Negative employment elasticity of agriculture The employment elasticity of GDP for agriculture is negative i.e. we could increase production by reducing the number of people employed. This represents massive underemployment due to the lack of alternative in rural areas and is not expected to change soon. 5. Labor saving bias of manufacturing The expectations of huge job creation from manufacturing are at odds with the labor saving bias and capital intensity of manufacturing of the last few years. For e.g. Bajaj Auto produced 2.4 million vehicles last year with 10,500 workers; in the early 90s they made 1 million vehicles with 24,000 workers. Also Tata motors made 311,500 vehicles with 21,000 workers in 2004; in 1999 it made 129,400 vehicles with 35,000 workers. 6. Inability to afford social security There are no formal social security benefits and India’s demographics and fiscal situation will not allow them in the future (even paying 26% of the population below the poverty line a social security benefit equaling 50% of the per capital income would need 13% of GDP; close to total tax receipts). The best and only viable social security is massive job creation. 7. Low skill Levels The percentage of the Indian labor force with skills/ vocational training is among the lowest in the world at 5.06%. Poor skills reduce worker productivity and also makes them less likely to fit into the service/ knowledge economy. More than 40% of the labor force is illiterate and only 5% are estimated to have the vocational skills for credible employment.
Teamlease White Paper Confidential – for private circulation
India’s employment environment 1. Changed role of government India’s labor laws were written after independence with the philosophy of state domination in business an legislation. The process d begun in 1990 of deregulation, privatization and liberalization has changed the economic and financial landscape but the assumptions underlying the labor regulatory regime have not been updated. 2. Unorganized employment explosion Unorganized employment is to be 93% of workforce. The explosion of the unorganized sector is largely to avoid irrational labor legislation but comes at the expense of benefits of the formal economy; credit access, training, benefits, etc. From a public policy perspective, the formal sector is more desirable because it offers better working conditions, improves employability, pays taxes and has higher productivity. 3. Internal and External competition Indian industry grew up in a protected environment but global competition and technological uncertainty have changed their habitat. Companies must respond quickly when new products are launched, new technologies are assimilated, new competitors emerge and old ones die, prices of products fall, cost of input materials rise, interest rates and exchange rates fluctuate, and so on. Companies need flexibility to handle all this change; the end of textile quotas creates a unique need for labor flexibility for Indian companies. 4. Offshore Markets/ FDI India has become an offshore services hub and is showing increased prowess as a manufacturing base. The globalization of supply chains and increased foreign investment offers a unique opportunity for India but needs an enabling environment of relevant and flexible labor regulations. 5. Nature of job opportunities India’s labor laws have been written for a time when agriculture and manufacturing were the main sectors of the economy. Furthermore, the off shoring revolution had not yet begun. A majority of new jobs in the next decade will be entry-level jobs in service and manufacturing. This fits well with our young population but current labor laws are stacked against first time job seekers. 6. Effective and incentivized HR industry An increase in HR firms has led to improved demand and supply matching in India’s labor markets. Their efficiency will only increase as global majors enter the country and raise competition Temp staffing . companies a particularly economically incentivized to keep people at work since re any gap or delays in matching candidates and jobs represents losses. 7. China ’s reform China has modified its labor laws to create an exceptional environment for investment and job creation. It is our biggest competitor for jobs arising out of global FDI and the globalization of supply chains ; we need to worry about our relative attractiveness which seems to have weakened. This is particularly relevant in labor intensive industries like toys, textiles, machine tools and many more.
Teamlease White Paper Confidential – for private circulation
Further. its knowledge and direction. Embodied in this first leaf are the organization’s culture. limited duration contracts and temporary staffing. a full time job (38-40 hours a week) with a permanent. open-ended contract with an employer. The underlying forces include a decline for unskilled and semi-skilled labor driven by technological innovations that greatly increase the productivity of skilled workers. 7. Intellectualization Globally. New forms of labor demand and supply have emerged as a consequence of the changing and more heterogeneous preferences of both employers and employees. Flexible work structures Many work relationships are different from the standard. particularly married women with children is a major driver towards more flexible labor markets. this may accelerate but specifics will depend upon politics and non-economic factors. Internationalization Labor markets are globalizing in two ways. Role of Employer Employers are no longer viewed as paternalistic providers of lifetime employment and benefits. technicians. Charles Handy talks about the “shamrock organization” where the core structure of expertise consists of essential managers. Teamlease White Paper Confidential – for private circulation 13 . 2. r gardless of labor force composition by age or e gender. Organizational and supply chain deconstruction The traditional boundaries of a company are being redefined by technology but the driv forces are strategy and ing focus. stability and tenure. the chance of finding a job rise with education. 4. The labor force is in transition from a uniform male breadwinner society towards a multiplicity of household working arrangements. Emergent workers are more concerned about opportunities for mentoring and growth and are less focused on the traditional arrangements of job security. and professionals forming the nerve center of the organization. part -time work. Rising female workforce participation The huge entry of women into the workforce. Given the demographics and cost structures of developed countries. The second leaf of the shamrock comprises the non-essential work that may be farmed out to contractors. 6.Global trends in work 1. Changing worker expectations A study by Spherion Corp identified what it calls the “emergent workforce”. the transition to a service economy demands higher socials skills and accelerates skill obsolescence. versus “traditional” workers who believe that an employer is responsible for providing a clear career path and in return deserves an employee’s long-term commitment. 5. workers who need to feel more in control of their careers and want an employer who rewards them based on performance. The third leaf is the flexible workforce. labor mobility (physical movement of people) and job mobility (offshore manufacturing and service delivery). This has also led to the monetization of benefits and a move to CTC (Cost-t o-Company) in compensation. 3. There is more frequent use of self employment. temporary and part-time workers who can be called on to meet fluctuating demands for labor. The huge participation dip by women when families were formed (the children break) around age 30 is no longer significant.
1% 10% 7.15 Agriculture.08 million Largely Sales.3% 8. HR Teamlease White Paper Confidential – for private circulation 14 .57 0. Technology.2% 3.2% 0.01% of employment relative to 10% in some countries Temporary Staffing 0. Construction.26 1 0.2% 1.CHAPTER 3: INDIA’S LABOR MARKET Population 1 billion Labor Force 400-420 million Agriculture Manufacturing Construction Services 60% 13% 5% 24% Agriculture Manufacturing Construction Services 5% 26% 4% 59% Organized Employment 30-50 million ELASTICITY Agriculture Manufacturing Construction Services Overall 0 0. Admin.8% Unemployed 30-50 million Age 15-30 Female Men 12. Retailing Unorganized Employment 340-360 million Low or no labor law enforcement Low productivity Low wages Low Skills Not literate Literate upto primary Middle Graduate and above 0.
and young) by insiders (not poor.more than organized employment and growing rapidly POVERTY REDUCTION Given 269 million below the poverty line. SUPERVISION Reverse current over-regulation and under-supervision Industrial Relations Framework Wage determination Framework Job Security provisions Working condition provisions Mandatory Payroll Deductions Education and Skill development Gender Issues Lack of ability to afford broad social security CREATING VS. middle-aged. PRIVATE SECTOR The organized private sector is only 3% of employment ORGANIZED VS. MANUFACTURING VS. UNORGANIZED SECTOR Small Organized (large scale) with low employment and large unorganized (small scale) with low capital AGRI. women. Permanent COSTS/ ENFORCEABILITY End legislating ahead of enforcement capacity and payment capability SKILL DEVELOPMENT 44% of labor force is illiterate and only 5% estimated to have vocational skills Demographics Equity-Growth trade-off Teamlease White Paper Confidential – for private circulation 15 . SERVICES Negative elasticity of agriculture and labor saving bias of manufacturing OUTSIDER ACCESS Bias against outsiders (poor. low skilled. URBAN SECTOR Rural job growth 25% of urban and fallen more than half since 1980 REGULATION VS.India's Labor Market Policy Issues Regulatory Issues UNEMPLOYMENT 30 milion officially. VS. men) RURAL VS. even employed barely sustain themselves PUBLIC VS. PRESERVING JOBS Shift from employment to employability Temporary vs.
the Government of India Act of 1935. Also during this “politicization” phase of the 1980s. India had the dubious distinction of ranking first among developing countries by losing 1900 workdays per 1000 non-agricultural employees. nearly three times the second and third (Sri Lanka and Peru) with about 600. the All India Trade Union Congress (AITUC). industrial relations got politicized and the Indian National Trade Union Congress (INTUC) linked to the congress party. labor reform has lagged other reform. THE PLANNING ERA (1951-90) This period saw rapid growth of trade unions in the context of the Nehruvian fascination with the Soviet model of heavy industry and inward development. During the 1980s. The formation of the ILO in 1919 gave a boost to the idea of a national organization and in 1920. the All India trade union congress was formed with Lala Lajpat Rai as its first president. this production focused model created excess capacity and low growth. a number of labor acts were initiated – the Trade Union Disputes Act of 1929. THE LIBERALIZATION ERA (1991-DATE) The stagnation and bankruptcy of socialism forced economic change. However. The biggest weak ness of the model was low employment generation. liberalization. It was reinforced by an adoption of the British Labor party approach of strong trade unionism combined with the welfare state concept as developed by. In fact. Gandhiji founded his Textile labor association in Ahmedabad in 1917 and was active in trying to settle labor disputes. The government supported small industries through artificial constraints on larger businesses and ignored demand. This is particularly dangerous because labor market constraints have held back job creation that creates the broader social and political buy-in for reforms. William Beveridge. Thus reality was just the opposite of the rhetoric for reducing income disparity and giving lower income greater increases. Teamlease White Paper Confidential – for private circulation 16 . The general labor mood was militan geared to extracting a t. privatization and much else. Over the years. But.46% relative to unorganized growth of 1%. among others. under the overall political perception of the private sector as exploitative of labor. Later. labor actions were localized and the emphasis was on adjudication and settlement of disputes rather than promotion of sound labor management relations or collective bargaining. deregulation. labor reforms have become so politically sensitive that there have been no changes to legislation or political rhetoric on labor since reforms began. The Bombay mills labor association was formed in 1890 but the association did not organize workers as trade unions and only petitioned the government on behalf of the workers. larger share of the value added.HISTORICAL PERSPECTIVE India’s labor markets have gone through three distinct phases: THE COLONIAL ERA (BEFORE 1947) Government policy on industrial relations under the British was one of laissez faire and selective intervention. organized labor managed to achieve growth of real wages of 6. and Centre for Indian Trade Unions (CITU) with the Communist movement. and the Bombay Trade Disputes Act of 1934. in line with global experience.
KEY ISSUES 1. NEITHER EFFICIENCY NOR EQUITY India’s plethora of poor labor legislation has led to an economy that is neither competitive nor a society that is caring. We face the punishing combination of a globally uncompetitive labor environment with no effective social safety nets. 2. LABOR MARKET INSIDERS VS. OUTSIDERS Labor legislation has been hijacked by a vocal minority at the expense of 93% of the labor force. Labor market insiders (mostly not poor, middle-aged, men) oppress outsiders (young, old, women, poor, lower skilled, unemployed, temporary workers, etc). 3. TWO TIERING Over time, labor laws have become applicable to a small category of enterprises in the “organized” sector. This creates a dualistic set-up in which the organized sector remains limited in terms of aggregate employment and most workers, who are largely unorganized, have no protection. This dualism is characterized by a tiny organized (or large scale) sector with low employment, and a huge unorganized (or small scale) sector, with low investment. 4. UNEMPLOYMENT/ JOBLESS GROWTH The number of unemployed is above 30 million or equal to organized employment. The Indian economy has responded well to reforms but job creation has been a disappointment. With no explosion of unorganized or organized job creation, unemployment is increasing and has led to a lack of grassroots social or political support for reforms since 1991. 5. LEGISLATION AHEAD OF CAPACITY TO PAY AND CAPABILITY TO EXECUTE Labor policies have been running ahead of implementation capacity and affordability. For e.g. Minimum wages, ESI, EPS of PF, etc. Most East Asian countries did not introduce extensive social welfare provisions in the early stages of their development – thei r economies had not reached the point where they could handle the burden of social welfare. We need a reality check in which legislation that is beyond implementation capacity should be scrapped. 6. HIRE AND FIRE CAN WAIT There is a lot more to labor reform than firing workers. In the interest of progress, the controversial exit policy should be left out of any labor reform agenda for now. Any proposals presented as zero or hundred will get zero and let’s make incremental steps; small progress is better than no progress. 7. SHIFT FROM EMPLOYMENT TO EMPLOYABILITY We need a policy shift from employment to employability; teaching a person to fish rather than giving him fish. A first step could be the creation of a Ministry of Employment by merging the Ministry of HRD and Labor. Such a focus will also reverse the current labor law situation of overregulation and under-supervision. 8. TEMPORARY JOBS ARE BETTER THAN UNEMPLOYMENT Temporary staffing is an integral part of the labor markets and global experience shows a strong case from all three perspectives; public policy, employers and employees.
Teamlease White Paper Confidential – for private circulation
CHAPTER 4: THE CASE FOR TEMPORARY STAFFING IN INDIA Temporary staffing is an integral part of labor markets and a case for reform can be made from three perspectives:
Case for Temporary Staffing
Public Policy Perspective
Just in time labor; handling fluctuating demand
Keep in touch with the job market
Auditioning permanent candidates
Springboard to permanent employment
Limited Permanent job substitution
Improved employability; skill development and experience
Liquidity provider; Better matching of demand and supply
Stepping Stone role
Differential pay for special skills
Economic Value and job creation
Matching expertise and Diversity Access
Handling planned and unplanned absences
Teamlease White Paper Confidential – for private circulation
PUBLIC POLICY PERSPECTIVE 1. REDUCTION IN UNEMPLOYMENT Temporary staffing is an important component of the job market and hires almost 10% of the labor force in some countries. A detailed study by Lawrence Katz of Harvard University and Alan Krueger at Princeton University found that temporary staffing was responsible for 50% of the reduction in unemployment in the US in the 1990s. The staffing industry increased European Union employment by 0.1% and accounted for around 11% of total new job creation in the late 1990s. An Economic Report of the US President says, “Permanent declines in the unemployment rate may have been caused by, among other things, the development of the temporary help industry”. A symbolic and materially important recognition of role came with the passage of Convention 181 by the International Labor organization in 1997. This convention overturned a fifty year opposition to temporary staffing (Convention 96) and explicitly noted “their constructive role in a well-functioning labor market”. Following the convention, legal recognition for private employment agencies was formally granted in Italy (1997), Japan (1999), and Greece (1999) while related regulations were liberalized in Belgium (1997) and Netherlands (1998). 2. OUTSIDER ACCESS/ INCREASED LABOR FORCE PARTICIPATION Most labor laws protect “insiders”; usually not poor, male, and middle-aged. Temporary staffing companies are particularly effective in offering job access to traditionally disadvantaged populations like students, retirees, mothers with young children, unemployed, etc. who would traditionally opt out of the labor force. They act a “portal” for these “outsiders” by providing them not only with short-term job opportunities, but also with qualifying experience and training for longer-term positions. A European study found that between 24 and 52% of first time agency workers were outsiders. The Employment Policy foundation says “Flexible work arrangements and schedules encourage higher labor force participation by offering choices that fit the diverse needs and preferences of potential employees”. 3. LIMITED SUBSTITUTION OF PERMANENT JOBS The service offering of temp staffing companies complement internal flexibility solutions and does not replace permanent jobs. Small and medium enterprises (SMEs) have an especially strong need for labor flexibility and they account for the bulk of employment and innovation in most economies. A European study found that temporary workers are seldom a substitute for permanent workers; companies would have hired permanent workers only for 14% of work now done by agency workers, had these not been available. Internal solutions for flexibility that do not increase employment would have been used if temps had not been available. 4. BETTER DEMAND AND SUPPLY MATCHING Temp staffing companies act as liquidity providers in labor markets. Their core competence is matching of demand
Teamlease White Paper Confidential – for private circulation
5. ECONOMIC VALUE AND JOB CREATION Globally temp staffing companies have more than $200 billion in revenues and employ close to half a million corporate staff. Teamlease White Paper Confidential – for private circulation 20 . on an average. STEPPING STONE TO FULL-TIME WORK The “bridge” to permanent employment performs a valuable lubricant role in labor markets by allowing workers to demonstrate their skills to prospective employers and to be tested and hired on that basis.(jobs) with supply (people) increases the efficiency and speed of the job and candidate search process. A global survey of temp workers finds that about 40% find a long-term job within a yea r of starting temping. About 35% of agency workers surveyed had been placed within a week while in Germany this was 54%. On average temping companies create one permanent corporate staff position for every 50 workers placed on assignment. the time between enrolment at a staffing company and assignment at a company was 4 weeks. COMPETITIVE ECONOMY The US department of labor compares the “just-intime” concept of inventory control in manufacturing with the use of flexible staffing arrangements to provide just-in-time labor and says “Employers that have flexibility in adjusting labor requirements to meet product and service demands have a competitive edge over those with less flexible human resources policies”. 7. 6. Empirical evidence shows that the track record of temping firms is better at reducing frictional unemployment (those unemployed between jobs) than public sector initiatives like employment exchanges. etc. A European study found that.
A study published in the Decision Sciences journal by economists Nandkumar Nayar of Lehigh University and G. technology and liquidity position them better than in-house HR departments for matching quality. In the absence of a temping option. Temporary staffing companies also allow employers to access populations that have been traditionally disadvantaged in job access. Start-ups use temporary workers to postpone incurring the high sunk costs of employing permanent workers until their financial situation becomes secure. Their experience. IMPROVED COMPETITIVE NESS Companies have a clear and growing need for flexibility because product lifecycles are shortening. HANDLING FLUCTUATING AND UNCERTAIN DEMAND The ability of staffing companies to provide “just-in-time” labor at a predictable cost offer companies an economically viable option to handle peak loads and seasons. 3. 2. 6. gender and age diversity. 5. consumer demand is changing at an ever-faster rate. former Cisco VP of global alliances said in the late 90s “We have 32.000 employees but only 17. Temping also allows companies to expand their manpower in the face of uncertain demand since companies would be overly cautious if they could only hire full-time workers on a permanent basis or had to incur excess costs for surplus staff during lean periods. HANDLING ABSENCES Temporary staffing companies enable employers to handle both voluntary and involuntary employee absences. These “temp-to-hire” arrangements may reflect a weakened confidence by employers in educational systems worldwide to prepare young people for the workplace in terms of quality. 4. and amort ization). Steven Behm. Teamlease White Paper Confidential – for private circulation 21 . they typically organize their working practices in a flexible way. MATCHING EXPERTISE AND ACCESSING DIVERSITY Temporary staffing companies are experts at matching demand (jobs) with supply (people). attitude and skills. Lee Willinger of the University of Oklahoma compared firms in a carefully constructed sample and found that earnings (before interest. This i ncludes geographical. start-ups often face an uncertain financial future and to hedge this uncertainty. AUDITIONING PERMANENT CANDIDATES The practice of taking on temps as a way to “audition” or take employees for a “test drive” is the fastest growing segment of the staffing industry. Plus globalization of labor markets presents unique challenges to supply chain cost structures. racial. taxes. DIFFERENTIAL PAY FOR SPECIAL SKILLS Temporary staffing companies allow companies to recruit people with specialist skills or for short -term projects at compensation rates that are higher but do not create internal inequity. labor flexibility is critical. and new technologies are causing seismic shifts in the economic landscape. gross margins and stock returns improved after the increased use of contingent labor. Relative to established companies.000 of them work at Cisco. reflecting the desire to observe candidates for a trial period before deciding whether they are fit for the job. STRATEGIC FLEXIBILITY For SMEs and start -up companies in particular.EMPLOYER PERSPECTIVE 1. depreciation. 7. employers would suffer service discontinuities and productivity breakdowns.
