FLASHPOINTS: LABOUR

Business, Government and Society

Session 8
Unemployment has risen in almost all States across India
from 2011 to 2015
 Where are the people working?

Different aspects of structural transformation and sectoral employment shares (%)

1993-94 to 2011-12
 Formal or Informal Sector?
Years Informal sector Formal sector Total (% workers)

Informal w o rk er s

1999-2000 93.6 (99.5) 6.4 (42.0) 100 (91.5)

2004-2005 93.1 (99.6) 6.9 (46.6) 100 (92.4)

2009-2010 91.2 (99.6) 8.8 (51.1) 100 (91.9)

Formal w o rk ers
1999-2000 5.3 (0.5) 94.7 (58.0) 100 (8.5)

2004-2005 4.1 (0.4) 95.9 (53.4) 100 (7.6)

2009-2010 4.5 (0.4) 95.5 (48.9) 100 (8.1)

T o ta l

1999-2000 86.2 (100) 13.8 (100) 100 (100)

2004-2005 86.3 (100) 13.7 (100) 100 (100)

2009-2010 84.2 (100) 15.8 (100) 100 (100)

Where are India’s Informal workers?
 Intervention is the Labor Market

• Minimum wages
• Regulations
• Social Protections through employment
guarantees.
• Skilled versus unskilled labour
• Shift towards contract labour
• Current Government’s labor market reforms
MINIMUM WAGES
Regulations
 Minimum Wages

• Historical perspective:
• First introduced in New Zealand in 1894.
• Followed by Australia (1896), United
Kingdom (1909) and the United Sates (1938)
• India: Minimum Wages Act (1948)
• What is the current Minimum wage rate?
• INR 333/per day
Basic Microeconomics model

Supply

W
Wage rate

W*
Demand

L*
Number of workers
Basic Microeconomics model

Supply

W
Wage rate

Demand

LS LD
Number of workers
 Minimum Wages: Empirical Findings

• A variety of studies done for the US show that

introduction of minimum wages does not
reduce employment.
• In Europe, the findings are similar. Minimum
wages do not affect employment, except some
small effects that are seen for young workers.
 Minimum Wages
Rationale behind minimum wage legislations
• Exploitation
• Eradication of poverty
• Egalitarian issues

Policies that affect the Wage distribution in India

• MNREGA: One member of every household is
guaranteed 100 days of work.
• Primarily a rural scheme, does it affect industry?
• Spill over effects
REGULATIONS
Against Child labour
Carpet Industry in India
1200 2.0%

1.8%
1035.6 1036.6
1000 987.7
1.6%
928 943.3
Total value of export in million USD

852.6 849.6 1.4%

800
775.1
734 1.2%

645.1 636.4
600 585.7 1.0%
581.7
543.5 532.6
510.2
0.8%

400
0.6%

0.4%
200

0.2%

0 0.0%
9

4
-9

-0

-0

-0

-0

-0

-0

-0

-0

-0

-0

-1

-1

-