This “stepping stone” or bridge function of temp staffing companies is an attractive option for job candidates. SUPPLEMENTAL INCOME Many employees and candidates are attracted to temp jobs by the supplemental income that they provide. Temp staffing companies in the US are estimated to spend about $800 million per year in offering training to candidates. IMPROVED EMPLOYABILITY Many temp staffing companies offer training. A US government estimates puts this amount at over $700 million by US staffing companies alone Teamlease White Paper Confidential – for private circulation 22 . KEEP IN TOUCH WITH THE JOB MARKET A job is a job and temporary staffing companies offer a very attractive alternative to unemployment.EMPLOYEE PERSPECTIVE 1. An Employment policy foundation study found that 81% of high-tech independent contractors did not want to become regular employees. An American Staffing Association survey of temporary employees found that 43% said time for family was an important factor in job decisions and 28% said temping gives them flexibility to pursue other interests. SPRINGBOARD TO PERMANENT EMPLOYMENT Almost 40% of temp employees find permanent employment within a year. LIFESTYLE CHOICE Many people prefer the flexibility and independence that temp jobs offer. TRAINING Temporary staffing companies globally offer a number of classroom. and in some cases higher pay. 7. A growing number of temps are highly paid and highly skilled technical. a European survey found this in 33% of temp workers. a large diversity of jobs. 28% for men). skill development and experience that greatly increase the ongoing attractiveness of candidates as employees. Temping offers working conditions others cannot – the opportunity to try out different employers. It was higher among women (40% vs. 6. 2. EMPLOYER ACCESS Temp staffing companies are often able to offer work at employers who may not be hiring directly or for permanent positions. 4. electronic and other forms of specialized. retired people. 3. time flexibility and short-term assignments. Such experiences improve resumes and expose candidates to a work environment that may not be directly available. vocational and other training. independence. specialists and professionals considering entrepreneurial ventures. 5. computer and health care workers who choose temping because of the flexibility. For example Microsoft reports that 30 -40% of the 9000 regular positions created in the last four years of the 1990s were filled by individuals who at one time had worked for staffing companies. This is particularly attractive to student. Temp jobs keep people in touch with the job market and avoid resume gaps.
structure and legislation of the labor market are also a key variable in this battle. The traditionally static view of jobs (permanent. For e. The global staffing industry has evolved from what once were several distinct kinds of businesses – temporary help. full-time) and labor (middle-aged men) is tired and a key factor in reducing unemployment in recent times has been increased labor market flexibility. outplacement. permanent placement. and professional employer organizations – to one industry where these many sectors that have blended together. retained search. the mechanics. Flexibility is often associated with precarious working conditions and a key challenge is balancing the increased need and desire for flexibility both by ( workers and employers) with the basic human need for continuity and certainty.g.CHAPTER 5: THE TEMPORARY STAFFING INDUSTRY While economic cycles and labor costs influence the degree to which full employment can be attained. Teamlease White Paper Confidential – for private circulation 23 . contract project staffing. The flexibility needs of workers and companies can be Quantitative (varying the amount of work) and Qualitative (varying the content of work) or Internal (building on the company’s own work force) or external (using outside sources of labor). Labor Flexibility Internal External QUANTITATIVE Over-time Shift work Part-time Increase workforce Ÿ Decrease workforce Ÿ Ÿ Ÿ Ÿ QUALITATIVE Job rotation Multi-skilling Vocational training Ÿ Re-skilling Ÿ Ÿ Ÿ QUANTITATIVE Temporary Staffing Ÿ Fixed Term Contracts Ÿ Ÿ Ÿ QUALITATIVE Outsourcing Secondments Temporary staffing is the fastest growing form of flexible employment. contingency recruiting.
e. The staffing company is the employer of record though some countries also assign some responsibilities to clients for the temporary staff used. The temporary staffing company is responsible for the salary and benefits of the temporary workers. The relationship between the client/employer and the temporary company is captured in a Client Service Agreement (CSA). companies requiring temporary staff). Temporary workers are employed by staffing companies and sent to work on specific projects or for specified periods of time with their clients (i. and the Associate provides services to the client (overlap 4). while the client retains the employees' services in its business and remains the employer for various other purposes. and c) all compliance. Teamlease White Paper Confidential – for private circulation 24 . The worker may move from one client site to another depending on the staffing company’s clients. The clients are often responsible for compliance with government regulations that are related to worksite supervision and safety. Under the CSA. the Associate and Temp firm have an employment relationship (overlap 2). client and employee: Temp Firm 1 2 3 4 Client Associates The Temp firm and Client sign a service level agreement (overlap 1). while the staffing company in turn receives payment from the client. which is invoiced concurrently with the processing of payroll for the worksite employees of the client. The staffing company assumes responsibility for a) employee payroll. the temporary company assumes responsibility for personnel administration and compliance with most employment-related governmental regulations. The CSA establishes a three-party relationship whereby the staffing company acts as the employer of the temporary employees who work at the client's location. b) benefits.WHAT IS TEMPORARY STAFFING? Temporary staffing is a contractual labor market arrangement based on a three-party relationship between the temping firm. The temporary company charges a comprehensive service fee.
etc. medical and technical. clerical/office. customer service representatives. clinical laboratory technicians and therapists. drafters. warehouse work (such as general laborers. expediters and buyers) and general services (such as maintenance and repair personnel. Internet/intranet site development. test operators. etc). bench technicians. Also covers laboratory personnel. physicians. legal secretaries. Industrial Staffing Services – Assembly work (such as mechanical assemblers. machine operators and pricing and tagging personnel). networking. controllers. forklift operators. Some details on each segment: Clerical/Office Staffing Services – Secretarial staff. stock clerks. software quality assurance and technical support. quality-control technicians. help desk/product support. pharmaceutical contract research personnel. and interim executives IT Staffing Services H ardware and software engineering. industrial. Professional/ Specialty staffing services: Accounting professionals (auditors. general assemblers. technical work (such as lab technicians. temporary help also encompasses professional/specialty positions and information technology (IT) staffing. accountants. paralegals. data entry operators.TEMPORARY STAFFING SEGMENTS Historically. application development. Teamlease White Paper Confidential – for private circulation 25 . janitors and food service workers). solderers and electronic assemblers). Medical Staffing Services Nurses. and legal professionals (attorneys. "allied health" professionals including radiology and diagnostic imaging technicians. etc).) Also includes scientists. finance professionals (analysts. Now in addition to the four traditional segments. including customer service. etc. factory work (including merchandise packagers. order takers. executive assistants. there are a number of sub-sectors including legal and accounting. temporary staffing comprised four major segments. But as temping has become more widely accepted as a strategic component of work force composition the breadth of positions has expanded. market surveyors. electronic technicians. inspectors. order pullers. designers. checkers. database design dev elopment. palletizers and shipping/receiving clerks). other general office staff and call center agents. Within professional/specialty. collection agents and telesales. word processors. material handlers. telemarketers.
CIET(2000 ) Teamlease White Paper Confidential – for private circulation 26 . Individuals have a more complex and varied reasons for choosing staffing company employment. the key factors in choosing temporary employment were: Reasons why people choose a temporary job Could not find a permanent job Gain work experience Work between jobs Work for different employers Flexible schedule Be able to quite Work for a short period 39% 26% 13% 7% 6% 5% 4% Source: Deloitte and Touche Survey. from the UNCTAD website According to a survey.WHY DO COMPANIES AND INDIVIDUALS USE STAFFING COMPANIES? The popular perception of staffing companies being used to reduce labor costs by employers may be misplaced with primary motivation being flexibility. According to a survey the key factors in hiring temporary staff were: Reasons why employers use temporary staff Match peaks in demand Cover for holidays/sick leave Perform one-off tasks Cover for maternity leave Specialist skills Trial for permanent work Reduce wage costs 63% 59% 39% 38% 21% 20% 6% Source: “Temporary S taffing Services Profile” study by UNCTAD/WTO in December 1998.
6 1999 0. Randstad (65% vs.2 2.4 0.0 Teamlease White Paper Confidential – for private circulation 27 . However. the largest staffing market is that of the US economy followed by UK.GLOBAL MARKETS The global staffing industry provides work to an estimated 7 million people every day and has global revenues in excess of $200 billion.0 1.7 10% 3% 0. Addecco (82% vs. The market in the US is highly fragmented with the top three players players controlling only 12% of the revenues vs. Manpower (43% vs.5 4.0 0.5 0.8 0.8 3.9 0.8 1. The inclusion of the next four markets. The total share of European countries in worldwide staffing turnover is 38%.2 1% 10% 3% 4. France and Japan.8 1.8 0.8 2003 0.7 1.7 1.6 0.9 0.5 0.2 0.1 2.5 1. Randstad (2003) As the table shows. etc. 31%).3 2.8 1.2 2.8 0.4 0.1 0.7 1. The global market remains concentrated in the UK and North America which account for 60% of global sales.6 0.8 3.7 0. the penetration rate (the share of persons in total employment working for a private employment agency on any given day) of temporary staffing is very varied: Penetration rate per country (%) Share of Global Market 2003 Austria Belgium Canada Denmark France Germany Ireland Italy Japan Netherlands Portugal Spain Switzerland UK USA TOTAL 18% 43% $ 200 billion Source: CIETT (2000).2 2000 0.8 3.8 2. Japan.7 0.4 0.6 4.8 2.7 0. Many global staffing firms accelerat ed their international expansion between 1995 and 2000 and consequently reduced home market revenues e.7 0. 30%).5 0. Europe where the top three control upto 50% in some markets.1 3.3 1.0 1% 1998 0.g.6 0. Germany and Netherlands shows that six countries account for over 90% of global sales.9 0. France.1 0. 42%).2 2.7 1.1 0. 3.
i. including employee benefits and sales & administrative expenses. etc. Adecco. this is the ‘mark-up’ they charge up over the labor costs of the temporary staff they provide.. Key points • • The US temporary staffing industry has revenues of around $100 billion The U. The industry is highly fragmented. with no single company having a highly dominant position. Bureau of Labor Statistics (Department of Labor) says there were 2.THE US STAFFING MARKET Labor markets in the US are more flexible relative to other markets and have created a highly competitive market for the staffing industry. There are around 10 staffing agencies that have a turnover of $1 billion or more. it is estimated that about 90% of the estimated 11. But these firms generate re only 31. Accounting staffing.. and Robert Half. Manpower Inc. while overall employment growth has been only around 2% and economic growth has been only around 4%.S. Staffing Industry Sourcebook 2002). Spherion.5%1%.S. or around $25 billion. Data on the size of the specialty staffing market is sketchy but it is estimated to be around 25% of the overall temporary staffing industry.8%) and payroll (52. staffing industry has been growing at above 10% per year in the last decade. These companies spend approximately 10%-15% on general.000 temporary help firms a one-branch operations. typically operate on a 15%-20% gross margin. Gevity HR. The large staffing companies in the U. There are many competitors. IT staffing.S. Firms with more than 10 or more branches represented only 1.e. Specialty staffing is a high-growth and high -margin area and includes Legal staffing. Kelly Services. Nurse staffing.1%). • • • • • • • Teamlease White Paper Confidential – for private circulation 28 .2% of the receipts and a similar percentage of the temporary help sector’s payroll (Source.85 million temporary workers as of January 2003 including those placed by staffing agencies and those directly hired by employers. and have net profit margins of only 0. sales & administrative (GSA) expenses. Key players in the industry include Manpower Inc. The U. employs more people than any other firm in the U.3%of the firms but generated more than half of the sectors receipts (51.S.
0 35. Eurostat LFS (2002.the Netherlands. OECD LMS 2001 (2002).0 13.1 12. Also clear is that agency workers are on average lowly educated and very young (about 20-50% are below age 25). they work predominantly in services industries.8 31.4 7.8 7.7 4.5 5.0 12. In March 2002 the European Union (EU) brought out a new set of directives on the use of temporary staffing.5 8.3 4.2 7. About 80% of the temporary workers in Europe were employed in 4 countries .0 5.3 4.3 20.THE EUROPEAN STAFFING MARKET The use of temporary staffing in Europe is common to most countries.2 7.6 11. It is estimated to be about 38% of the global $200 billion staffing industry.8 10. and most immature in Denmark and until recently Italy.9 14.1 8.9 9.9 5. 2003) A good overview of available national statistics on agency work in the EU is collected by Storrie and presented in the table on the next page.7 6.7 9.3 6.1 11.6 Source.2 15.5 10.6 18.9 14.3 31.4 14.2 12. Teamlease White Paper Confidential – for private circulation 29 .8 9. which seeks to p rovide parity in pay and working conditions to temporary staff on par with the full-time employees of the employer.3 10. Overall Netherlands has the youngest population of agency workers and UK has the oldest.4 32. but the industry is less developed than in the U.8 12.0 5.7 10.5 14.6 10.2 10.0 5.0 12.3 2000 7. France. all European countries permit temporary staffing.1 14.7 10.3 1990 1995 6. The following table lists the movement in the percentage of Temporary Employment (as a % of total employment) for select countries over time: 1985 Austria Belgium Canada Denmark France Germany Ireland Italy Netherlands Portugal Spain Switzerland UK 7. This also explains why women are mostly underrepresented among agency workers (except for Scandinavian countries).2 7.8 2002 7.1 2001 8.9 12.2 12. The relative size of the agency work business is largest in the Netherlands and the United Kingdom.4 10. Data s hows that in general agency work in Europe is most common in the manufacturing sector. though certain countries have rules restricting the types of jobs or the durations for which temporary staff may be employed.3 21.3 29. Except Greece.5 10.0 7.6 6.9 10.0 20. this is still under finalization. However.7 8. Germany and UK.3 9.S.1 12.0 6.4 3.
7%) Doubled since 1992 31.000. 28% Average 32 <25.000 (0.COUNTRY Austria EXTENT (1999) AND GROWTH 24.000 (0.9%) Five fold rise since 1992 623. 37% Average 30 <25.000 (2. 51% Average n/a <30.661 (1.000 (0. 38% Average 27 <25.3%) Doubled since 1992 305.000 (1.639 (0. 46% 41% Denmark 70% France Finland Average 29 <25.8%) Rapid growth 557.8%) Five fold rise since 1995 32.000 (0. 27% healthcare 58% industry and construction Mainly services. 22% clerical work 50% industry and construction 63% industry and construction 80% industry and construction 53% industry and construction 33% industry and construction 43% industry and construction 40% industry and construction 12% industry and construction 26% industry and construction 29% finance Source: Storrie (2002) Belgium Average 30 <25.000 (2.0%) Doubled since 1995 109.7%) Quadrupled since 1992 62. 19% Average 32 <25.000 (0. 52% Average n/a <25.000 in 1996 243.1%) LFS:254.(4.3%) Moderate recent growth 6.65%) Doubled since 1992 18.0%) Doubled since 1992 45.065 (2.9%) AGE WOMEN 16% SECTOR 51% Industry and Construction 65% industry and construction 23% industry and construction.6%) From 11.000 (2.7%) Rapid growth 15.5%) Very rapid recent growth 9.000 (1. 40% 30% 78% Germany 22% Italy 38% Ireland N/A Luxembourg 25% Netherlands Average 27 <25. 31% 49% Portugal 40% Spain 43% Sweden UK 60% 47% Teamlease White Paper Confidential – for private circulation 30 . 45% Average 32 <25.277 (0.
Accountants. national vs. Independent firms Independent vs.clerical and light industrial. possible oligopolies in alongside fragmentation. evidence of complete process Latin and South America. some generalist agencies Fragmented NATIONAL ROLLOUTS Still limited – but growth in some specialist niches Fragmented. National firms National branch/ franchise route Local contracts and multi-site agreements Weak but getting stronger Flexible staffing Business Model Local branch network Terms of Competition Local contracts Formal representation of Industry Representation Weak and uncoordinated Temporary staffing Teamlease White Paper Confidential – for private circulation 31 . healthcare. some consolidation through takeovers and mergers Uneven emerging of national regulatory frameworks Temporary filling of vacancies together with basic recruitment functions Western Europe Light industrial GLOBAL TENDENCIES Broadening. global firms Global branch/ franchise network and internet service delivery Growth in national. Asia IT.GEO-HISTORIC EVOLUTION LOCALIZED GROWTH Industry Structure Limited. some provision of HR functions. growing range of recruitment functions. US/UK labor market model finding favor globally and World Bank/IMF push reforms Temporary vacancy filling. slow emergence of global agreements Contested – overlapping national and supranational institutions Labor solutions Source: Ward (2002) Market Characteristics Regulatory Framework Weak Functions supplied Temporary filling of vacancies Geographical frontiers Segment frontiers Scale of competition North America Clerical Independent vs. early evidence of market power of global firms Increasing liberalization. multisite agreements. senior management Independent vs. penetrating more segments of the economy and developing long-term relationships Intensified consolidation.
A symbolic and materially important recognition of role came with the passage of Convention 181 by the International Labor organization in 1997. along with labor and industrial relations laws. which means the industry is operating in the context of a “positive” regulatory environment for the first time in its history. The primary objective has been to encourage labor markets to behave more like “real’ markets. albeit uneven. to erode rigid social protections and to de-collectivize employment relationships. just as the numerical weight of jobs has declined. full time. once the very definition of undesirable or marginal work. With the benefit of liberalizing employment regulation. Social-welfare and employment policies. The pattern of regulatory reforms across most industrial nations and many developing countries has been favorable. has come to the front. The flip side of these developments has been the sustained growth of “nonstandard”. the temporary staffing b usiness has enjoyed explosive growth in many countries. sometimes dramatically. decentralized and individualized pattern of regulation over recent decades. Japan (1999). often unionized and well-paid – has been eroded. flexible and contingent jobs many of which are part-time or temporary. Following the convention. The privileged normative and institutional status of the “standard” job – relatively secure. What is crucial is the quantitative and qualitative nature of each markets development. have been extensively redesigned. movement towards a more liberal. regulated by an open-ended contract of employment. to strengthen the play of competitive pressures.GLOBAL REGULATION Globally there has been a generalized. industrial and occupational mix. This convention overturned a fifty-year opposition to temporary staffing (Convention 96) and explicitly noted “their constructive role in a well-functioning labor market”. both to accommodate and facilitate these developments. and the in/formalization of employment relations. In this changing regulatory environment. legal recognition for private employment agencies was formally granted in Italy (1997). The extent to which a market is “attractive” depends upon the particular configuration of state regulation. and Greece (1999) while related regulations were liberalized in Belgium (1997) and Netherlands (1998). though invariably from a small base. Teamlease White Paper Confidential – for private circulation 32 . prevailing wage conditions. temporary work.
deregulating Greece Highly restrictive Source: Peck. derived from CIET and Randstad Teamlease White Paper Confidential – for private circulation 33 . de0 0 0 0 1 regulating Finland Moderately 0 1 0 0 0 liberal. static Spain Highly 2 1 2 2 7 restrictive.Overall de/regulation (1989-1999) Working Time regulation 0 Index of employment regulation (0=non-existent or weak. established UK Liberal. deregulating Luxembourg Moderately Liberal. deregulating Germany Highly 2 2 2 1 7 restrictive. static France Moderately 1 1 1 2 5 Restrictive. de regulating Denmark Moderately 0 0 0 0 0 liberal. de regulating Belgium Moderately 0 1 1 1 3 Liberal. de regulating Norway Moderately 0 0 1 0 0 liberal. established Netherlands Liberal. de1 0 1 1 3 regulating Sweden Liberal. 1 2 2 2 7 de-regulating Austria Restrictive. mostly static Portugal Moderately 1 1 1 1 4 Liberal. regulating Italy Restrictive. 2= strict) Temp Work regulation 0 Job Protection regulation 0 Minimum Aggregate Wage Index laws 0 0 USA Liberal. Theodore and Ward (2004). 0 0 0 0 0 established Ireland Liberal.
or national origin. In over 20 states. Eligibility for unemployment insurance varies by state.250 hours within the past year. disability. Medicaid.15 per hour. Temporary workers on construction projects may be entitled to the “prevailing wage. age. and Temporary Assistance for Needy Families (TANF). age. Employees of private temporary/day labor firms who work for public agencies are covered. race. The company cannot pay a temporary staff less than other temps doing the same work on the basis of gender. The company cannot fire a temporary staff for engaging in concerted activity with others to improve your working conditions (hence temporary staff often try to make demands with at least one other person). To be covered. religion. $5. To claim the EITC. A company cannot discriminate in assignments based on gender. race. In addition.” “Living wage” laws in some states may cover temps/day laborers working under contracts or for public agencies. d isability. Some states have a cap on the amount that a company can charge a worker for transportation to the worksite. They are also covered by state disability insurance in states that provide it. day laborers and independent contractors may be eligible for federal earned Income Tax Credits and state credits where they exist.TEMPORARY STAFING LAWS IN THE US • • • • • • • • • • Temporary staff is ent itled to at least the minimum wage. Temps. The company must pay the temporary staff at least the rate that was agreed upon at the start of the assignment. disability. or national origin. The Family and Medical Leave Act (FMLA) provides up to 12 weeks of unpaid leave to employees who have worked for an employer for at least 12 months and for 1. and to 1½ times the regular hourly rate for all hours worked above 40 hours per week. • • • • • Teamlease White Paper Confidential – for private circulation 34 . the temporary staff must be work authorized with a valid Social Security number. Low-wage workers may also be eligible for food stamps. or the higher state minimum wage. the employer must have at least 50 employees within a 75-mile radius. or national origin. The Occupational Safety & Health Act covers most private employees. age. A company cannot fire a temporary staff based on gender. Part-time workers are also often denied coverage. at least half the states have laws that cover public sector workers. Temporary workers and day laborers are covered by workers’ compensation. and some states like Georgia prohibit transportation fees entirely. race. subsidized childcare. religion. religion. temporary employees are covered only if they report to the company at the completion of a job and take almost any job the company offers.
NEGATIVE PERCEPTION VERSUS REALITY A well-developed staffing industry offers an organized and transparent work arrangement that enhances employment opportunities for workers. and. A more important trend is the move to CTC (Cost-to-Company) where most benefits are monetized into wages. seniority. which adds to their overall career development and employability. However. and health benefits. However. Comparing the wages of highly diverse populations is even more problematic. The negative perceptions around temporary staffing are rooted in four basic areas: LOW EMPLOYMENT SECURITY Although the industry will continue to be characterized by workers who change assignments frequently. even for so -called permanent workers. LACK OF BENEFIT CONTINUITY Benefits are based on the outdated assumption that workers remain in their jobs for long periods of time. DIFFERENTIAL WAGE LEVELS It is very difficult to compare wage levels among different populations of workers. this was estimated at over $700 million for the US market alone. temp workers acquire a diverse set of work experiences. As a result workers who change jobs frequently. Given the short time that workers stay with temp jobs. Furthermore. and are sometimes larger than pay differences between permanent and temporary workers. such as differences in qualifications. temp workers receive less formal training than permanent workers. Since staffing companies manage a portfolio of employment opportunities with multiple employers. This removes the traditional disadvantages of temp workers. pension. such on -the-job learning may be more useful than formal training. Plus staffing companies are starting to offer innovative training (e-learning. have the right to determine the wages of their work ers. Teamlease White Paper Confidential – for private circulation 35 . the equality between two temporary workers working in different sectors or companies and the equality between an agency worker and a permanent employee at a client company. temp staffing is still associated with a number of negative attributes and t is important to i surface and confront this issue. In establishing wage levels. Temping provide many unemployed workers with a s social link to the job markets. they are in an excellent position to provide security of employment to their own workers. and job content. Pay differences among companies within a sector can be significant. or take leave of absence can lose some of their gratuity. This assumption is no longer valid. like other employers. experience. There are often valid reasons why wages differ. return to education. the over-riding principle should be that it is the agencies that are employers of agency workers. webinars. This observation may undervalue the importance of staffing companies in career development. etc) to increase their competitiveness. LOW LEVEL OF TRAINING Some academic research points out that while formal training is low overall for workers. staffing companies can offer their workers income security over the longer-term by providing them with a continuous stream of assignments. two forms of equality need to be balanced carefully.
and added to the richness of the feedback we received from respondents. with the following break-up: § § Manufacturing 45%. Multinational 60% 4) FINDINGS • • Quantitative. we publish only the aggregate results of the survey. 3) SAMPLE SIZE Our survey covered 75 companies in various cities in India. some professionals may believe our sample size and techniques may not be statistically significant. This has helped us uncover subtle qualitative issues. and not individual responses from specific companies. Services 55% Indian owned 40%. Our attempt was to understand at a macro level the problems that companies face due to our existing labor laws around temporary staffing. broad trends and estimating potential and less interested in conducting statistical analysis by surveying hundreds of companies. However. Qualitative: Presented in the two tables on the next page Presented in the form of recommendations for staffing reform in the next section Teamlease White Paper Confidential – for private circulation 36 .CHAPTER 6: TEMPORARY STAFFING SURVEY This white paper was born out of discussions with decision makers in corporate India on the current penetration of temping. We were more interested in understanding the key issues. Consequently. it’s potential and required reform 1) OBJECTIVE We conducted an in-depth survey of 75 companies in various cities in India with a twofold objective: • • Estimate the potential job creation potential with temporary staffing reform Highlight the specific areas and issues for reform 2) APPROACH AND METHODOLOGY Symbolic of the regulatory regime. most respondents agreed to participate in our survey on the condition of anonymity.
5 13. Teamlease White Paper Confidential – for private circulation 37 . The Contract Labor Act does not help employers or employees Agree Do not agree 74% 26% 100% Source: TeamLease survey.QUANTITATIVE FINDINGS a) Survey responses overwhelmingly indicate that Indian managers and companies believe that the Contract Labor Act does not serve its purpose. we estimate that the number of temporary jobs could be between 1 0-12 million within five years.6% 4% Source: TeamLease survey. employment elasticity.7 % of workforce 2. GDP growth) and the nature of our survey. Given the number of assumptions (labor force growth. 2) Survey responses indicate that companies would substantially increase their usage of temporary staffing in their overall labor force Demand for temporary staffing with reform YEAR 2008 2010 Millions 10.
which are not contradictory. economic efficiency and social cohesion. Regulations should aim at promoting the development of well functioning staffing companies and ensuring proper protection for workers.CHAPTER 7: RECOMMENDATIONS FOR TEMPORARY STAFING REFORM IN INDIA Temporary staffing in India has traditionally. faced large legislative restrictions on its growth and penetration. transparency. Perenial. costs Create national licensing for contract staffing and move away from contract-by-contract Amend EPFO Act ESI Act High Mandatory Payroll Deductions Evasion.12 of CLRA Compliance philosophy & decentrallization Over-regulation and undersupervision. If the potential of this sector is to be fully realized. The issues in India: Issue Consequence Recommendation Increased outsourcing to the unorganized sector Definition of Principal Employer Lower job creation Contract rotation Outlocation Sham consulting agreements Barriers for first-time job seekers and labor markets outsiders Amend Section 2(g). Unorganized job creation. 18 months for employees with salary greater than Rs 6500 p. the approach towards its regulation needs to be focused on tomorrow’s labor market challenges rather than yesterday’s problems. employee losses Only after 6 months. The debate around staffing companies needs to be less ideological and more oriented towards two main considerations. in line with global experience. functions and industries Core. Teamlease White Paper Confidential – for private circulation 38 . 7 of CLRA Recognize Contract Staffing Companies as the principal employer Amend Section 10 of CLRA Amend Sec 25B of IDA Allow contract/ temporary staffing in all durations. industry.m. timing and location restrictions Amend Sec 15 of MWA Minimum wage rules for part-time work Lack of part-time work options Allow pro-rata salary payments under the Minimum Wages Act Amend Section 7. enforcement consistency.
ISSUE 1 DEFINITION OF PRINCIPAL EMPLOYER Section 2(G). Amend Chapter V (sections 16-20) laying out responsibilities of workplace safety and health as only responsibilities for clients of temporary staffing companies Delete Section 21 which lays out certain responsibilities on disbursement wages to temp staff on the Principal employer Teamlease White Paper Confidential – for private circulation 39 .e. higher unemployment Higher outsourcing to the unorganized sector Higher out location to the unorganized sector Sham consulting agreements Barriers to first time-job seekers and labor market outsiders RECOMMENDATION • • • • • Designate the temporary staffing company as the “Principal employer” under Section 2(g) Insert a new clause in Section 2 (g) which lays out responsibilities of workplace safety for clients of temporary staffing companies Delete Section 7 which currently requires “Principal Employers ” i. The CLRA currently also requires every Principal employer to register with Labor authorities and obtain a certificate based on which a temporary staffing firm is able to provide services CONS EQUENCE • • • • • • Blurred accountability with dual employer responsibility Lower usage of temporary staffing. clients of temporary staffing companies to get registered under the CLRA. payment of minimum wages. service conditions. 7 of Contract Labor Regulation Act (CLRA) BACKGROUND • • • The CLRA defines the “Principal Employer” of a Temporary employee as the entity who is using the services of that employee rather than the temporary staffing company. The Principal Employer status entails a number of responsibilities such as salary payment. coverage of such employees for PF/ESIC.
Central Government CLRA notifications also restricts temporary staffing in certain process and companies like o Telephone operators by International Airports Authority of India. • • • • • • CONSEQUENCE • • • • • • • • • Companies enter into sham agreements to disguise contract labor in what can be considered as core/perennial activity. For e. Maharashtra has 90 days. accountants. Labor authorities assume that that once a prohibition order is notified. industries . o Fire fighting. INDUSTRY. b) the process is of perennial Nature. some State Governments have notified Canteens in factories to be core and perennial. the contract employees become employees of the client. LOCATION AND TIMING RESTRICTIONS Section 10 of Contract Labor Regulation Act (CLRA) Section 25B of Industrial Disputes Act (IDA) BACKGROUND • The CLRA currently provides for prohibition of Contract Labor by State or Central Government as applicable if a) the process/operation/work performed by Contract Labor is core to the industry/trade/business/manufacture of the Client Company. Typists.g. higher unemployment Higher outsourcing to the unorganized sector Higher out location to the unorganized sector Sham consulting agreements and companies front-ending Barriers to first time-job seekers and labor market outsiders Lump sum payments instead of salary Contract Rotation. Direct contracts that disguise contract employees as service providers/ retainers Lower usage of temporary staffing. Contracts longer than this carry the potential for a permanency claim with the Principal Employer. No clear definition of temp worker Any employee who has worked more than 240 days in a year is assumed to have served one year of continuous service under Section 25 B of Industrial Disputes Act. The Perennial and core work clause implies that the permanency case is stronger if the work is done on the premises of the Principal Employer.ISSUE 2 CORE. roll-over of many short term contracts RECOMMENDATION • • Delete the current provisions of Section 10 and replace with an explicit recognition of contract staffing in all activities. Amend 25B to revoke powers of Labor authorities under Industrial Disputes Act to grant permanency to contract employees Teamlease White Paper Confidential – for private circulation 40 . locations and durations. States have different rules e. PERENNIAL. Data/Computer Operators by ONGC o Cleaning work in catering in the Railways/Railcars There is no clear definition of core and perennial work and the interpretation is left to the local level leading to high inconsistencies.g.
12 of Contract Labor Regulation Act (CLRA) BACKGROUND • Current co mpliance is cumbersome and targets the wrong party o Every client needs to register as a Principal Employer o Every contract with a client of the temporary staffing firm needs a license at a state/local level. reputation and scale Ineffective high administrative and compliance costs that are ultimately born by temporary staffing employees and employers RECOMMENDATION • • • • Shift compliance responsibility to Temporary Staffing company Replace requirement for a license for every contract or amendment with clients by temporary staffing firms with detailed monthly submissions from staffing firms and impose strict and large penalties for defaults. email and post. Amend Section 12 and the relevant rules to provide for a nation wide registration (rather than state or local) for the Contract Staffing Companies Require national temporary staffing companies to qualify for certain minimum standards such as: o Minimum Net Worth of Rs. o Should employ 1 direct employ ee for every 150 contract staff o Should possess Information Technology infrastructure of minimum requirement to service employees across the country. individual and local firms who do not service more than few companies in a locality and do not invest in systems. o Any changes to the numbers in a license need re-approval o All the records and registers have to be maintained by the client of the temporary staffing firm. Teamlease White Paper Confidential – for private circulation 41 .ISSUE 3 COMPLIANCE PHILOSOPHY AND DECENTRALIZATION Section 7. Two Crore o Should be a limited company with offices in all the metros or representing every region in which they want to provide services o Board of directors should have 50% independent directors of repute o Provide employee information help desks on salary and benefits via phone. very low compliance levels Lack of consistency in interpretation and enforcement of laws across cities. states and nationally Lack of transparency encourages evasion and corruption Encourages a fragmentation of the market into small. CONSEQUENCE • • • • • Over-regulation and under -supervision.
As a corollary. it is also interpreted that Minimum Wages notified for a month to be paid even if an employee works only for a part of the month. CONSEQUENCE • • • • Lower job opportunities due to the hesitation in using part-time workers in seasonal businesses like BPO.ISSUE 4 MINIMUM WAGE RULES FOR PART-TIME WORK Section 15 of the Minimum Wages Act (MWA) BACKGROUND • • Section 15 of the Minimum Wages Act demands minimum wages notified for a day be paid even if an employee works only for the part of a day. Lower avenues for supplemental income by working additional hours Lower competitiveness of part-time labor due to increased costs RECOMMENDATION • Amend Section 15 of the Minimum Wages Ac to allow the pro-rata payment of t. academic or professional commitments. and b) the days worked in a month. Minimum Wages notified based on a) the hours worked in a day. Biased against outsiders like freshers. women etc willing to work part time due to other family. etc. Teamlease White Paper Confidential – for private circulation 42 . IT. students. Retail.
Most white collar temporary workers are not big users of ESI and have alternative saving mechanisms CONSEQUENCE • • • • • • • Higher incidence of structuring temporary contracts as consulting Large scale evasion of PF & ESI Lower usage of temporary staffing.ISSUE 5 HIGH MANDATORY PAYROLL DEDUCTIONS Employees Provident Fund Act Employees State Insurance Act BACKGROUND • • • • The EPF Act was amended in 1992 to include temporary/ contract labor from the day of employment rather than 60 days of employment The ESI Act requires coverage of all employees from the date of employment The total mandatory deductions from gross salary at above 40% are among the highest in the world and greatly reduce cash in hand for employees. higher unemployment Higher outsourcing to the unorganized sector Higher out location to the unorganized sector Sham consulting agreements Barriers to first time-job seekers and labor market outsiders RECOMMENDATION • • • Make ESI and PF applicable for temporary employees only after 6 months of employment with a temporary staffing firm Exempt all temporary employees who have a salary of more than Rs 6500 per month from PF/ESI for 18 months Explicitly provide for centralized compliance for ESI/PF for all employers with more than 100 employees Teamlease White Paper Confidential – for private circulation 43 .
Facts India’s Labor Laws Past Indian Labor reform prop osals Labor Reform in China Labor Reform in other Asian countries Bibliography About Teamlease Teamlease White Paper Confidential – for private circulation 44 .ANNEXURES Annexure A Annexure B Annexure C Annexure D Annexure E Annexure F Annexure G India’s Labor Market .
Government of India. The unemployment according to the CDS measure is much higher. but was employed for most of the preceding yea r. July 2001 Note: Throughout this White Paper.05 397 Growth rate (% p.21 308.75 Employment (Million) 1988 790 -324. Planning Commission.a. India’s workforce includes around 40% of its 1 billion population.45 1999-00 1004. Usual Principal and Subsidiary Status (UPSS).1: Population.28 7. reflecting ‘jobless growth’.98 Source: Report of the Task Force on Employment Opportunities.29 1994 895.3% in 2000.12 2. Of these. As seen in Figure 1.03 0.32 6.FACTS 1. unemployment has risen quite sharply to 7. RISING UNEMPLOYMENT/ JOBLESS GROWTH As seen from Figure 1.64 302. would be classified as unemployed under the CDS measure and employed under the UPS measure.1 406.1.2: Unemployment rate All-India unemployment rate (CDS) (as % of workforce) U e py e t ) n m om n% l ( 10 8 6 4 2 0 8. compared to other indicators like Usual Principal Status (UPS). which based on the reported employment position of the surveyed individuals on each day of the week. which means 2.05 381. we generally use the Current Daily Status (CDS) measure of unemployment. and Current Weekly Status (CWS) that tend to understate the extent of unemployment.2 below. a person who was unemployed on the date of the survey. at 7. For example.09 6.94 374. Fig 1.) 1983-94 2.ANNEXURE A – INDIA’S LABOR LAWS . Figure 1. labor force & employment data Sector 1983 Total Population Total Labor Force Total Employment (UPSS) 718.05 2.04 19942000 1. Planning Commission.18 8. July 2001 Teamlease White Paper Confidential – for private circulation 45 . 397 million persons are employed (UPSS measure).2% of the workforce are unemployed.93 1.3% of the workforce. CDS is generally considered the most useful measure of unemployment.03 1977-78 1983 1987-88 1993-94 1999-00 Source: Report of the Task Force on Employment Opportunities (Montek Singh Ahluwalia Committee).
4 below shows the Labor Force Participation Rate (LFPR) rates for various age groups. the number of jobs has grown at only 0.73 2.94 2.Of particular concern is the decline in employment growth compared to labor force growth. Labour Force and Employment 3 Rate of growth (%) 2. Planning Commission. from 2. LFPR is substantially lower for the younger age groups and senior citizens. Fig 1.74 0.04 2. Planning Commission. Fig 1. while the labor force is growing at 1.5 0 1972-73 to 1977-78 1977-78 to 1983 1983 to 1987-88 1987-88 to 1993-94 1993-94 to 1999-2000 1. July 2001 Figure 1. Unemployment would have been far higher today if there had not been a fall in the growth of the labor force.5 1.94% in the mid 1970s to just 1. July 2001 Teamlease White Paper Confidential – for private circulation 55 -59 60 + 46 . As expected.27 2.14 2.1 1.03% per year. As seen in Figure 1.3 below.19 2.4: Labour force participation rates (across various age groups) 1000 LBPR (per 1000) 800 600 400 200 0 10 -14 15 -19 20 -24 25 -29 30 -34 35 -39 40 -44 45 -49 50 -5 4 Urban Urban Urban Urban Male Female Male (total) Female (total) 951 755 542 366 147 53 7 2 121 191 214 980 986 980 974 939 811 402 245 289 285 269 264 208 94 Source: Report of the Task Force on Employment Opportunities (Montek Singh Ahluwalia Committee).43 2.5 2.98 1 0.29 2.17 2.03 Employment Population Labour Force Source: Report of the Task Force on Employment Opportunities (Montek Singh Ahluwalia Committee).93 2 1.03% in the late 1990s.3: Growth of Population.98% in the latter half of the 1990s.541.
Wholesale & Retail Trade 7.67 0.26% more workers) iv.73 0. Social and Personal Services All Sectors 0. It has declined sharply in manufacturing and electricity.Construction 6.00 0.73 1. Real Estate. Figure 1.00 0.83 0. unlike the economy as a whole where 1% increase in output requires only 0.2.5 below reveals interesting patterns in employment elasticity in the Indian economy in recent decades: i. Employment elasticity has been declining continuously for the last several decades ii..00 1.78 1.69 0.00 for the construction industry.Electricity 5. Transport.50 0.00 0.5: Elasticity of Employment to GDP Sector 1. Storage & Construction 8.Mining & Quarrying 3. 1% increase in manufacturing output requires only 0. Insurance & Business Services 9. implying that productivity is increasing (i.80 0.Manufacturing 4. It is zero for agriculture due to overstaffing and marginal work.. DECLINING EMPLOYMENT ELASTICITY According to the Planning Commission of the Government of India. Community. Finance.07 0.00 0.49 0.55 0.15. July 2001) Teamlease White Paper Confidential – for private circulation 47 . Planning Commission. 1% increase in output requires 1% more workers.Agriculture 2. It is as high as 1.e.00 0.41 1994 to 2000 0.53 Employment Elasticity 1977 to 83 1983 to ‘94 0.15 (Source: Report of the Task Force on Employment Opportunities.15% growth in jobs.00 1.00 0.45 0.33 0. employment elasticity of the Indian economy is currently around 0.e.26 0.52 1.63 0. Government of India.15% more workers) Figure 1.50 0.92 0. reflecting the lack of alternative employment opportunities in rural areas iii. which means that a 1% growth in GDP results in only 0. reflecting the low productivity in this sector (i.69 0.
the agriculture sector offers poor prospects for employment: i.04 6.04 6.34 -2.22 7. Chronic under-employment means that tens of millions of agricultural workers have low productiv and wages.01 1.50 5.56 2.e.35 11.00 Growth (1994-00) (%) 1983-94 1.52 32. July 2001 Teamlease White Paper Confidential – for private circulation 48 .90 2.6: Growth of Employment by Sectors (UPSS) Industry Employed workers (1999-00) (Million) 1983 Agriculture Mining & Quarrying Manufacturing Electricity.85 6. SECTORAL SKEW As seen from Figure 1.69 5. Planning Commission.50 1.23 1.55 0..20 0.05 33.28 17. Agricultural production is heavily dependent upon the monsoon rains.98 Source: Report of the Task Force on Employment Opportunities. and has grown at barely 2% per year.32 14.57 3.76 1993-94 242. Government of India.80 302.13 374.14 4.09 5.6 below. Employment in agriculture has been falling by 0. and this is barely offset by the growth in employment in industry and services.85 2.27 48. and marginal workers are compelled to migrate to cities in search of jobs iii. i.05 -0.04 1994-00 -0.51 4. or 23%) account for a much smaller chunk of employment.18 2.76 34.24 7. Gas & Water Supply Construction Trade Transport.3.33 3.88 7. or 60%) is in the agricultural sector.70 42.03 0. Employment elasticity in agriculture is negative.78 10. which is not sufficient to substantially improve income levels or generate additional employment ii. the bulk of employment (237 million out of the total of 397 million. agricultural production can be increased further with even fewer agricultural workers Figure 1. while industry (69 million. In addition.45 1999-00 237.39 1. Employment in agriculture has been falling over the ity years.68 27. or 17%) and services (90 million.78 19.62 37. Storage & Communication Financial Services Community Social & Personal Services Total Employment 207.46 2.16 2.20 397.34% in the late 1990s.32 3.70 23.
86 63. This adversely affects workers’ welfare in several ways: i.03 86. This reflects the shamefully low levels of literacy among our workforce. the proportion of youth in India who have skill levels is only 5%. Government of India. July 2001 Poor skill levels among the workforce reduce workers’ productivity. Planning Commission.88 80.11 78.39 95.7: Proportion of those vocationally trained among the youth Country India Botswana Colombia Mauritius Mexico Australia Canada France Germany Israel Italy Japan Korea Republic New Zealand Russian Federation Singapore United Kingdom % of youth in the workforce who have vocational training 5. It reduces the total basket of goods and services produced by the economy. and iii.58 64. Figure 1.23 43. it reduces the competitiv advantage of the economy e and makes companies uncompetitive Teamlease White Paper Confidential – for private circulation 49 .08 27. LOW SKILL LEVELS As seen from Figure 1.06 22. reducing the standard of living. It reduces workers’ income levels and hence their standard of living ii.57 75. In the context of globalization.7 below.33 81.06 36.42 28. among the lowest in the world.24 68.11 68.46 Source: Report of the Task Force on Employment Opportunities. as well as the lack of adequate infrastructure for imparting vocational training.4.89 66.
while it was only 42% in urban areas.8 Combined 57. especially in sectors like (1) Manufacturing. transport. financial. Almost all of this has happened in the rural areas. electricity. community.9% in 19992000. social and personal services All industries Rural 57. where the proportion of farmers cultivating their own land has fallen due to fragmentation of land holdings.9 (Source: Report of the Task Force on Employment Opportunities. electricity.9% in 1977-78 to 52. gas and water supply.9 55. community.9 45. July 2001) Teamlease White Paper Confidential – for private circulation 50 . Planning Commission. There are clear differences in the proportion of self employment in rural and urban areas. This includes high income professionals like doctors. LOW PROPORTION OF SALARIED/ RISING SELF-EMPLOYMENT Only 14% of the workforce in India is salaried with some measure of stability in their earnings.9 44. The proportion of salaried employees is much higher in urban areas at around 40%. as well as farmers and craftsmen struggling to make a living. and lower in rural areas at around 7% of the workforce. Government of India. mining. lawyers and consultants.5. reflecting the classification of farmers as self-employed. This pattern is also reflected in the Global Entrepreneurship Monitor but sadly the primary reason is the lack of alternative opportunities of for ced entrepreneurship. construction Trade. financial. ownership of dwellings. The low proportion of salaried employees implies huge self-employment.8 below. ownership of dwellings. the proportion of self-employment is higher in rural areas.3 52. As seen in Figure 1. The share of self-employment has declined from 58. transport. Figure 1. social and personal services. construction. gas and water supply.2 52. and (2) Trade.1 48. It was as high as 56% in rural areas. mining.8: Proportion of self-employment by industry: 1999-2000 (%) Industry Agriculture Manufacturing.7 40.4 Urban 57.2 33. according to the Planning Commission this was 53% of the workforce in 1999 -2000.6 42.
3 7.3% for the whole population. this reflects the lower skill level of women entering the workforce.2 1.6.2% for persons with primary school education.2 0.8 8. while the unemployment rate (UPSS) for the overall population was 2.1%.7 8.3% for those with middle school education.9 9.7 7. (c) According to gender: Female unemployment in urban areas was 9.8% compared with 7. Teamlease White Paper Confidential – for private circulation 51 .1 2.9 5.8 7. For example. female unemployment will increase as more women enter the workforce in the decades to come. during 1999-2000 the unemployment rate for the 15-29 years age group was 12.1 9. and the barriers that women face in achieving appropriate employment. To some extent. July 2001) (b) According to age: The unemployment rate is significantly higher in the younger age groups. 3. and as high as 7. As seen from Figure 1. it was as low as 0.5 7. Planning Commission.0 2. and (2) new entrants into the labor force may be more likely to wait (compared to older workers) until they find a job which matches their aspirations.8 9.9 0.2 (Source: Report of the Task Force on Employment Opportunities.3 8.2% in 1999-00.9: Unemployment by level of education (% Of labor force) Education level Not Literate Literate upto primary Middle Secondary Higher Secondary Secondary + Higher Secondary Graduate & Above Educated (Secondary & Above) All Unemployment Rate 1987-88 1993-94 1999-00 1.9 3.9 below.1 1.3 5. Clearly.1% for persons with secondary education and above. Figure 1.2 3. against 7.2% for illiterate persons. Government of India. 1.4 6.7 1.7 0.2 7. UNEMPLOYMENT (a) According to education: Contrary to what one may expect unemployment sharply rises with the level of education.2% for their male counterparts. This seems to reflect two factors: (1) the number of new jobs created in the economy is less than the number of youngsters entering the workforce.
75 1.45 0.46 2.39 1.15 1.37 19. ORGANIZED VS.32 14.58 44.01 6.06 78. improves employability.69 5.53 -0. The industry skew is also interesting: Figure 1.78 10. Government of India.03 1.37 15.05 33.7.31 21.97 1.93 Growth rate (% p.a.75 324.18 0.56 2. Social & Personal Services All Sectors 242.01 1.71 18.62 37. Planning Commission.40 0.98 0.11 Share of Organized Sector (%) 1993-94 0.70 42.44 32.45 Source: Report of the Task Force on Employment Opportunities. complies with labor laws and pays taxes.23 0.46 34.11 1.08 Organized Total Organized (Source: Report of the Task Force on Employment Opportunities. UNORGANIZED The organized sector reflects institutions employing more than 10 people.61 40.41 8. July 2001 Key issues evident are a) low level and declining share and growth rate of organized employment.32 7.61 7.) 397 28.87 1999-00 1983-94 1994-2000 302.10 shows the relative shares: Figure 1. July 2001) . Government of India.13 6.29 374.20 397.27 48.11 43. and b) the private sector is mostly unorganized.48 1.68 27.39 1994 27.11: Organized sector jobs in employment by industry Industry Employment (million) 1993-94 Total Agriculture Mining & Quarrying Manufacturing Electricity Construction Wholesale & Retail Trade Transport. therefore it is more desirable.10: Organized versus unorganized employment Sector 1983 Total Employment (UPSS) Organized Sector Employment -Public Sector -Private Sector 24.67 34.35 11.02 7. Teamlease White Paper Confidential – for private circulation 52 .44 7.09 6.00 1.53 10.65 11.49 28.55 Employment (Million) 1988 25.01 16.49 14.53 1.50 1. The organized sector provides better working conditions.52 32. Storage & Communication Financial Services Community.04 1.18 1999-2000 237.00 1.45 3.70 1.93 27.33 3.62 30.85 10.05 71. Planning Commission.11 19.49 3.7 2.46 7.26 1999-00 0.45 1.52 0.28 17. Figure 1.2 1.13 374.
. .(1) the appropriate Government may prohibit the employment of contract labor in any process. . Registration of certain establishments. and every contractor who employs such contract laborers Key provisions: § Central and state governments may constitute Advisory Contract Labor Boards to advise the governments on the administration of this Act § Every establishment employing contract labor must register with the Central/State Labor Commissioners in each of the location they employ labor § Every Contractor must obtain a license from the Central/State Labor Commissioner for each establishment in each location they provide labor.(a) in the case of an establishment which has not been registered. § Principal employer and contractor must maintain registers showing details of contract laborers employed Key clauses: 7. Licensing of contractors.(1) no contractor shall undertake or execute any work through contract labor except under and in accordance with a license issued in that behalf by the licensing officer. § Principal employer must nominate a representative to certify that the contractor has paid wages.(1) Every principal employer of an establishment may make an application to the registering officer in the prescribed manner for registration of the establishment: 9. Teamlease White Paper Confidential – for private circulation 53 . 10.No principal employer of an establishment shall . (b) in the case of an establishment the registration in respect of which has been revoked employ contract labor in the establishment.ANNEXURE B – INDIA’ S LABOR LAWS Contract Labor (Regulation and Abolition) Act 1970 Objective: § To regulate the employment of contract labor in certain cases and to abolish it in certain other cases To whom does it apply? § To every establishment employing twenty or more workmen as contract labor. § The government may prohibit the use of contract labor in certain types of jobs/occupations § Where more than 100 contract laborers are employed. 12. In case of default by contractor. the contractor must provide canteens. . operation or other work in any establishment. Effect of non-registration. Prohibition of employment of contract labor. rest rooms and other amenities to workers. the principal employer is liable.
or with both ---. then the principal employer shall be liable to make payment of wages in full or the unpaid balance due.there shall be provided and maintained by the contractor for the use of the contract labor such number of rest-rooms or such other suitable alternative accommodation within such time as may be prescribed. (b) examine any person whom he finds in any such premises ---.(1) The appropriate Government may make rules requiring that in every establishment . 21. Canteens. . Teamlease White Paper Confidential – for private circulation 54 . (3) It shall be the duty of the contractor to e nsure the disbursement of wages in the presence of the authorized representative of the principal employer. section 18 or section 19 for t e benefit of the h contract labor employed in an establishment is not provided by the contractor within the time prescribed therefore.(1) If any amenity required to be provided under section 16.(a) enter --. Inspecting staff. . as the case may be. which may extend to three months. ---. (d) seize or take copies of such register. 29. – (1) A contractor shall be responsible for payment of wages to each worker employed by him as contract labor and such wages shall be paid before the expiry of such period as may be prescribed. to the contract labor employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.(2) --.any premises or place where contract labor is employed.(1) Every principal employer and every contractor shall maintain such registers and records giving particulars of contract labor employed. (4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment. (b) wherein work requiring employment of contract labor is likely to continue for such period as may be prescribed. record of wages or notices or portions thereof ---. 28.an inspector may --. the nature of work performed by the contract labor. Responsibility for payment of wages. and (e) exercise such other powers as may be prescribed. 23. to give any information. Contravention of provisions .(a) to which this Act applies. (c) require any person giving out work and any workman.(1) In every place wherein contract labor is required to halt at night in connection with the work of an establishment ---. or with fine. 20. Liability of principal employer in certain cases. which may extend to one thousand rupees. one or more canteens shall be provided and maintained by the contractor for the use of such contract labor. section 17. 17. . .shall be punishable with imprisonment for a term.Whoever contravenes any provision of this Act --. and (c) wherein contract labor numbering one hundred or more is ordinarily employed by a contractor. the rates of wages paid to the contract labor and such other particulars in such form as may be prescribed. . such amenity shall be provided by the principal employer within such time as may be prescribed.16. Registers and other records to be maintained. (2) Every principal employer shall nominate a representative to be present at the time of disbursement of wages by the contractor and it shall be the duty of such representative to certify the amounts paid as wages in such manner as may be prescribed. for the purpose of examining any register or record or notices required to be kept or exhibited by or under this Act ---. Rest-rooms.
supervise and seize documents relating to payment of wages § The government can order the employer to refund the deductions made from the wages. in order to prevent employers from making deductions from workers’ wages or delay in payment of wages To whom does it apply? § Any factory § Any industrial or other establishment § Any other establishment which the Government may specify by notification in the Official Gaze tte Key provisions: § Job categories for which the act is applicable § Defines payable wages and its components § Prescribes the day of the month before which wages must be paid § Prohibits the employer from making deductions from the person’s wages except those permitted by the Act § Prescribes the registers to be maintained § Gives power to the Inspector of Factories to inquire. factory or industrial or other establishment upon or in which less than one thousand persons are employed. Responsibility for payment of wages Every employer shall be responsible for the payment to persons employed by him of all wages required to be paid under this Act 5. Time of payment of wages (1) The wages of every person employed upon or in(a) Any railway. shall be paid before the expiry of the tenth day 7. the Teamlease White Paper Confidential – for private circulation 55 . shall be paid before the expiry of the seventh day. which may be made from wages (1) The wages of an employed person shall be paid to him without deductions of any kind except those authorised by or under this Act. factory or industrial or other establishment. Deduc tions. 13A. the work performed by them. Maintenance of registers and records (1) Every employer shall maintain such registers and records giving such particulars of persons employed by him. and pay compensation § Prescribes penalties for not complying with the act § Employer to display in the establishment a notice containing an abstract of the provisions and rules under this Act Key clauses: 3. (b) Any other railway. the wages paid to them. inspect.Payment of Wages Act 1936 Objective: § Regulate the payment of wages.
is satisfied that the employer --.the Court --. including all matters. 20.(any deduction has been made from the wages of an employed person. by notification in the Official Gazette.the authority shall hear the applicant and the employer --.sufficient to satisfy the amount which may be payable under the direction.to be the authority to hear and decide for any specified area all claims arising out of deductions from the wages.deductions made from their wages. together with the payment of such compensation as the authority may think fit ---. or the payment of the delayed wages. 17A.may direct the refund to the employed person of the amount deducted. for each such offence. or any payment of wages has been delayed) --. 15.is likely to evade payment of any amount that may be directed to be paid under section 15 or section 17. Penalty for offences under the Act (3) Whoever being required under this Act to maintain any records or registers or to furnish any information or return(a) fails to maintain such register or record shall.and --. appoint a presiding officer of any Labour Court or Industrial Tribunal ----. or delay in payment of the wages. of persons employed or paid in that area. Claims arising out of deductions from wages or delay in payment of wages and penalty for malicious or vexatious claims (1) The State Government may. incidental to such claims (3) When --. Conditional attachment of property of employer or other person responsible for payment of wages (1) Where --.may direct the attachment of so much of the property of the employer or other person responsible for the payment of wages as is -. the receipts given by them and such other particulars and in such form as may be prescribed. the authority or the court --. be punishable with fine which shall not be less than two hundred rupees but which may extend to one thousand rupees Teamlease White Paper Confidential – for private circulation 56 .
in the manner hereinafter provided. the minimum rates of wages so fixed and revise the minimum rates. (a) Fix the minimum rates of wages payable to employees employed in an employment specified in Part I or Part II of the Schedule and in an employment added to either Part by notification under section 27 (b) Review at such intervals as it may think fit.Minimum Wages Act 1948 Objective : § Fixing the minimum rates of wages for certain job categories To whom does it apply? § Any person who employs one or more employees in certain job categories for which the minimum rates of wages have been fixed under this Act Key provisions: § The minimum wages for certain job categories § The job categories for which such minimum wages are applicable § The composition of the wages. including basic wages and cost of living adjustments § Procedure for fixing and revising minimum wages § Establishes the Central Advisory Board and various committees to advise the government § Part-1 and Part -2 of the Schedule lists the job categories for which minimum wages are applicable Key clauses: 3. Payment of minimum rates of wages (1) Where in respect of any scheduled employment a notification under section 5 is in force. Teamlease White Paper Confidential – for private circulation 57 . Fixing of minimum rates of wages (1) The appropriate government shall. if necessary 12. the employer shall pay to every employee engaged in a scheduled employment under him wages at a rate not less than the minimum rate of wages fixed by such notification for that class of employees in that employment without any deductions except as may be authorised within such time and subject to such conditions as may be prescribed. such intervals not exceeding five years.
as the case may be. in accordance with the provisions of this Act. under section 11. regardless of whether the establishment is profitable or not § Maximum wages upto which employees are entitled to bonus Key clauses: 8. Payment of minimum bonus Subject to the other provisions of this Act.33 per cent of the salary or wages earned by the employee during the accounting year or one hundred rupees. 10. based on the gross profits. shall be calculated as if his salary or wages were two thousand and five hundred rupees per mensem. etc. § Minimum bonus payable. whether or not the employer has any allocable surplus in the accounting year 12. bonus. as specified by the appropriate government by notification in the Official Gazette Key provisions: § ‘Establishments’ include departments. Eligibility for bonus Every employee shall be entitled to be paid by his employer in an accounting year. Calculation of bonus with respect to certain employees Where the salary or wages of an employee exceeds two thousand and five hundred rupees per mensem. Teamlease White Paper Confidential – for private circulation 58 . depreciation. tax. a minimum bonus which shall be 8. whichever is higher. every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year. the bonus payable to such employee under section 10 or. provided he has worked in the establishment for not less than thirty working days in that year. undertakings and branches § Method for calculating the bonus payable.Payment of Bonus Act 1965 Objective: § Payment of bonus to persons employed in certain establishments To whom does it apply? § Every factory § Every other establishment in which 20 or more persons are employed § Any establishment employing more than 10 persons.
or shows willful disobedience to safety rules § Specifies the amount of compensation payable to the workman in case of accident § Procedure for notice in case of accident. § Contracts where the workman relinquishes his right of compensation are invalid § State Government may appoint a Commissioner for Workmen's Compensation § The Commissioner shall have the powers of a Civil Court for taking evidence. compensation paid.Workmen’s Compensation Act 1923 Objective: § To provide suitable compensation to workers injured in industrial accidents To whom does it apply? § Any body of persons whether incorporated or not and --. and payment of compensation § Workman’s compensation will be the first charge on assets transferred by employer § Employer to file returns showing number of injuries.shall send --. Returns as to compensation The --. and compelling the production of documents and material objects § Part-1 of Schedule-1 gives the list of injuries deemed to result in Permanent Total Disablement and Permanent Partial Disablement § Gives the list of job categories for which the Act is applicable § Gives the list of occupational diseases for which the Act is applicable Key clauses: 3. Employer's liability for compensation (1) If personal injury is caused to a workman by accident arising out of and in the course of his employment his employer shall be liable to pay compensation in accordance with the provisions of this Chapter 16. Teamlease White Paper Confidential – for private circulation 59 .the person with whom the workman has entered into a contract of service or apprenticeship Key provisions: § Specifies the dependents who are entitled to compensation § Employer is liable to pay compensation to workman in ca of accident se § Employer is not liable if the workman is under the influence of drink or drugs. 18A.Government may by notification in the Official Gazette direct that every person employing workmen --. claim against employer.shall be punishable with fine. which he is required to maintain --. enforcing the attendance of witnesses. Penalties (1) Whoever (a) fails to maintain a notice -book. which may extend to five thousand rupees.as the --Government may direct. etc.a correct return specifying the number of injuries --and the amount of such compensation together with such other particulars --.
or in any workshop carrying on any of the 11 processes mentioned in Part B of the Schedule § Regulates the conditions of work of children in employments where they are not prohibited from working § Does not prohibit the employment of children in occupations “carried on by the occupier with the aid of his family or to any school --.(1) No child shall be required or permitted to work in any establishment in excess of such number of hours as may prescribed for such establishment or class of establishments. Teamlease White Paper Confidential – for private circulation 60 . i.No child shall be employed or permitted to work in any of the occupations set forth in Part A of the Schedule o in any workshop wherein any of the processes set forth in Part B of the r Schedule is carried on 7. those below 15 years. . in the 5 occupations mentioned in Part A of the Schedule. 1986 Objective: § Prohibit the engagement of children in certain employments and to regulate the conditions of their work in certain other employments. To whom does it apply? § All establishments and workshops Key provisions: § Prohibits the employment of children. Hours and period of work .The Child Labor (Prohibition and Regulation) Act. Prohibition of employment of children in certain occupations and processes.e.receiving recognition from Government” § Sets up a Child Labour Technical Advisory Committee to advise the government § Establishments should send notice to the Inspector containing details of the child labour they employ § Penalties for employing children in violation of the provisions of the Act Key clauses: 3.
trade. courts or tribunals o An industrial dispute may be referred to boards. operational. or between employers and workmen. Court of Inquiry. powers and duties of the various labour authorities Teamlease White Paper Confidential – for private circulation 61 . handicraft. the government may prohibit any strike or lock-out in connection with such dispute § Chapter 4 deals with the procedure. § Chapter 2 specifies the various labour authorities under this Act. (iii) managerial or administrative personnel. which are defined in section 2 (k) as “any dispute or difference between employers and employers. and National Industrial Tribunal. o It is the duty of the Board to endeavour to bring about a settlement of the same and for this purpose the Board shall investigate the dispute and may do all such things as it thinks fit for the purpose of inducing the parties to come to a fair and amicable settlement of the dispute § Chapter 3 deals with the reference of disputes to boards. Section 2A is also applicable “where any employer discharges. technical. of which at least half should be workers’ representatives o The central government has the power to appoint various authorities. 1. whether the terms of employment be express or implied”. clerical or supervisory work for hire or reward. retrenches or otherwise terminates the services of an individual workman” o The Act protects all workmen. including Conciliation Officer. dismisses. skilled. undertaking. Industrial Tribunal. Board of Conciliation.600 per month or exercising functions of a managerial nature. courts or tribunals either by the government.Industrial Disputes Act 1947 Objective: § Make provision for the investigation and settlement of industrial disputes To whom does it apply? § All industries. or between workmen and workmen. The persons excluded under the Act are (i) armed forces personnel. or by the parties to the dispute o Where an industrial dispute has been referred to a board. service. unskilled. (ii) police officers. o All industrial establishments employing 100 or more workmen must have a Works Committee consisting of representatives of employers and workmen. which is connected with the employment or non-employment or the terms of employment or with the conditions of labour. defined in section 2 (s) as “any person (including an apprentice) employed in any industry to do any manual. manufacture or calling of employers and includes any calling. where "industry" is broadly defined in section 2 (j) as any business. and (iv) supervisory personnel drawing wages exceeding Rs. court or tribunal. Labour Court. or industrial occupation or a vocation of workmen Key provisions: § Chapter 1 deals with preliminary issues and definitions o The Act covers all “industrial disputes". of any person”. employment.
Rationalisation. Dismissal of workmen including reinstatement of workmen wrongfully dismissed. unless the person or employer gives notice within 2-6 weeks before the strike/lockout Chapter 5A deals with lay -off and retrenchment o Right of workmen laid-off for compensation o Conditions precedent to retrenchment of workmen o Compensation to workmen in case of closing down of undertakings Chapter 5B deals with special provisions relating to lay -off. Rules of discipline. 4. 2. 4. Starting. Leave with wages and holidays. court or tribunal shall be published within 30 days of receipt by the government and its award shall be enforceable 30 days after the date of publication Chapter 5. alteration or discontinuance of shift o 62 Teamlease White Paper Confidential – for private circulation . 9. 3. retrenchment and closure in large establishments employing more than 100 workers o Prohibition of lay-off without the prior permission of the government o Conditions precedent to retrenchment of workmen o Procedure for closing down an undertaking Chapter 6 specifies penalties for violations of the Act o Penalty for illegal strikes and Lockouts o Penalty for giving financial aid to illegal strikes and Lockouts Chapter 7 deals with miscellaneous provisions o All directors and managers are liable if an offence is committed by a company o Employer cannot change the workers’ conditions of service during pendency of proceedings before boards. Hours of work and rest intervals. Wages. court and tribunal shall have the powers of a Civil Court in respect of enforcing the attendance of any person. The application and interpretation of standing orders. 3. Compensatory and other allowances. courts and tribunals o Procedure for recovery of money from the employer to the worker o Unions cannot penalize persons refusing to take part in an illegal strike Second Schedule: matters within the jurisdiction of labour courts: o 1. 5. Bonus. 5. 6. 4. 2. 6. The legality of an employer’s order under the standing orders. With drawal of any customary concession. Compensatory and other allowances. provident fund and gratuity. 10. in respect of such other matters as may be prescribed. 7. 3. 8.§ § § § § § § § Every board. profit sharing. Employer’s contribution to any provident fund or pension fund. Shift working otherwise than in accordance with standing orders. Leave with wages and holidays. including the period and mode of payment. Hours of work and rest intervals. 2. issuing commissions for the examination of witnesses. compelling the production of documents. is the most controversial part of the Act. including the period and mode of payment. Wages. and perhaps of all labour laws in India o Prohibition of strikes and lockouts in a public utility service. 5. which deals with strikes and lock-outs. Classification by grades. Illegality of a strike or lock-out Third Schedule: matters within the jurisdiction of industrial tribunals: o 1. examining him on oath. Retrenchment of workmen and closure of establishment Fourth Schedule: Conditions of service for change of which notice is to be given: o 1. o The report of a board.
(b) during the pendency of proceedings before a Labour Court. by its award.the Labour Court. not occasioned by circumstances over which the employer has no control Key clauses: 9A. in respect of any of the matters covered by the settlement or award. or (c) during any period in which a settlement or award is in operation. who proposes to effect any change in the conditions of service applicable to any workman in respect of any matter specified in the Fourth Schedule. Introduction of new rules of discipline.shall make the reference accordingly. Classification by grades. Reference of disputes to Boards. and National Tribunal to give appropriate relief in case of discharge or dismissal of workmen Where an industrial dispute relating to the discharge or dismissal of a workman has been referred ---for adjudication and --.(a) without giving to the workmen likely to be affected by such change a notice in the prescribed manner of the nature of the change proposed to be effected. shall effect such change. --. it may at any time. Tribunal or National Tribunal and two months after the conclusion of such proceedings.working otherwise than in accordance with standing orders. 11A. 7. set aside the order of discharge or dismissal and direct reinstatement of the workman --or give such other relief to the workman including the award of any lesser punishment in lieu of discharge or dismissal --23. 11. (b) during the pendency of arbitration proceedings before an arbitrator and two months after the conclusion of such proceedings. it may. 9.is satisfied that the order of discharge or dismissal was not justified. Notice of change No employer. or (b) within twenty-one days of giving such notice 10.the appropriate government --. standardization or improvement of plant or technique which is likely to lead to retrenchment of workmen. General prohibition of strikes and Lockouts No workman who is employed in any industrial establishment shall go on strike in breach of contract and no employer of any such workman shall declare a lock-out(a) during the pendency of conciliation proceedings before a Board and seven days after the conclusion of such proceedings. 25C. Withdrawal of any customary concession or privilege or change in usage. except as provided in standing orders. Right of workmen laid-off for compensation Teamlease White Paper Confidential – for private circulation 63 . Powers of Labour Court Tribunal. Any increase or reduction in the number of persons employed in any occupation or process or department or shift. courts or Tribunals (1) Where the appropriate government is of opinion that any industrial dispute exists or is apprehended. or alteration of existing rules. by order in writing(a) refer the dispute to a Board for promoting a settlement thereof (2) Where the parties to an industrial dispute apply in the prescribed manner. 8.Rationalisation. 10. Tribunal or National Tribunal --.
by order and for reasons to be recorded in writing.is laid-off. Compensation to workmen in case of closing down of undertakings (1) Where an undertaking is closed down for any reason whatsoever. flood. who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until. excess of inflammable gas or explosion. the interests of the workmen and all other relevant factors. as if the workman had been retrenched 25K Application of chapter 5B . (9) Notwithstanding anything contained in the foregoing provisions of this section.he shall be paid --.compensation which shall be equal to fifty per cent of the total of the basic wages and dearness allowance that would have been payable to him had he not been so laid -off (According to sub-clause (a) of clause (1) of section 25A. (4) Where an application for permission under sub-section (1) or sub-section (3) has been made the appropriate Government or the specified authority.Whenever a workman --. such lay -off is due also to fire. the workmen concerned and the persons interested in such lay-off.be entitled to notice and compensation in accordance with the provisions of section 25F. having regard to the genuineness and adequacy of the reasons for such lay -off. or where the permission for any lay -off has been refused. and in the case of a mine. as the case may be. after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer. every workman --shall --. the appropriate Government may. if it is satisfied that owing to such exceptional circumstances as accident in the establishment or death of the employer or the like. 25M Prohibition of lay -off (1) No workman (other than a badli workman or a casual workman) whose name is borne on the muster-rolls of an industrial establishment to which this Chapter applies shall be laid-off by his employer except with the prior permission of the appropriate Government or such authority as may be specified by that Government by notification in the Official Gazette (hereinafter in this section referred to as the specified authority). obtained on an application made in this behalf unless such lay-off is due to shortage of power or to natural calamity. or where no application for permission under sub-section (3) is made within the period specified therein. it is necessary so to do. --.(1) The provisions of this Chapter shall apply to an industrial establishment --.in which not less than 100 workmen were employed on an average ---. Teamlease White Paper Confidential – for private circulation 64 .) 25FFF. sub -section (3) shall not apply in relation to such establishment for such period as may be specified in the order. grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen. by order. direct that the provisions of sub -section (1). (8) Where no application for permission under sub-section (1) is made. 25N Conditions precedent to retrenchment of workmen (1) No workman employed in any industrial establishment to which this Chapter applies. such lay-off shall be deemed to be illegal from the date on which the workmen had been laid -off and the workmen shall be entitled to all the benefits under any law for the time being in force as if they had not been laid-off. may. or. this applies to “industrial establishments in which less than fifty workmen on an average per working day have been employed in the preceding calendar month”.
--. secretary.every director. for prior permission at least ninety days before the date on which the intended closure is to become effective. in the prescribed manner. agent or other officer or person concerned with the management thereof shall. Where a person committing an offence under this Act is a company. apply. Teamlease White Paper Confidential – for private circulation 65 .(a) the workman has been given three months' notice in writing indicating the reasons for retrenchment and the period of notice has expired. 25-O Procedure for closing down an undertaking (1) An employer who intends to close down an undertaking of an industrial establishment to which this Chapter applies shall. to the appropriate Government. Offence by companies. manager. etc. wages for the period of the notice. stating clearly the reasons for the intended closure of the undertaking and a copy of such application shall also be served simultaneously on the representatives of the workmen in the prescribed manner 32. and (b) the prior permission of the appropriate Government or such authority as may be specified by that Government by notification in the Official Gazette (hereafter in this section referred to as the specified authority) has been obtained on an application made in this behalf. unless he proves that the offence was committed without his knowledge or consent. or the workman h been paid in lieu as of such notice. be deemed to be guilty of such offence.
which have argued for liberalizing our labor laws: • • • 1. There have been numerous proposals for reforming labor laws to make them more responsive to changing business conditions. set up by the Planning Commission in January 1999. Montek Singh Ahluwalia committee S. ‘workmen’ and forms of ‘retrenchment’ that were probably never contemplated by the lawmakers § While the body of laws has changed so little. covering categories of ‘industries’. “A central message of our report is that the aggregate employment problem in the country cannot be solved except through a process of accelerated growth which would create additional demand for labor and also provide the increase in labor productivity needed to achieve the much needed improvement in employment quality”. requiring government permission for large companies to retrench workers. According to the committee. The committee noted with concern the worsening employment scenario in the country in recent years: (1) the rate of unemployment has increased. P. To quote from page 4 of the committee’s report. Gupta committee Second National Commission on Labor Montek Singh Ahluwalia committee This committee. was called the ‘Task Force on Employment Opportunities’ and was chaired by Planning Commission member Montek Singh Ahluwalia. and (3) employment elasticity has reduced drastically. one crore on average per year”. the only two significant developments in India’s labor laws in recent decades have been: § Amendments in 1976 which inserted Chapter V-B to the Industrial Disputes Act.e. The committee submitted its report in July 2001. We discuss below the key findings and recommendations of three such bodies set up by the government. especially since economic reforms were initiated in 1991. the business environment has changed rapidly.ANNEXURE C – PAST INDIAN LABOR REFORM PROPOSALS India’s labor laws have not been substantially altered since their adoption in the late 1940s. Its mandate was “t o examine the existing employment and unemployment situation in the country and to suggest strategies for employment generation for achieving the target of providing employment opportunities to 10 crore people over the next ten years. Teamlease White Paper Confidential – for private circulation 66 . Besides relatively minor modifications. (2) employment creation has slowed. making it virtually impossible for even sick companies to close down and retrench workers Judgments by the supreme court and various high courts that have substantially extended various laws. i. the central challenge was to promote economic growth and thereby encourage employment generation. but the government has largely ignored such proposals.
thereby hurting GDP growth and leading to high unemployment er Labor reforms are necessary in order to boost GDP and thereby reduce unemployment Labor reform should include two key elements.5% GDP growth will only generate additional employment of 5. It has also made our producers uncompetitive vis-à-vis imports in an environment where the economy is increasingly becoming more open. food processing. To quote from page 12 again. To quote from page 5 of the report. To quote from page 12. leading to a continuing worsening in the rate of unemployment”. (1) freedom for companies to terminate and retrench workers. “Reform of labor laws is a particularly sensitive issue and there is understandable reluctance to proceed with reforms which may appear ‘antiTeamlease White Paper Confidential – for private circulation 67 . “Our growth simulations suggest that continuation of 6. this would face substantial opposition and therefore needs to be addressed tactfully. and in particular the way they have been administered and implemented. so that GDP growth and employment generation are facilitated. The employment elasticities we have used imply that 6. and (2) allowing companies to hire workers on temporary employment contracts The committee recognized that while the case for reforming labor laws was compelling.5% GDP growth is not likely to bring about a significant improvement in the employment situation. The committee has essentially put forward four basic propositions: § § § § Unemployment can only be reduced by boosting GDP growth and facilitating employment generation The existing system of labor laws in India impose unreasonable restrictions on companies.) The committee was blunt in asserting that restrictive labor laws have been primarily responsible for the increasing unemployment in the country. have this unintended effect of discouraging employers from investing and expanding in labor intensive areas.9 million per year. The objective is to create a labor environment that allows companies to operate freely. This has made us uncompetitive in these areas in export markets denying us the possibility of la rge expansion in organized sector employment. To create sufficient number of jobs. “Our assessment is that the existing labor laws. and warned that even the relatively high GDP growth rates achieved in recent years were not sufficient to avoid worsening unemployment. The committee has recommended several changes to be made in India’s labor laws. it is necessary to increase GDP substantially. a trend which is unavoidable and should be continued”.The committee called for dramatic steps to be taken to prevent a rise in unemployment. etc. the committee suggest ed the following macro-economic policy measures: § § § § § § Higher rates of investment Improvements in efficiency Improvements in infrastructure Reform of the financial system Credit for the informal sector Sector-specific policies (in areas like agriculture. and to achieve this.
Currently. § § The Contract Labor (Regulation and Abolition) Act § § § Allow all peripheral activities to be freely outsourced from specialized firms. even if it means employees of the specialized firms provide the services on the premises of the outsourcing units Define minimum responsibilities of the outsourcing employer for health and safety of the workers employed on his/her premises Extend appropriate labor regulation to these outsourcing contractors Teamlease White Paper Confidential – for private circulation 68 . For this reason it is necessary to bring about a better appreciation of the negative effects of existing labor laws on total employment in the economy and the potential benefits to labor of introducing greater flexibility”. Short -term employment contracts should be introduced under which contract workers can be discharged at the end of the contract period without scope for dispute. courts have interpreted non-renewal of a fixed term employment contract as ‘termination’. we list below the recommendation which will have radical effect on temping is listed below: Industrial Disputes Act § The provisions relating to retrenchment should not apply in cases of termination due to non-renewal of a fixed term employment contract. Scrap section 9a. though this is contrary to the intention of the contracting parties and the intent of the legislature while framing the law. While the committee had major recommendations. which provides that job content and area and nature of work of an employee cannot be changed without giving 21 days notice to the employees (applicable for companies with more than 100 workers).labor’.
such as: (1) agriculture. to meet the Plan’s employment goals is to encourage the use of labor intensive and capital saving technology. Its chairman was Dr. information technology. with an ever-increasing gap between the demand for jobs and supply of job opportunities” (page 3 of the committee’s report). To promote growth in these unorganized sectors. The committee feels that employment generation can be maximized by developing the unorganized sectors of the economy. then India is going to face increasingly higher incidence of unemployment. To quote from page 6 of the committee’s report. repeated in future. They would ask for involvement of grassroots enterprise. in general and to rejuvenate the growth of the unorganized sector in particular. and to recommend sectoral programmes for creation of employment opportunities. Since majority of the workforce are employed in the unorganized sector. “To sum up. the employment strategy for future. and (2) To look into sectoral issues and policies having a bearing on employment generation.e. S. these proposed changes in policies and programmes would not entail any significant additional finance. The committee makes three recommendations to reduce unemployment: (a) The key to India’s unemployment problem is more legislation. skills. which at present contributes 92% to the country’s employment and enjoys more than 7 times labor intensity per unit of production. S P Gupta committee This committee was set up by the Planning Commission in September 2001. especially social forestry. institutions and often even indigenous technology. and concludes that we are likely to face rising unemployment. and Chairman of the Tenth Plan Steering Committee on Labor and Employment. financial sector.2. The committee starts by examining the employment data.. The committee submitted its report in May 2002. and employment growth in the organized sector is stagnating. the committee has suggested an innovative grassroots-based approach. This should be further supported by creation of an enabling environment by removing all legislative hurdles and bureaucratic interference”. Gupta. and was formally called the ‘Special Group on Targeting Ten Million Employment Opportunities per year over the Tenth Plan Period’. horticulture and related areas. “All these Reports bring out a common message that if the experiences of the late nineties are extrapolated i. However. animal husbandry. and (3) services such as tourism. 69 (b) (c) Teamlease White Paper Confidential – for private circulation . (2) small and medium industries and construction. the unorganized sector needs to be made more productive to sustain itself against the domestic and international competition by proper choice of programmes and policies compatible with India’s economic reforms and the WTO rules”. P. “In many instances. member of the Planning Commission. such legislation has to be focused on improving the job quality in the unorganized sector. as compared to the organized sector. The terms of reference of the committee was: (1) To suggest strategies and programmes in the Tenth Plan for creating gainful employment opportunities for 10 million people a year. To quote from page 13 of the report. education and health. fishing.
For example. headed by a sitting or retired High Court judge Contract labor permitted for temporary and seasonal work. ‘check off’ system for negotiating agent. the NCL visited China and had discussions with government and labor officials. To understand what lessons India could learn from China’s experiments with reform. i. with compensation for workers Prior government permission not necessary for lay off and retrenchment. While the NCL has submitted a massive report that runs into 1. Essentially. NCL noted that “China has made spectacular progress in globalization and the post-globalization scenario. the National Commission on Labor has concluded that the current system of labor laws is excessively restrictive. NCL also studied the labor laws in China and noted that these provide substantial freedom to companies in managing their labor.. and (2) suggest an Umbrella Legislation for ensuring a minimum level of protection to the workers in the unorganized sector. enterprises employing 19 or fewer employees All employees to be covered by a social security Strikes to be banned in socially essential services like water supply. the NCL has recommended the following key changes to be made in India’s labor laws: § § § § § § § § § § Consolidation of all cent ral labor laws into one ‘Labor Management Relations Law’ Simplified law for the unorganized sector. etc. and noted the following provisions in this law: (1) Teamlease White Paper Confidential – for private circulation 70 . as compared to the tardy progress that India has made” (page 215. Its mandate was to (1) suggest rationalization of existing laws relating to labor in the organized sector. and that it needs to be liberalized given the changed business environment in India after 1991. NCL studied the ‘Shanghai Municipal Regulations of Labor and Personnel Management in Foreign Invested Enterprises’ in detail. provided workers get notice and compensation Resolve labor disputes through arbitration. not adjudication or government intervention Labor Relations Commissions to be set up at State.e. but not for core production or services activities. medical services. calling strikes. its key recommendations on labor reforms are contained in its Chapter VI that deals with ‘Review of Laws’.3. unions and employers’ associations. and had representatives from the government. etc. Central and National levels. clause 4.468 pages. and for maximum 2 year contracts Restrict unions in terms of minimum 10% votes. Second National Commission on Labor The Second National Commission on Labor (NCL) was set up by the Ministry of Labor of the Government of India on 15 October 1999 in order to undertake a comprehensive review of labor laws in India and to suggest specific areas of reform. Employer must be free to close down or retrench workers. The NCL was chaired by Ravindra Varma. After a comprehensive review of the labor scenario and detailed discussions with representatives of unions and employers.210 of the NCL report).
109. sickness. and instead the law defines four other mechanisms available to workers to redress their grievances. the management will be free to entrust the service to outside agencies. § Teamlease White Paper Confidential – for private circulation 71 . (3) where the transfer of such services do not involve any employee. etc. (2) t e labor contract is automatically h dissolved when the employee is charged with a criminal suit or when the employer firm is dissolved. (2) where such services are being performed by employees on the payrolls of the enterprises. will be permitted with the condition that: (1) perennial core services should not be transferred to other agencies or establishments. the employer must pay compensation of 1 month’s salary per completed year of work. for sporadic seasonal demand. negligence. No worker should be kept continuously as a casual or temporary worker against a permanent job for more than 2 years. 6. no transfer to other agencies should be done without consulting the bargaining agents. unskilled. semi-skilled or skilled. watch & ward. However. Given below are the specific recommendations made by the Second National Commission on Labor with a bearing on the Temping industry. Contract labor shall not be engaged for core production/services activities. or if such worker does not exist in the organization. The contract labor will be remunerated at the rate of a regular worker engaged in the same organization doing work of a comparable nature. at the lowest salary of a worker in a comparable grade. incompetence).e. the employer may engage temporary labor for core production/service activity. Off-loading perennial non-core services like canteen. The principal employer will also ensure that the prescribed social security and other benefits are extended to the contract worker. (4) strikes are neither permitted nor banned.110. i. (3) for dismissed employees.companies can terminate employees with compensation (under circumstances such as indiscipline. along with the clause number in their report: § 6. cleaning.
Sadly. China has (1) encouraged trade and investment from Taiwan which it still considers a break -away province. and socialist ambitions. (2) Pragmatism : China experienced stagnation and poverty in the 1960s and 1970s during the ‘Great Leap Forward’ and the ‘Cultural Revolution’. and (4) privatized or closed thousands of state owned enterprises while retai ning a few large ones. and Britain in this regard. China has realized that economic growth and job creation are ultimately more important for workers’ welfare than anti-business legislation. and implemented a series of bold steps including legal status for private companies. According to our research. far-reaching and decisive economic reforms that established private enterprise and foreign capital as the essential pillars of the economy. illiteracy. Such pragmatism is rare in the Indian political economy. delegated powers to local governments to attract investments. when China undertook a series of bold. Communist China is closer to ‘capitalist’ states like U. poverty. there are three fundamental distinctions between the economic systems in China and India: (1) Emphasis on growth: The Deng Xiaoping government. mostly preoccupied by rhetoric rather than action.ANNEXURE 3 – LABOR REFORM IN CHINA India has important lessons to learn from China particularly since both were very similar in the 1950s –size. (3) reclaimed Hong Kong from British rule while giving it autonomy under the ‘1 nation. Subsequent governments have been careful to avoid these mistakes. compared to even ‘welfare states’ like France and Germany. modern China is driven by Deng Xiaoping’s mantra that “it is glorious to be rich”. “it does not matter whether the cat is black or white. and virtually all the growth has taken place in sectors like IT that have enjoyed what some gratefully call the “benign neglect” of the Indian government. For example. However. (2) set up ‘Special Economic Zones’ giving foreign companies almost total freedom. 2 systems’ framework. Sadly. population. so long as it catches the mice”. China has achieved rapid growth and rising income levels. The government acted decisively to create laws and institutions that promote growth. incentives for foreign investment. As Deng Xiaoping put it. which inflicted hardship and misery on millions in the name of ideology. Such pragmatism springs from the top in China.S. their paths diverged in the 1970s. Surprisingly. while India has been a spectacular under-achiever where 70% of the population still depend upon monsoon rains for sustenance cultivation. Indian politics still revolves around self destructive themes. (3) Labor flexibility: Labor laws in China offer significant flexibility to companies to hire and fire employees without excessive restrictions. India took giant leaps in the backward direction. placed economic growth as the top priority for the nation. colonial legacy. and have acted with exemplary pragmatism. which came to power in China in 1978. Teamlease White Paper Confidential – for private circulation 72 . and membership of the World Trade Organization (WTO). cultural heritage. Unlike the previous decades where Chairman Mao’s writings represented the ultimate gospel. and its prosperous coastal cities resemble those in Europe and North America.
8 249 INDIA 480 1.Background Nearly 25 years after the onset of economic reforms in China. education and medical care. China’s employment philosophy was characterized by the ‘one low. the Communist system in China guaranteed jobs for its people and provided housing and other amenities. income levels and standard of living were very poor under this ‘iron rice bowl’ system. and presents comparable figures from India to place them in perspective: Figure 3. The Figure 3. and gathered pace in the early 1990s after the economic boom in the coastal provinces demonstrated the success of reforms.300 9.1: Economic indicators: China versus India CHINA GDP Population Area Per capita income GDP growth (1990-2000) FDI (in 2001) Exports $ billion Million Billion square km $ p. or work unit system. housing. Under this system. Workers received their benefits from their employers (e. Economic reforms China began its economic reforms in 1978. and had no choice regarding the type or location of jobs. rising income levels. College students would be allotted to a danwei upon graduation. Even though job security was assured. which stood for low salary for workers.6 860 10 46. huge foreign investments.1 below captures some of the key economic indicators in China. and the rise to power of Deng Xiaoping. three high’ principle. its macro-economic environment is characterized by rapid GDP growth. and high level of government subsidies. high level of benefits for workers. China’s reforms were slow and tentative at first.a.g. % $ Billion $ Billion 1.3 43 Source: compiled by TeamLease from various sources Traditionally. and were often tied to their danwei for the rest of their lives. and booming exports. after three decades of communism under Mao Zedong.030 3. high employment rate. in which each person was tied to a specific organization which provided work as well as benefits like employment. the people of a locality were made members of the ‘danwei’.3 465 6 2. and not directly from the government. state-owned enterprises).120 1. Teamlease White Paper Confidential – for private circulation 73 .
1993 to the Present: This phase was triggered by Deng Xiaoping’s famous tour in September 1992 to the prosperous Southern provinces that had benefited from economic reforms and foreign investment. nd Private firms were limited to individual businesses (‘getihu’ or sole proprietary concerns). Subsequent reforms included (1) liberalisation of foreign investment norms. and emphasized economic development and individualistic incentives. the Fourteenth Party Congress of the Chinese Communist Party declared its new goal of creating a ‘socialist market economy’. In October 1984. This phase also saw de-facto privatization of state-owned and collective-owned enterprises that were leased to private entrepreneurs who paid a fixed rent. agriculture. This was followed in 1993 by the government’s ‘grand strategy’ of transition to a market economy. Phase 2. Phase 3. This later prompted Deng Xiaoping to make his famous comment that “it is glorious to be rich”. employing more than 8 people) as distinct from the smaller ‘getihu’. and other areas. creating so called ‘red hat firms’ that were actually private owners who put on a hat of collective ownership to evade legal restrictions and harassment. (3) restructuring of the bureaucr cy.Three stages in the reform process § Phase 1. the Communist Party issued ‘Decisions about Economic System Reform’. 1984–92: This phase is characterized by ‘siying qiye’ firms (privately run enterprises. 1978–83: The Third Plenum of the Chinese Communist Party’s 11th Central Committee in December 1978 adopted economic modernization and growth as the paramount concern of the Communist Party. which tried to reform every aspect of the economy. and reform of state -owned enterprises (‘gaizhi’). Firms could also obtain a license by paying an administration fee to a collective unit or local government. building of market supporting institutions. and (6) amendment to remove the right to strike from the Chinese constitution. The development of the private sector involved a typical ad-hoc sequence: (1) unpublicized experimentation by entrepreneurs who started new ventures with the support of local officials. including support for town and village enterprises (TVE) in the rural areas. and contract farming was introduced in the rural areas. In March 1999. § § Teamlease White Paper Confidential – for private circulation 74 . in this phase the private sector developed without explicit legal recognition and support. reflecting the changing economic philosophy of the government. (5) reforms in banking. and was intended to play a marginal role to supplement the state sector a fill the gaps in the economy. another milestone was achieved as private ownership was incorporated into the Constitution. In 1992. (3) ratification and specific regulations by the government after the reform has become well established. However. (2) general ‘in principle’ approval for such enterprises from the regional government. which encouraged the growth of the private sector. with an emphasis on a rule-based system. The Fifteenth Party Congress in September 1997 recognized private enterprise as an important component of the economy. (2) closure and privatization of state owned enterprises. exchange rate. and reform of state-owned enterprises (SOE). taxes. (4) large-scale a retrenchment of employees from the government and state-owned enterprises.
such as agriculture. SOEs were the dominant force in the Chinese economy. and allowed the local governments to experiment with various reforms without disrupting the organization as a whole.e. more than 50. In 2000 around 2. with the slogan ‘zhuada fangxiao’. launched administrative and fiscal 75 § § § Teamlease White Paper Confidential – for private circulation . and contributed 46% of tax revenues collected from all state-owned firms and 63% of their total profits. and the fiscal contracting system rewards local governments for promoting economic development in their areas. More than 81% of the 63. Reforming the bureaucracy: The government mandatorily retired the ‘revolutionary veterans’ in the bureaucracy. It has evolved through cycles of unpublicized e xperimentation. This system. by 1998 its share had shrunk to just 31%. acquisitions.300 crores). in 1997 the 500 largest state-owned firms accounted for 37% of all assets held by all state -owned firms. called ‘eating from separate kitchens’. Because the private sector was initially viewed as a supplement to the state sector. For example.. Key Features of Reforms § Experimentation under uncertainty: Private business was permitted in the late 1970s in order to tackle economic stagnation and rising unemployment. and this has totally changed China’s economic landscape. Dual -track approach: Initially. or restructured (through mergers.490 small-sized SOEs (i. services. China did not restructure its SOEs in the 1970s and 1980s. While SOEs accounted for 77% of industrial output in 1978. sold or restructured by 2000. replaced the previous centralized system. enabling reformers to avoid ideological debates. and created a larger drain on the budgets of the local governments. In 1995. followed by general ‘in principle’ approval. and reduced opposition to reforms. leasing.000) had been privatized. closed down. The government proposed to retain only around 1. While 24% of SOEs owned by the central government were making losses in 1995. while all the other SOEs were to be privatized. the private sector was expected to complement the state sector and was tolerated in areas where state enterprises did not exist. then by ratification and specific regulations.504 of these implemented. The process of SOE reform in China has been quick as well as dramatic. with a total w rite-off of RMB 81 billion (Rs. The vast majority of companies and workers in China are now in the private sector.Privatisation of state-owned enterprises Until the late 1970s. and 1. 45. meaning ‘keep the large ones and let the smaller ones go’. Decentralization: Local governments have a high degree of autonomy. and light industry. SOEs owned by local governments were targeted for reform (as opposed to larger SOEs owned by the central government) because they were performing badly. or sale to employee-owned cooperatives). This protected state -owned enterprises and bureaucrats from competition.000 large enterprises owned by the central government. 72% owned by local governments were loss making.800 bankruptcy and merger proposals among SOEs were approved. as well as to highlight successful reforms to encourage further reforms. China declared a bold policy to restructure SOEs.
Employment China has a population of 1. Millions of these unemployed people are expected to migrate to the cities in the coming years. the unemployment rate for the next decade is predicted to exceed 10%. While economic growth has been rapid.2%. These reforms have forced the bureaucracy to support economic development and promote the private sector. and around 7 million workers are laid off every year from state-owned enterprises being closed down. though the official rate is just under 4%.1% in 1997 and 1998. which also reduced political and bureaucratic opposition since the bureaucrats had little vested interests in poor rural areas. various estimates place China’s unemployment rate between 3% and 10%.5%. Some estimates from leading agencies are shown below: § According to official estimates.g. while only around 11 million new jobs are being created every year. The success of these agricultural reforms created powerful forces that supported further reforms – e. where the problem has even led to workers’ riots. and the unemployment rate is 3. the unemployment rate is 7%. registered unemployment stood at 3 . Official statistics suggest that at mid-2001 the unemployment rate in urban areas was around 3. § Start with agriculture: Agriculture was the starting point for reforms in China. and its labor force is around 724 million. Based on these. or 6. While employment data in China is somewhat unreliable.decentralization. Economic stagnation and closure of state-owned enterprises in the rural a reas have left around 150 million people out of work. § § § § Unemployment in China is expected to rise dramatically in the years to come. According to the Development Research Center of China’s State Council. Unemployment is much higher in the interior regions of China. and allowed bureaucrats to quit the bureaucracy and join businesses.300 million. 26 million are unemployed. putting Teamlease White Paper Confidential – for private circulation 76 . and as high as 13 15% in 1997 and 1998. According to the ‘Green Paper on Population and Labor’ published by the Chinese Academy of Social Sciences in 2002.6% if workers laid off from state-owned enterprises are included. or the non-state industrial sector). the extra income from agriculture was channeled into the industries in rural areas and fueled a boom among ‘town and village enterprises’ (TVE. China’s workforce is increasing by 13 million per year. China also faces massive unemployment. According to statistics from the Information Center under the Ministry of Labor. unemployment was around 10% percent since the mid 1990s. which created pressure for the reform of the overall state sector. out of China’s workforce of 724 million.
unemployment and child bearing”. 42 million are poor farmers. and is technically bankrupt. In response. there are 24 million unemployed people in China. This is mainly due to the severe funds shortages faced by the government. illness. and around 12 million are ‘xiagang’ workers made redundant in privatized state-owned enterprises. According to certain sources. such that the worker receives health and other benefits from private insurance companies. Teamlease White Paper Confidential – for private circulation 77 . the government has wriggled out of its huge liabilities in paying pensions and other benefits to workers. Now the benefits received by workers are based upon the contributions made by the worker and his employer to wards a social security fund. China has witnessed several workers’ riots in recent years. the Chinese government has shifted the responsibility for social security to the workers. which read as follows: § Section 70 of China’s Labor Law of 1995 states that: “The State shall develop social insurance undertakings. who have made larger premium contributions to the insurance company. work -related injury. workers used to get certain guaranteed benefits from the government. pensions were fixed as a percentage to the last drawn salary. 70 million are migrants from the rural areas to cities. By shifting to a “defined contribution” scheme. In spite of the tight restrictions on demonstrations and political activity. receive larger benefits compared to workers who have worked for shorter durations. Previously. some pension fund payments have been delayed.g. and the government has no liability. For example. e. with the number of retirees growing at twice the rate of new workers entering the workforce. As a result. The insurance company pays the worker a pension. the responsibility for workers’ benefits ha s gradually shifted from the government to the workers themselves. § The measures relating to such social security benefits are contained in China’s Labor Law of 1995. and not from the government. Social security Since China’s market reforms of 1978. The situation is expected to grow more serious in the coming years. The worker and the employer pay a certain share of salary towards purchasing insurance policies from private insurance companies. the pension system in China has a deficit of over $10 billion. and set up social insurance funds so that laborers may receive assistance and compensations under such circumstances as old age.pressure on the infrastructure in the over-populated cities. and at least 100 million eligible pensioners never receive payments. most of them led by the jobless ‘xiagang’ workers. medical benefits and unemployment benefits in accordance to the premium that has been paid by the worker. by introducing two major changes: § It has moved away from so-called “defined benefit” schemes to “defined contribution” schemes. Thus workers who have worked for longer periods. establish a social insurance system. Social security has been partially privatized.
especially in terms of the proportion of population having a college degree or technical training. when all schools and colleges were closed to prevent “anti-revolutionary activities” by intellectuals. they also receive medical. Section 73: “Laborers shall. in accordance with the law. China faces a severe shortage of qualified local candidates for managerial and technical positions. or Rs. when China undertook major economic reforms. only 11% of the Chinese population had enrolled for college degrees. The government has specified that the maximum duration of work must not exceed 176 hours per month.500) per month. compared to 48% in Japan and 51% in the US. the minimum salary is RMB 450 (i.§ Section 72: “The sources of social insurance funds shall be determined according to the categories of insurance. This was a sad period in Chinese history when a whole generation lost the opportunity to learn. and an overall pooling of insurance funds from the society shall be introduced step by step. according to the Chinese census of 2000.. Income levels The Chinese government specifies the minimum salary that all workers in China must be paid. This implies an annual minim um salary of $660 (Rs. In 1999. the percentage of the populatio with n university education rose steeply from 1. 31. The employing unit and laborers must participate in social insurance and pay social insurance premiums in accordance with the law”. Currently. Schools and colleges began to operate normally only after 1978. (3) disability caused by work-related injury or occupational disease. § Training China’s educational system stagnated during the years of the Cultural Revolution (19661976).42% in 1990 to 3. Workers in China’s state-run factories typically are paid around $150 (Rs. For example. 16 per hour. which means that a majority of casual laborers and self employed workers receive less than the minimum legal salary. The minimum hourly wage in China is thus $0.33. China still has poor levels of education and training. even by 1995 only 10% of individuals entering the workforce had a university education.e. and millions of teachers and educated people were sent to prison or labor camps.585) per month. While the government has invested large sums of money in building the educational infrastructure. Teamlease White Paper Confidential – for private circulation 78 . However. according to the Chinese government. work and live a normal life. or a rise of 154%. Where workers are employed beyond 176 hours per month. Not surprisingly. (2) illness or injury. enjoy social insurance benefits under the following circ umstances: (1) retirement. China’s per capita income is only around $860 per year. retirement and unemployment insurance. However. especially in the coastal regions where large job opportunities have been created.000) per year. and (5) child bearing”. (4) unemployment. Apart from pay. 2. Chinese law requires employers to pay overtime pay at two times the minimum wage.61% in 2000. $55 or Rs. 7.
salaries often double within a few years).to senior-level manager for the next 2 decades.860 2.2% for the bottom decile.000) per year.263 54.366 US$ $2. 2. and it is estimated that there will be at least 8 good jobs for every trained local Chinese mid. while their counterparts in SOEs earned only around $14. especially in the booming coastal regions. where there are lots of vacancies for engineers.072 (Rs. There are also large differences in the pay offered by private and state-owned firms. Faced with labor shortages. hardship allowances.000 (Rs. education allowances.While workers in some ‘sweatshops’ in the coastal regions receive poor pay and working conditions.963 13. the average pay for professionals with 5 years experience is $15. lawyers and other professionals and few candidates.751 $2.20% n/a n/a 8. compared to only 1. accountants. general managers in foreign-invested companies in Guangzhou province earned around $48. and increased job -hopping among employees (e. and annual bonuses.20% Source: Various websites referring to survey by Beijing Youth Post newspaper dated 1 April 2002 (Rupee salary calculated at Rs.781 19. China has attracted large numbers of expatriates from North America and Europe. Typical salaries for expatriates were around $300. For example.2: Booming salary levels in China’s coastal regions City 2001 Average Annual Salary RMB Guangzhou Shanghai Beijing Tianjin Chongqing Urban average Rural average 22.50% 17.400. % from 15. 47 per $) The pay is even more attractive for professionals in the major cities of China.308 9.000 per year).758 81. Teamlease White Paper Confidential – for private circulation 79 . average retention for good English-speaking candidates is only 1-2 years).772 21.000 (Rs.7% in the bottom decile. studies indicate that most workers in these regions receive attractive pay and benefits.704 108.g.3% per year.000) per year. 700.7% per year compared to just 2. 7. 15.155 14. This has led to poaching of personnel from other companies.097 38.50% 4.000. For example. There is a severe shortage of qualified local candidates for managerial and technical positions in China.50.523 6. income levels of households in the top decile grew by 9. There will continue to be a severe shortage of local managers in China.000 per year) annually.151 $829 $286 Rupees 129. In the urban areas.632 $2. especially in new and hi-tech industries.314 $1. During 1998-2000.000 (Rs. including living expenses.70% 17. according to a survey conducted by the Guangzhou Association for Labor Administration in 2001. income levels in the top decile grew at 9.729 $1.g.297 123.442 Increase 2000. A survey by the Beijing Youth Post in April 2002 found that pay levels in the coastal regions are the highest in China: Figure 3. sharp rises in salaries (e.
The provision reads as follows: o “During the period of statutory consolidation when the employing unit comes to the brink of bankruptcy or runs into difficulties in production and management. solicited opinions from them and reported to the labor administrative department”. In this respect. which lays out the rules regarding termination: § Section 25 of China’s Labor Law of 1995 allows companies to terminate employees on disciplinary grounds. or o Is “investigated for criminal responsibilities in accordance with the law” Section 26 allows companies to terminate employees with 30 days’ notice and upon payment of compensation (one month’s pay). the unit may make such reduction after it has explained the situation to the trade union or all of its staff and workers 30 days in advance. These provisions are contained in China’s 1995 Labor Law. the reduced personnel shall have the priority to be re-employed”. while India has rules that make it virtually impossible for companies to terminate workers. in these circumstances: o “Where a laborer is unable to take up his original work or any new work arranged by the employing unit after the completion of his medical treatment for illness or injury not suffered at work” o “When a laborer is unqualified for his work and remains unqualified even after receiving a training or an adjustment to any other work post” o “No agreement on modification of the labor contract can be reached through consultation by the parties involved when the objective conditions taken as the basis for the conclusion of the contract have greatly changed so that the original labor contract can no longer be carried out” Section 27 allows termination of employees when the company is facing serious problems. This provision is applicable where the worker: o Is proved to be “not up to the requirements for recruitment during the probation period” o “Seriously violates labor disciplines or the rules and regulations of the employing unit” o Causes “gre at losses to the employing unit due to serious dereliction of duty or engagement in malpractice for selfish ends”.Labor laws Termination China has liberal laws allowing companies to terminate and layoff workers without excessive restrictions. without having to pay any compensation to the worker. and if reduction of its personnel becomes really necessary. o “Where the employing unit is to recruit personnel six months after the personnel reduction effected according to the stipulations of this section.S. or when the worker is guilty of indiscipline and violence. Communist China is closer to ‘capitalist’ states like U. § § It is surprising that Communist China has liberal laws that allow companies to hire and fire workers without excessive restrictions. even when the company is sick and unviable. provided workers are given 30 days notice and have been paid compensation (one month’s pay). and Britain than even to ‘welfare Teamlease White Paper Confidential – for private circulation 80 .
On paper. lack of social security. Instead. which is controlled by the government. In page 207 (clause 4. which visited China to study Chinese labor laws in detail. for these reasons: § The right of workers to strike has been removed from the Chinese constitution. Indian business is constrained by outdated laws that destroy companies’ ability to operate freely and compete in global markets. etc. This gives rise to a peculiar situation: if there is a dispute between unions and management in a state-owned enterprise. in reality the unions in China are relatively powerless. This was commented upon by the National Commission on Labor. unions have no power to confront managements of state-owned enterprises. all unions are required to be affiliated to the All China Federation of Trade Unions (ACTFU). (1) mutual talks. it defines four other mechanisms available to workers to redress their grievances. Therefore. (3) arbitration by the government. the Chinese government has taken great care to ensure that labor laws do not restrict companies from operating freely. and has 103 million members. Sadly.000 grass roots trade unions. Unions are controlled by the Chinese Communist Party. creating millions of high -paying jobs and boosting its exports. (2) approach the ‘Mediation Centre’ required in every enterprise. Clearly. the Chinese government sits on both sides of the negotiating table. the tri-partite body set up by the government of India to suggest labor reforms. They cannot agitate for their rights and benefits on their own. which has ultimate responsibility for workers’ welfare. even when they face widespread layoffs. closure of state-owned enterprises. Workers have to accept the decisions of the Chinese government. For example. and does not seem to be supported by labor laws. and union officials are part of the government machinery. However. the National Commission on Labor notes that the ‘Shanghai Municipal Regulations of Labor and Personnel Management in Foreign Invested Enterprises’ do not mention strikes at all. and it is mandatory for employers to pay fees equal to 2% of wages to support local trade unions. which also controls all the unions in China.166) of their report. State-owned enterprises (SOEs) are controlled by Communist party. Chinese unions appear very powerful. The ACFTU is the apex body of 31 provincial-level trade unions and 900. while China has succeeded in attracting large foreign investments. especially foreign invested enterprises which are seen as the engine behind the economic miracle in China’s coastal provinces. Unions have no real powers to undertake collective bargaining. Labor disputes are resolved through discussions with between employers and labor ministry officials rather than negotiations with unions.states’ like France and Germany. § § § Teamlease White Paper Confidential – for private circulation 81 . Trade unions China’s unique combination of a market economy within a communist state poses peculiar challenges for its trade unions. and (4) adjudication by the courts. All Chinese workers are automatically members of trade unions in their workplaces.
It says that an employment contract must “be concluded in written form and contain the following clauses: (1) term of labor contract. This is fortunate since contract terms are best left for the parties to freely contract. Chinese workers are employed by FESCO which “rents” them to the foreign company. This is in contrast to The Child Labor (Prohibition And Regulation) Act of 1986 in India. hence all labor laws are applicable to FESCO and not to the foreign company. § Employment by foreign companies In 1979. helps the foreign company comply with employment Teamlease White Paper Confidential – for private circulation 82 . § Section 15 of China’s Labor Law of 1995 prohibits child labor. while also ensuring that workers’ rights are protected. which restrict the ability of unions to function freely. China’s government has suppressed “independent” unions that are not controlled by the Communist party. (5) labor disciplines. (2) contracts of work. and has often jailed union leaders. and (2) standard format for an employment contract. which does not prohibit child labor – it merely prohibits the use of child labor in certain hazardous occupations. and in fact specifies the conditions of under which child labor can be used in other occupations. where employers and employees are free to frame contracts according to their preferences. wages and standard of living in the “capitalist” coastal regions than the “iron rice bowl” in the interior regions. and charged them with “subversion of state power” and for having contact with “hostile elements and foreign media”. provides workers the benefits guaranteed by the government. and (7) responsibility for the violation of a labor contract”. Moreover. the Chinese government created the Foreign Enterprises Services Company (FESCO) to make it easy for foreign companies to recruit staff and comply with labor laws. and specifying the format of such contracts amounts to unnecessary micro-management. (4) labor remuneration.§ China has strict controls on freedom of speech and association. the massive migrations of jobless peasants suggests that workers prefer the superior job opportunities. where millions have lost their jobs due to closure of state -owned enterprises. in May 2003 the government arrested two union leaders for organizing demonstrations in the north -eastern city of Liaoyang. (3) labor protection and working conditions. and prescribe severe punishment for such “subversive” and “treasonable” activities. Other provisions China’s Labor Law of 1995 contains two provisions that are absent in India’s labor laws: (1) prohibition of child labor. It says that “No employing units shall be allowed to recruit juveniles under the age of 16”. Technically. Section 19 prescribes the format for an employment contract. Chinese laws prohibit all anti-government protests and demonstrations. There is no such parallel in India’s labor laws. (6) conditions for the termination of a labor contract. For example. It is ironical that workers in the socialist people’s democratic dictatorship of China have less protection than their counterparts in the capitalist economies of the West. serious crimes that carry the death penalty. FESCO recommends qualified candidates to the foreign company.
light manufacturing. residence permits. FESCO also charges a large fee for its services. as well as aviation and aerospace technology. This has led to poaching of candidates from other companies. though no benefits are provided to parttime employees. chemicals. (2) medical reimbursement of 70-100% of medical expenses beyond a threshold amount per year (RMB 300.g. The large employment opportunities created in the coastal regions has created a severe manpower shortage in the SEZs in coastal China. Teamlease White Paper Confidential – for private circulation 83 . 1. and offer better working conditions as well. In return. Immigration reforms Due to the shortage of skilled labor in coastal regions. electronics. In the coastal areas. New regulations have also been introduced to make it easier for foreign headhunting firms to gradually enter the Chinese job market. These companies pay much higher wages than state-owned enterprises.700). promotion. rapid rise in salaries and increasing employee turnover. (4) salary for part-time staff at a rate equal to two-thirds of the full-time rate. export-oriented units have created vast employment opportunities for millions in industries like toys. In addition. biotechnology. this dual employment structure – with FESCO as the nominal employer and foreign companies as the de facto employer – can also cause problems. FESCO offers Chinese employees: (1) salary as agreed to by the foreign company. Since October 2002. and the interior regions where inefficient and loss-making state-owned enterprises are facing stagnation or closures. passport applications). Long term or permanent residency status will be granted to overseas professionals i volved with expertise in n information technology. and helps settle labor disputes. as well as expatriates. have created a huge and widening gulf between the prosperous coastal provinces where private companies and foreign investment have been encouraged. However. and termination. and so on. the Chinese government has changed immigration laws to attract overseas professionals. in addition to a one-time recruitment fee. new materials and manufacturing technology. Chinese returnees. productivity. foreign headhunting firms have been officially allowed to form joint ventures with local recruiters to do business in China. they have less control over salaries. Since they employees are “leased” to foreign companies. the average annual salaries for workers in the coastal areas was more than three times the average salaries in the interior areas.formalities (e. or Rs. and in particular the labor reforms. FESCO charges recurring fees of around 30% of the employee’s compensation. (3) unemployment insurance. As found in the survey by the Beijing Youth Post newspaper. Impact of reforms The economic reforms in China. The new immigration law will apply to overseas Chinese. Salaries in the most developed areas like Guangzhou and Shanghai were almost ten times higher.
. Indonesia.The employment opportunities in the coastal areas have attracted numerous expatriates from the U. Singapore and other East Asian countries. Contrary to official statistics. Teamlease White Paper Confidential – for private circulation 84 . Taiwan. While the situation is positive in the coastal areas where private companies and foreign investment is encouraged.S.K. estimates suggest that unemployment in the interior provinces have reached alarming proportions. with as many as 150 million out of work. The success of reforms in China has disproved the conventional wisdom that avast and populous country like China should not follow the export-oriented market -reforms followed by Korea. in addition to large numbers of overseas Chinese from countries like Malaysia. similar to ‘capitalist’ states like U. Taiwan. U. It is ironical that labor laws in Communist China offer substantial freedom to companies to hire and fire employees.S. This is a reflection to the pragmatic leadership of Chinese government. the situation is bleak in the interior provinces where there are few private firms. which has realized that economic growth and job creation are ultimately more important for workers’ welfare than populist anti-business measures aimed at ‘protecting’ workers.. and where large losses incurred by the inefficient state-owned enterprises are forcing the government to close down or privatize these units and retrench their workers. and other Western countries. and Britain. and so on.
3: Labor reforms: China versus India CHINA Economic indicators Population Area GDP Per capita income Exports Foreign direct investment (in 2001) Fex reserves Employment Size of work force Labor force participation rate Unemployment Likely future unemployment rate Legal minimum wage Economic reforms Economic philosophy After a series of reforms since 1978.6 billion square km $ 1. the 14 th Party Congress of the Chinese Communist Party in 1992 declared the goal of creating a “socialist market economy” by actively encouraging private companies and foreign investment Deng Xiaoping’s tour to the Southern provinces in 1992.3 ce below summarizes the key differences between labor scenario in India and China: Figure 3. when the government (1) took over textile mills and banks.8 billion $ 365 billion 724 million 56% 3. politicians oppose reforms to exploit vote banks. and anti85 INDIA 1. says Deng Xiaoping. 937) per month 1. which resulted in reckless populism.030 million 3.120 million $ 860 per year $ 249 billion $ 46. supreme head of Teamlease White Paper Confidential – for private circulation . where he saw the benefits of economic reforms and foreign investment Half-hearted reforms were initiated in 1991 during a fiscal crisis.300 million 9. The 1970s. The Figure 3. Even today.5% to 10% (estimates vary) Above 10% $ 55 (Rs. (2) drove away Coke and IBM. (3) amended the constitution to remove the fundamental right to property. 1.32% Above 10% $ 41 (Rs.3 billion $ 85 billion 406 million 39% 7.Lessons for India We believe that China’s experiences hold important lessons for India’s reforms. as we start from a similar state of backwardness and fa similar challenges. under pressure from IMF and World Bank. fiscal irresponsibility. and (4) amended the Industrial Disputes Act “Garibi hatao”.585) per month Key events Guiding mantra “It is glorious to be rich”. 2.3 billion square km $ 480 million $ 465 $ 43 billion $ 2.
and the bureaucracy has no option but to support reforms Strictly controlled. that too after intense opposition and controversy. Central. All unions have to be affiliated to the government-run All China Federation of Trade Unions. and could face the death penalty for “subversion” Limited. Right to strike Ability to redress workers’ grievances Termination of workers Termination for disciplinary reasons Permitted. and are not accountable. regional and local governments competeto offer incentives for FDI Started since 1979. Lots of talk but no action. since it can be treated as an “industrial dispute”. SEZs in China have been hugely successful in attracting foreign companies with liberal rules Around 50. Antigovernment protests and demonstrations are banned Banned. Very few units have been privatized. Section 26 of China’s labor Law of 1995 allows companies to terminate employees with 30 days’ business laws Reluctance to take foreign investment. as ministries argue over who should have jurisdiction and what rules should apply. Unions are most powerful in public sector companies.the Communist state of China Entry of foreign companies Strong focus on attracting foreign investment. Constitutionally guaranteed Special Economic Zones Privatization of public sector units Reforming the bureaucracy Workers’ rights Freedom of expression and association Independent unions Permitted. Difficult. and labor courts can order 86 Termination when worker is sick and unable to work Termination when worker is unqualified to perform the work Teamlease White Paper Confidential – for private circulation . and labor courts usually order reinstatement Difficult. Bureaucrats oppose reforms in order to maximize perks and patronage.000 large state-owned enterprises and privatize all the others Push for reforms from the top of the Communist Party. and labor courts can order reinstatement Difficult. Permitted. and are government controlled Independent union leaders are routinely jailed. leased or closed. FDI in India is just 5% of what China receives. seen as “neo colonialism”. since it can be treated as an “industrial dispute”. Ministers and bureaucrats fight to prevent privatization of units attached to their ministry. The “zhuada fangxiao” policy seeks to retain only 1. without compensation. which also runs state-owned enterprises. Section 25 of China’s labor Law of 1995 allows termination of employe for disciplinary es reasons. Section 26 of China’s labor Law of 1995 allows companies to terminate employees with 30 days’ notice and compensation.000 state-owned units have been sold. Unions are controlled by the government. since the employer has to follow cumbersome procedures. The right to strike was removed from the constitution Minimal. Any 7 persons can create a union Freedom of unions Permitted.
Section 15 of China’s labor Law of 1995 bans employment of children below 16 years reinstatement Difficult. Workers pay health insurance premiums and receive medical coverage based on their premiums. Rs. Workers pay insurance premiums and receive unemployment insurance benefits based on their premiums. though some state governments offer nominal benefits (e. 100 per month) Social security Philosophy towards social security Pensions Medical benefits Unemployment benefits Other issues Use of child labor The Child Labor (Prohibition And Regulation) Act of 1986 does not prohibit child labor. Virtually absent. Workers pay premiums to private insurance companies and receive various benefits from them. Termination when work conditions have changed and there is union deadlock Retrenchment due to sickness or economic viability Section 26 of China’s labor Law of 1995 allows companies to terminate employees with 30 days’ notice and compensation. No such provision. and specifies conditions where it can be used in other occupations.g. The government assumes no liability.notice and compensation. regardless of their contributions to the pension fund. Companies and employees are free to frame their contracts. The Act prohibits it only in certain hazardous occupations. The government assumes no liability. Source: Compiled by TeamLease from various sources Teamlease White Paper Confidential – for private circulation 87 . Workers get health benefits from ESI hospitals and reimbursement of medical expenses. Employment contract Section 19 of China’s labor Law of 1995 specifies the format of an employment contract. Section 27 of China’s labor Law of 1995 employee termination with 30 days’ notice and compensation if it “runs into difficulties in production and management” “Defined contribution” scheme. and labor courts can order reinstatement Section-25 of Industrial Disputes Act makes it impossible for a company with over 300 employees. Government and PSU employees get fixed pensions guaranteed by the government. even if it is sick and unviable “Defined benefit” scheme under which benefits are guaranteed by the government. since it can be treated as an “industrial dispute”. Workers pay premiums to insurance companies and receive pensions based on their contributions. The government assumes no liability. regardless of their contributions to the fund.
2. and the concerned parties cannot reach an agreement to change the contents of the labor contract. enforced to labor reform or sentenced to prison. Those whose service length is less than one year shall get economic compensation equivalent to their half a month’s actua l salary. the 2 nd National Commission of Labor set up by the government of India visited China and had discussions with government and labor officials. but the maximum shall not exceed twelve months’ actual salary” (page 203. clause 4. We give below the detailed provisions in Shanghai’s labor law as quoted in the NCL report: Article 13 & 14 & 18 of Shanghai’s labor laws prescribe the conditions under which an employee can be terminated. contained in the ‘Shanghai Municipal Regulations of Labor and Personnel Management in Foreign Invested Enterprises’. (2) When the foreign invested enterprise is dissolved or terminated” (page 203. thus causing huge losses of the enterprise’s interests. When the employee is proved unqualified during the probation period. 6. those whose service length is more than one year shall get economic compensation equivalent to their one month’s actual salary for each working year. According to Article 13. 3. NCL studied the local laws applicable in Shanghai.149 of the NCL report). When the employee seriously neglects his/her duty or is engaged in malpractice for self ends. “the foreign invested enterprise may dissolve the labor c ontract and fire its employees upon one of the following circumstances (page 202. When there are other particular terms defined in the labor contract. clause 4. 5. The NCL noted that “China has made spectacular progress in globalization and the post-globalization scenario. 4. NCL noted that these laws provided substantial freedom to companies in managing their labor.210 of the NCL report). as compared to the tardy progress that India has made” (page 215. When the employee is incompetent for doing the job and after training or change of the post. Regarding China’s system of labor laws. When the employee is in serious violation of labor disciplines or of relevant regulations of the enterprise. When the employee. is yet incompetent for doing it. clause 4. Article 18 of Shanghai’s labor laws says that a Chinese employee dismissed by a foreign invested enterprise shall get economic compensation from the enterprise in the light of the employee’s service length in the enterprise. When the particular circumstances under which the labor contract is concluded undergoes great changes so that the labor contract can no longer be implemented. 7.148 of the NCL report): 1.” Article 14 of Shanghai’s labor laws says that “the labor contract is automatically dissolved upon one of the following circumstances: (1) When the employee is charged with a criminal suit. Teamlease White Paper Confidential – for private circulation 88 .What the 2nd National Commission on Labor says about China To understand what lessons India could learn from China’s experiments with reform. due to sickness or non-working related injury. clause 4.150 of the NC L report). is unable either to continue the work or to take other posts reassigned by the enterprise after a designated medical care period.
(1) mutual talks. and hence we cannot blindly adopt China’s laws (page 209 of the NCL report). it did not want to follow the Chinese model of labor law in India for two reasons. (2) approa the ‘Mediation ch Centre’ required in every enterprise. clause 4. and strikes are neither permitted nor banned. and (4) adjudication by the courts (page 207. (1) The NCL felt that “it is not true to say that the employer in China is completely free to set up and close enterprises or to hire and fire at will”. Instead. the law defines four other mechanisms available to workers to redress their grievances.166 of the NCL report). Even though the NCL found the Chinese reforms to be very successful. (3) arbitration by the government. and that “it will be erroneous to think that ‘flexible’ labor laws are the main reason for China’s progress” (page 215).The NCL notes that labor laws in Shanghai do not mention strikes at all. (2) The NCL felt that the environment in India is fundamentally different from what in China. Teamlease White Paper Confidential – for private circulation 89 .
employers and unions were forced to abandon adversarial positions and adopt more cooperative labor-management relations. limited population and natural resources. However. this pragmatic approach has been successful in devising solutions to several of Singapore’s labor problems. increased its GDP and per capita income. illness or death. and the nation’s survival at stake. With the GDP shrinking. In 1979. Singapore faced serious challenges due to its limited geographical area. This policy was begun in the late 1970s when the government made a visionary decision that fundamentally impacted the economic fortunes of Singapore. Teamlease White Paper Confidential – for private circulation 90 . Funded by union members. The tri-partite system has its roots in the circumstances surrounding Singapore’s birth as a nation in 1965. Singapore government has also been active in developing the skill base of the workforce. the government set up a Skills Development Fund to facilitate workers’ training. This tri-partite policy is to some extent based on Singapore’s peculiar system of one-party democracy and government control over the dominant union. when it faced political and economic turmoil after separating from Malaysia. high-technology industries instead of the labor -intensive. However. Singapore had attracted large foreign investments. unemployment rising. and improved the standard of living. as well as free disability and life insurance for all union members under a group insurance scheme. The Singapore Labor Foundation (SLF) was set up in 1977 by an Act of Parliament to improve the welfare of union members. By the end of the 1970s. Background Singapore’s labor system is built around a tri-partite system that encourages workers. employers and the government to work together to solve common problems. the government. and imposed a payroll tax on companies requiring them to contribute to this fund. (3) it highlights the unique problems of an democratic system where the government has extensive powers and political freedom is restricted. The government decided to encourage capital-intensive. it was able to achieve a harmonious industrial environment that helped businesses to grow. high-skilled. It was in 1972 that the tripartite National Wages Council (NWC) was established to help build labor-management relations through negotiations and consensus. SLF provides financial assistance to families of workers who suffer disability. low-skilled industries that were more common in East Asia. Companies were encouraged to invest in training their workers. and received subsidies from the Skills Development Fund to offset the cost of worker training for approved courses.ANNEXURE 4 – LABOR REFORM IN OTHER ASIAN COUNTRIES SINGAPORE Singapore’s experiments with industrial relations are unique in several ways: (1) it follows a successful tripartite approach towards managing labor issues. and helped workers raise their income levels and standard of living to western levels. (2) it places emphasis on training and skill development in order to transform the country into a postindustrial economy. and competition from neighbors who could offer cheaper labor costs. achieved full employment.
and education. by companies and employees.g. (2) reform of the long-established seniority -based wage system to a more flexible system for longer-term competitiveness. and accepted a 15% cut in the employers’ CPF contributions (against the usual level of 25%).Singapore’s social security system is built around the Central Provident Fund. which created a Retrenchment Advisory Programme and an 91 § Teamlease White Paper Confidential – for private circulation . (3) moderate wage cuts for lower-income employees and deeper cut for executives. the tripartite National Wages Council recommended four steps to address the problem. preserve jobs and enhance employability. and full employment was achieved. Singapore has a population of 4 million and a work force of 2 million. A tripartite Wage Reform Sub-committee looked into the issues of wage cuts. which was established in 1955. a tripartite panel was created. Singapore is a successful example of a country that has achieved rapid growth. To provide assistance to retrenched workers. These were: (1) 5-8% cut in workers’ wages. employers and the government helped to minimize unemployment and mitigate the impact of recession: § Recession of 1985: The government set up a tripartite Economic Committee. and (4) employers. In addition. where a country starts with a dysfunctional labor system and achieves favorable outcomes by making appropriate changes. e. encouraging employment of older workers. including cut in wages and other business costs. and economic restructuring. East Asi an crisis of 1997-98: The government set up a tripartite Committee on Singapore’s Competitiveness which recommended (1) cost-cutting measures in the short term. employers restored workers’ wages. by increasing female labor force participation. This was especially evident during the two recent recessions where cooperation between unions. In November 1998. This is best seen in Singapore’s tri-partite system and its focus on workers’ skill development. high income levels and standard of living by consciously following a labormanagement relationship that helps businesses grow while providing benefits and support for workers. which have been successful in devising solutions to several of Singapore’s labor problems. the government also has schemes to provide workers with affordable housing. expanding trade with growing economies. and extending the retirement age beyond 55 years. unions and workers to continue to work together to strengthen Singapore’s competitiveness. Instead. As the economy improved. which provided workers with a minimum of 1 month and upto 5 months bonus -9 each year. (2) 10% cut in employers’ CPF contributions. which recommended several measures to address the problems faced. and (2) longer term measures to build economic capacity through skills upgrading. Labor reforms Singapore does not fit the classic case of labor ‘reform’. (3) addressing the longer-term constraint of limited human resources. These include: (1) wage restraint in the immediate term. health. Unions and management also worked out a flexible wage system with variable bonus payments that were closely matched to company and industry performance.
In 1996. To achieve this.20 per hour). an re Education and Training Fund (ETF) was set up in May 1998 under which (1) workers were given 85% of the training costs. and in May 1999. (3) training programmes tailored to meet the needs of particular industries. In consultation with all bodies. the Ministry created a national blueprint for manpower development. and set up early consultation between employers and trade unions on anticipated retrenchments in order to explore alternatives such as redeployment. In addition. and sought employers’ assistance in counseling and helping retrenched workers take up retraining or find alternative employment as quickly as possible. including (1) reimbursement of 80% of the cost of training. to help workers who we not sent for training by their employers. and government funding was increased from 80% to 100% subsidy on employers’ training costs and from 70% to 85% of absentee payroll costs for workers aged 40 years and over. in April 1998. then Singapore’s Deputy Prime Minister Lee Hsien Loong (now Prime Minster) said “Singapore must have flexible and responsive labor markets to attract MNCs who operate in fast-changing environment. A Skills Development Centre was set up in January 1999 to improve training opportunities. less-skilled workers who were more at risk of redundancy. § Focus on skill development: Faced with globalization and technological uncertainty in the 1990s. and (2) the government agreed to provide funding of S$3 for every S$1 raised by the unions. so that businesses and workers could respond to changes in the business environment. but from the knowledge. and Ministry of Manpower was created to look into all issues relating to manpower planning. which focuses on lifelong learning for lifelong employability and redefining tripartite partnerships among all stakeholders. by ir providing nationally certified skill training and upgrading.Employment Assistance Programme. If lay-off was unavoidable. unions raised money and received a matching grant from the government. But we also want to have strong unions who are partners in economic progress. skills and creativity of its people. the government committed additional funding for retraining workers. Unions will moderate the shortcomings and extremes of the free market. 92 § § Teamlease White Paper Confidential – for private circulation . (2) reimbursement of 70% of absentee payroll costs up to a ceiling (S$4. the former Ministry of Labor was restructured. But they must understand the needs of knowledge workers. reduced working hours or retraining. Employers were given several incentives to send their workers for training. The Skills Redevelopment Programme (SRP) was expanded into a national programme to improve the re-employability of retrenched workers by provi ding them with nationally certified skills in industries with job vacancies. Vision and pragmatism : At an inaugural manpower summit in September 1999. To help retrenched employees pay for their children’s textbooks and other expenses. development and management. the government and unions recognized that job security would come only from upgrading the skills levels of the workforce through training. and strengthen the stability and flexibility of our economy. the government initiated a Skills Re-development Programme (SRP) to help workers remain employable throughout the life. National manpower strategy: Singapore plans to develop into a knowledgebased economy where its strategic competitive advantage will come not from its infrastructure or industries. unions negotiated retrenchment benefits to help workers seeking re-employment. This was seen as particularly vital for older.
declining prices and rising bankruptcies. This is not just a union problem. Secondly. pay salaries link ed to seniority rather than merit. Japan’s association of trade unions. and Nikkeiren. during the recession. The desire to avoid retrenchment is also related to the dominant role played by the company in the employee’s life and identity. For political reasons. with widely varying dynamics. since (1) pay is based on the employee’s seniority. including electronics. employers and the government will have to tackle together. The third consists of the certain protected sectors of the economy. Teamlease White Paper Confidential – for private circulation 93 . For example.and the way the knowledge economy works. which led Japanese companies to dominate several industries. the Japanese economy has been facing severe recession since the 1990s. the Japanese government has been unable to undertake tough reform measures. just as employers have to adjust to unions playing new roles. and (2) Japanese companies emphasize multi-skilling through in-house training programmes. However. consisting of large and efficient multinational companies which offer life-long employment to its employees. Background The Japanese economy has three distinct sectors. It is widely believed that Japan’s unique work environment was responsible for the rapid growth in the post World War decades. with the ‘bursting of the bubble’ leading to fall in GDP. which makes it easy for workers to adapt to their new work environments. ensuring that Japan’s industrial environment is largely peaceful. shipbuilding. and yet are politically very powerful. but an issue which unions. Yet. the large unorganized sector consisting of small and often inefficient suppliers and sub-contractors who offer lower salaries and do not offer life-long employment. the employers' organization. financial services. and do not layoff or retrench workers. The two bodies have traditionally worked in close cooperation. Rengo and Nikkeiren worked closely to create a joint ‘One Million Job Creation Plan’ in 1998. and so on. Since Japanese companies recruit people only at the entry level. retrenchment can mean a loss of livelihood and identity to the employee. They have to adapt themselves to the knowledge economy. and cutting back on recruitment in lean times. automobiles. The first is the organized sector. and yet operates under a rigid labor environment.” JAPAN Japan presents a clear case study of an economy mired in prolonged recession due to its failure to undertake tough reforms. rather than the external labor market. rising unemployment. These companies achieve a high degree of flexibility for the workforce by moving workers to different jobs within the company. and not the job function or department. These companies offer life-long employment to workers. these companies are able to operate efficiently because they use the ‘internal labor market’ within the company. rather than using layoffs and retrenchment. in order to achieve employment adjustment. The large organized sector is globally competitive. where firms are inefficient and uncompetitive. Employees have no reluctance in being relocated within the company. The labor-management relationship is dominated by the bi-partite relationship between Rengo. training and relocating workers. such as retail and agriculture. with the result that the recession has been prolonged for more than a decade and shows no sign of recovery.
and are based on productivity gains. Benefits: All workers in Japan are entitled to the following benefits from the government: (i) employment insurance and accident compensation schemes. Labor laws Japan’s labor laws allow companies a great degree of freedom in they way they operate. Women’s rights: Japan’s New Constitution of 1945 stipulates equal rights between men and women. Generally. The following are the key provisions of Japan’s labor laws: § Retrenchment: While there is no legal restriction on retrenchment.partite discussions. and this led to a tacit understanding between labor and management to avoid lay-offs as far as possible. but in effect the wage hikes are uniform within a particular industry and even across industries. and leave most aspects of employee-employer relations to be decided by bi. Wage increases during the spring labor offensive are moderate. and companies generally have few legal restrictions in the way they manage their workforce. In 1986. For example. and (v) compulsory schooling up to the age of 15. as opposed to focusing on economic growth per se. (iii) pension programmes. when Japan enjoyed unprecedented economic success. or shorter working hours. In the decades immediately after World War II.Wage bargaining in Japan is associated with the ‘spring labor offensive’ where decentralized negotiations between individual companies and company-based unions are conducted in the spring season every year. Japan’s labor laws were designed to provide companies the freedom to grow and become globally competitive. as well as due to pressure from unions. the emphasis has turned to providing social security and quality of life for workers. The Labor Standards Law expressly prohibits discrimination against women at work and the New Civil Code stipulates equal rights of inheritance between men and women. In practice. Japan’s labor laws deal with basic working conditions and social security benefits. prohibiting discrimination by gender in § § Teamlease White Paper Confidential – for private circulation 94 . Japan does not have laws to restrict a company’s right to terminate or retrench workers. pressure from unions and social factors prevent companies from retrenching staff. Since the late 1980s. (iv) nursing care for the aged. which caused enormous hardship to companies and workers. the 1950s and 1960s saw protracted labor disputes caused by dismissals. (ii) health insurance schemes. There are no industry-wide or nationwide wage negotiations as in certain European countries. however. companies rarely do so for cultural reasons. The unions lost most of these big disputes. The Child-Care Leave Law in 1990 and the amended Child-Care Leave/Nursing Care Leave Law in 1997 gives workers the option of either one year leave without pay for either ’s working parent of a newborn baby. the ‘Equal Employment Opportunities Law’ was enacted. For example. reflecting a social consensus and working as an information -disseminating mechanism for all industrial sectors. but companies also incurred enormous expenses.
the ratio of unionized labor to the total workforce is shrinking. and retailing. With amendments to the Labor Standards Law in 1987. the Law was amended to also ban discrimination on recruitment. A shrinking workforce and rising prosperity prompted the government in the late 1980s to take steps to improve the living standards of workers (as opposed to focusing on growth and competitiveness). such as industrial workers. hiring. the Japanese government has permitted companies to recruit workers on temporary employment contracts. comparable to the levels in the US and UK. income inequalities and wage discrepancies are relatively minimal in Japan. and companies could not switch temporary workers to permanent jobs. under the Personnel Dispatching Law (now amended).189 hours in 1988.975 hours in 1995. these provisions have now been scrapped. Labor reforms Reforms in Japan have been primarily focused on macro-economic measures to mitigate the effect of the prolonged recession since the 1990s. However. temporary workers were prevented in certain defined job categories. compared to 56% in 1949. and 1. Before the amendment. retirement and lay-off. more than in any country in Europe or the US.3% in 1999. effective April 1988. In spite of stagnation in the 1990s. According to the Ministry of Labor. While average working hours for manufacturing workers was 2. § Working hours: Japan has an ageing population with a low birth rate. posting and promotion. the jobless rate was only 4. these wage discrepancies have widened. which have been badly hit by the real estate crash and subsequent drop in new investments. and (3) conducting tests to determine which positions the temporary workers will be assigned to. this law prevented companies from: (1) interviewing temporary workers sent by a temporary staffing provider. with women earning only 63% of the average wages for men. there is greater wage disparity between big companies (organized sector) and smaller businesses ( norganized s ector). this was reduced to 1. As the recent recession has hit u smaller enterprises harder than big companies. However. and Japanese companies have substantial freedom to employ temporary workers. Previously.education. Wage disparities between men and women are also wide. which is relatively low by global standards but very high by Japanese standards. and has progressively liberalized the rules that regulate temporary employment. training. The most seriously affected sectors are construction and civil engineering. employing 6 million workers. The Japanese government has Teamlease White Paper Confidential – for private circulation 95 . until immediately before their contracts ended. The proportion was only 22% in 1998. and its average life expectancy is among the highest in the world. marketing. less than those in several Western countries. mandatory working hours were reduced to 40 hours per week from the previous 48 hours. Temporary contracts: Since the late 1980s. In 1997.879 hours in 1998. (2) confirming whether temporary workers want to continue working. § Employment Unlike in the US.
Japan has been reluctant to undertake bold measures that could jeopardiz e vocal sections of the economy. Impact of reforms § Temporary workers: After temporary work was legalized in the 1980s. In 1999. in June 1997 Japan passed a half-hearted Financial Systems Law. Since the late 1980s. in spite of opposition from trade unions. and postponed the inevitable bouts of restructuring and retrench ment. Flexible wage structure: Breaking the traditional practice of annual performance bonuses based on seniority. especially for managerial staff and certain blue-collar workers. In 2000. this was amended in 1986 to permit temporary staffing firms to operate with approval from the Labor Ministry. the Japanese government has permitted companies to recruit workers on temporary employment contracts. However. the proportion of people employed on a temporary or part -time basis has increased. which did not sufficiently address the core issues of non-performing bank. overturning the previous Personnel Dispatching Law.partite discussions. Apart from this. there is no end in sigh to the current recession. and allowed companies to evaluate a temporary employee's potential and let workers decide if they want to work for that firm. in contrast to East Asian countries like Taiwan and Korea which quickly undertook reforms to overcome the crisis of 1997. In 1998.generally been criticized for not undertaking serious reforms in its economy or lab or system. Due to political compulsions and vested interests. but have received the assurance that transparency will be maintained in grating performance-based pay. the deregulation of the Temporary Dispatching Law removed restrictions on the type of jobs for which temporary staff agencies were allowed to provide workers. but these have been negotiated through bi. the proportion of companies resorting to retrenchment was 38%. few labor laws in Japan have been changed in recent years. but it is much lower than the corresponding figures during previous crises. far lower than the 71% recorded during the oil crisis in the mid 1970s and the 40% during the exchange rate crisis in the mid 1980s. This reflects a consensus to avoid retrenchment and other tough reform measures during the current recession. loans. and not implemented through legislation. For example. while the Japanese economy was able to quickly overcome the previous crises in the 1970s and 1980s due to such restructuring. One key labor reform that has been implemented is the legal recognition for temporary employment contracts. Rising retrenchment: The proportion of companies resorting to retrenchment has been rising steadily since the 1990s. The ongoing recession has triggered several important changes in employer-employee relations. 96 § § Teamlease White Paper Confidential – for private circulation . Japanese companies have recently introduced performance-based pay. While previously the Personnel Dispatching Law restricted the use of temporary workers. from nearly 10% in 1980 to around 20% in 1995. the temporary-to-hire program also permitted temporary workers to be hired as permanent employees if deemed suitable. Unions have been forced to accept performance-based pay systems.
frustrated upward mobility. However. rather than undertaking pro-worker measures that eventually cause harm by retarding growth. and improve income levels. which has helped achieve dramatic increase in GDP and standard of living.§ ‘Loanin g’ and labor mobility: Since the mid-1980s.1% in December 1997 to 6. Korea has undergone two basic changes in its economic environment: (1) economic liberalization from 1988 to 1993. takes the view that workers’ welfare is better served by boosting economic growth and creating jobs. there has been a sharp rise in the practice of loaning. tax exemptions. unemployment worsened. which was the highest level for 40 years in Korea. Unions have accepted loaning provided that the affected workers consent and that their working conditions at the host company are not unfavorable. and (2) globalization since 1994. this system was also inefficient and vulnerable. the Korean government has placed primary emphasis on achieving growth by developing exports and building companies that are globally competitive. the economy faced its biggest challenge during the Asian crisis of the late 1990s. Since then. and relative income disparity – though economic growth since the 1960s has reduced absolute poverty. and many firms faced bankruptcy. This ‘development first and distribution later’ policy. but was reintroduced during the East Asian crisis in the late 1990s. when GDP shrank. The unemployment rate in South Korea rose from 3. tariff rebates and protection from foreign competition. which involves transfer of employees to other jobs within the same company or to its subsidiaries or affiliates for a certain period of time. with the result that chaebols employed around half of all industrial workers in Korea during the early 1990s. Teamlease White Paper Confidential – for private circulation 97 . This is another example of how the internal labor market has expanded into include all the companies within a group. Korea dumped this policy in the mid 1960s and replaced it with a policy of ‘state-led capitalism’ and aggressive export promotion. SOUTH KOREA Like India and other developing countries in Asia and Africa. boost c exports. including cheap loans. This policy was loosened to some extent in the late 1980s with the inset of democratic reforms in South Korea. typically 3 years. followed by the often authoritarian governments in Korea. However. South Korea also followed an ‘import substitution policy’ in the 1950s and 1960s to protect domestic companies through tariffs and licensing. 17 hours or less per week) was considered. The government has also tightly curtailed the power of unions in order to avoid obstacles to growth. Korean unions are notorious for their militancy. Background The ‘state-led capitalism’ practiced in South Korea until the late 1990s gave emphasis to strategic industries and large conglomerates (chaebols) which enjoyed tremendous benefits from the government.e. as demonstrated during the Asian crisis of the late 1990s.5% in March 1998. inflation went up. However. and was over 10% if under-employment (i. In recent decades. This helped promote rapid economi growth. which some believe is triggered by political repression.
and the Geni coefficient rising from 24. and took several years. employment was only 3. Unemployment was low and life-long employment was assured – in 1997. and policies that curtail the power of unions. The proportion of organized workers in Korea has been around 20%. with the onset of the crisis in late 1997. break -up of chaebols).. Unions also had to report on their activities and submit their annual budget to the Ministry. especially in the 1970s when the country experienced rapid industrialization. authoritarian labor control was a basic feature of Korea’s economic development. which could be withdrawn if the unions were involved in severe disputes or violent strikes. and fell to below 15% in the late 1990s due to the recession. and allowing unions to negotiate with government and employers. cut in lending to chaebols). (3) more reliance on market forces (deregulation and structural adjustment).e.. Like with many other East Asian count ries. unemployment rose to 6.g. Labor laws limited union activity and blocked the intervention of unions in labor disputes and collective bargaining. It reached a peak of 23% per cent in 1989 due to pro-worker reforms. the Kim Dae Jung government in Korea introduced an IMF-inspired austerity policy.5% in March 1998. For example. it was only in 1998 that worker representatives were invited to tripartite negotiations. This included: (1) better balance between large and medium -sized firms (i. more share of income to workers).Labor laws Since the 1960s when Korea’s industrial revolution began. (2) more equity (i. Labor reforms Faced with the crisis of the late 1990s.e. the government has considered unions as an impediment to economic growth. just prior to the crisis. This period also saw fundamental changes in labor laws: Teamlease White Paper Confidential – for private circulation 98 . This has led to widespread anti-labor feelings in society. Employment Korea has enjoyed strong economic performance until the Asian crisis of the late 1990s. called the “Ulsan Typhoon”. while new labor laws allowing teachers and public sector employees to organize came into force only in 1999. The economy grew rapidly. However. and (4) reform of financial institutions (e. Income inequality also worsened. Massive and violent strikes in 1987.5 % in late 1998. The process of easing labor laws was very slow.1%. with the percentage of people living below the poverty line rising from 3% in late 1997 to 7.19. new unions have to get a certificate of registration from the Ministry’s Labor Office. led the Korean government to introduce democratic reforms and improve workers’ rights. For example.49 to 28. including removal of authoritarian controls. and GDP growth was between 5% to 15%.
it was now possible for younger employees to be higher paid than their seniors.57 times Teamlease White Paper Confidential – for private circulation 99 . unions were forced to adopt a passive stance amidst these changes. While companies used these reforms to undertake radical restructuring in order to survive. In January 1998. which was 6. it had risen to 18% in 1999 and another 30% were preparing to introduce performance-based pay.52 times more than blue-collar workers did in 1995. fell below 5% in late 1999. the unemployment rate. the government created a tripartite committee. The wage gap between occupational categories has widened – while white-collar workers earned 1. While previously older employees were higher paid. These changes had a dramatic impact on the employment system. Faced with the reality of economic crisis. Korea achieved economic recovery by early 2000. the number of temporary and part -time workers rose by 15 %. for workers it meant reduced job security and the end of life-long employment. in 1999 Samsung reduced its workforce by nearly 30% through spin-offs and early retirement schemes. it was 1. A survey conducted by the Labor Ministry in 1999 showed that more companies were implementing performance-based pay (instead of guaranteed annual pay hikes). while previously lifelong employment was virtually guaranteed Temporary employment contracts for short and medium-term work was legalized From 1998. the Korean government announced the creation of public works schemes and the expansion of the Employment Insurance programme. For example. For example.§ § § In February 1998. As temporary employment contracts were legalized in Korea. While the proportion was only 4% in 1997. companies were allowed to retrench staff. the pay structure was formally severed from ranking according to the formal (pre-existing) ladder of sequential promotions. which reached agreements on these issues: § § § § § Government and employers will construct nation-wide organizations and prepare a policy package to combat unemployment All parties represented on the tripartite committee will help improve job security by introducing work -sharing All parties will strive to minimize lay -offs and to support firms in financial trouble All parties will do their best to eliminate unfair labor practices and establish monitoring The policy -making process will be open to labor unions.9 million in 1999.5% in March 1998. Unions will participate in making and implementing important policies affecting wage-earners' standard of living All parties have rights and duties in restructuring conglomerates The reform of public enterprises will reflect labor-manager agreements The teachers' union will receive official recognition All parties will strive to improve worker participation in management Labor laws will promote industrial dem ocracy § § § § § Impact of labor reforms Partially as a result of reforms undertaken in 1998. To manage the reforms process. from 6 million in 1989 to 6.
limited union rights. boosting exports. creating jobs and improving the standard of living. and these funds are deposited in firm-specific accounts. it has jailed labor leaders involved in strikes. The training reform programme has been very successful. The government has frequently cracked down on union strikes and demonstrations. and by 1997 more than half a million workers had received such Teamlease White Paper Confidential – for private circulation 100 . However. Malaysia has followed pro-growth policies that helped companies (especially MNCs) grow. Like Korea. the government created the Human Resource Development Corporation which established a human resource development fund to facilitate firm-level training. EPF. Malaysia has sought to implement labor laws that curtail the power of unions in order to permit companies to expand without excessive hindrances and create more jobs. and holiday pay from the negotiations and sought to reduce holiday and overtime pay. The Industrial Relations Act of 1967 has put a freeze on wage hikes by making wage negotiations through collective bargains valid for three years. MALAYSIA Background Like most East Asian countries. legislation in 1989 eliminated bonuses.7 times in 1999. In the early 1990s the government implemented a New Development Policy that was intended to: (1) increase the labor supply.in 1996. (3) advance the level of technology in both foreign and domestic firms. For example. and (4) increase the amount of local content in foreign-owned export manufacturing. which are made available to use for government -approved training programmes. Further. Firms meeting certain thres holds are levied 1% of their employee’s salaries. Malaysia’s development strategy has often been called ‘techno-nationalist’. and promoted in-house unions that adopt a less antagonistic approach towards management. Labor laws Like Korea. these reforms aimed at achieving developed country status by the year 2020. since Korea does not have a strong social security system. 1. The government has also sought to reduce excessive wage increases that prevent companies from being globally competitive. Following Prime Minister Mahathir’s Vision 2020 pronouncement. and threatened that else the government would implement a required freeze. (2) boost the level of skills in the local work force. overtime. Malaysia’s industrial transformation and rapid economic growth has been particularly impressive since the reforms undertaken after 1987. only 7% of the unemployed received unemployment insurance benefits even in the recession.63 Times in 1998 and 1. Malaysia has followed an export oriented development strategy that has succeeded in attracting large foreign investment. even where it means alienating unions and small businesses. In 1987 the finance minister called for voluntary wage freezes for three years. To help the economy shift from labor-intensive to capital.and knowledge-intensive industries. It involves the use of foreign investments for upgrading technology while promoting domestic companies and supporting ‘affirmative action’ for the Malay population.
training. planning. and supervising the education and training effort. Industrial relations a. Young Persons and Children Act Teamlease White Paper Confidential – for private circulation 101 . Termination of Employment (Special provisions) Act c. Terms and conditions of employment a. Employment of women and children a. The Shop and Office Employees (Regulation of employment & remuneration) Act b. Employees Trust Fund c. the economy witnessed a huge increase in female workers. with their own physical infrastructure. The key categories of labor laws are: 1. Industrial safety a. Wages Board Ordinance 2. Employment of Women. Tax exemptions were provided for companies that me more stringent t requirements for technology content and sharing. Within the manufacturing sector as a whole wages rose 6% in 1991. Several ministries developed comprehensive vocational and industrial training systems. Workmen’s Compensation Ordinance 4. By 1993. curricula. and teaching staff. and has attracted large amounts of FDI. Faced with labor shortages. and full access to foreign exchange accounts in local banks. the economy enjoyed full employment. Factories Ordinance b. and began to experience labor shortages and rising wages. 10% in 1992. These included capital investment per employee of at least RM 55. Industrial Disputes Act b. and 15% in 1993. Employees provident Fund b. Trade Union Ordinance 5. and units are involved in promoting. Payment of Gratuity Act 3. Social security a. Certain high technology companies received 10-year tax holidays. several government departments. The government introduced tax incentives to encourage both R&D and education and training. In addition. greater access to foreign skilled labor. SRI LANKA Sri Lanka’s labor law framework is broadly similar to that of India. and entry of over 2 million foreign by 1996. This has create many jobs and improve d the standard of living in the 1980s. especially in the electronics sector. R&D expenditures of 1% of sales within 3 years of starting operations. d Between 1987 and 1991 wages in the electronics industry rose 12% for unskilled labor and 20% for skilled labor. since b countries oth have inherited laws framed by the British. committees. and 7% of employees with certificates or diplomas in technical fields. Impact Malaysia has been able to position itself as an attractiv global destination for e manufacturing. especially in the electronics industry.000.
Key steps adopted include the following: § Removal of restrictions on employers for overtime hours permitted on female workers and the need to obtain consent of workers to perform over time Amendments to the Termination (Special Provisions) Act which permits free hire and fire policy. The Sri Lankan government has undertaken a process of liberalizing its system of labor law. collective bargaining. However. and payment of compensation on a fixed formula based on the years of service of eac h employee Amendments to the Industrial Disputes Act introducing a “4:2:1 Formula” to conclude all unfair termination of service applications before Labor Tribunals within four months. public sector employees are not covered under the Industrial Disputes Act. Maternity Benefits Ordinance The Industrial Disputes Act in 1950 is the basic law regulating the labor-employer relationship. § § Teamlease White Paper Confidential – for private circulation 102 . and they are governed through the Establishment Code. Arbitration processes within two months and involuntary termination of service applications within one month. labor arbitration. a set of rules adopted by the Cabinet of Ministers. termination of services of employees.b. and it addresses industrial disputes. and various Labor Tribunals / Industrial Courts.
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2004 “Temporary agency work in the European Union”. June 2002 16. 2004 International Database on Employment and Adaptable Labor (IDEAL) and Randstad jobs report. Sonalde. Maitreyi Bordia. P. Malhotra. 28. Burgess. 2002. Kevin. 23. 19. Arjan. Kevin. 2000 “Report of the Special Group on Targeting Ten Million Employment Opportunities per year over the Tenth Plan Period” (Dr. July 2001 “The Law of Industrial Disputes”. CIET. “Temporary and Contracted Work: Policy issues and innovative responses”. 2001 “The Law. Government of India. 2004 “Orchestrating the evolution of private employment agencies towards a stronger society”.. Francoise. Marloes and Berg. and Desai. Jaivir Singh.P. Pvt. Donald. Ward. Universal Law Publishing Co. Kevin. 21. SEO and Randstad. 2003 “Growth dynamics. Fifth Edition. S. 2002 “Constructing markets for temporary labor: employment liberalization and the internationalization of the staffing industry”. 18. 26. 2004 “Internationalization and diversification in the temporary staffing Industry”. May 2002 “Report of the Task Force on Employment Opportunities” (Montek Singh Ahluwalia Committee). Gerard J. Robin and Besley. Ward. Labour And Development In India”. 29. Government of India. Gupta Committee). ASA Issue Paper. Annual Bank Conference on Development Economics. 2000 Staffing Industry’s positive role in the US economy. Zilji. Oslo. “Can labor regulation hinder economic performance? Evidence from India”. O. Ward. Carre. Ltd. van den and Heyma. 17. Planning Commission. Planning Commission. regulatory futures and the restructuring of the temporary staffing industry”. 1998 “Stepping stones for the unemployed: the effect of temporary jobs on the duration until regular work”. 2003 “Why are educated women less likely to be employed in India?”. 25. 24.15. 20. Testing competing hypothesis Das. Storrie. 22. Teamlease White Paper Confidential – for private circulation 104 . Timothy. 27.
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at the right time. SERVICES Teamlease has a range of temp and perm solutions for companies and individuals.teamlease. RESEARCH As a market leader. annual Teamlease Temp Salary Primer and the annual Teamlease Staffing White Paper. ils Detailed information is available at www. and emails sent to Teamlease White Paper Confidential – for private circulation 109 . WHY CHOOSE TEAMLEASE AS A PARTNER? • Strong track record • Pan India presence • Single window for staffing. Telecom and Financial Services that understand their industries deeply and offer special solutions. temp and perm • Vertical domain knowledge • Large validated talent pool • Guaranteed turn -around time • Standardized processes • Comprehensive Web Interface. TECHNOLOGY Our proprietary web based Teamlease Temp Network (TLnet) is hosted at www. Our primary services include temporary staffing. Clients. payrolling and permanent recruitment. These are supplemented by strong vertical practices for ITES. Retail. We currently have over 12. Our research efforts include a bi-annual Teamlease Gallup Employment Outlook.com will be replied within 24 working hours. Teamlease has a responsibility and selfinterest in dispelling the faulty conception of temporary staffing with precarious employment. TLnet • Associate self-service suite (email.com. web.teamlease. IVRS) CONTACTS The contact deta for Teamlease are available on the back cover. web and phone support.000 associates in over 225 locations across the country for over 125 clients.com info@teamlease. CLCS (Associate Life Cycle System). We are a liquidity provider in labor markets. CLCS (Candidate Life Cycle System) and our Intranet.ANNEXURE 6 – ABOUT TEAMLEASE Teamlease is India’s largest staffing solutions company. We enable the better matching of demand and supply by connecting the people. associates and candidates are serviced through our network of offices . to the right company. TLnet has three components.
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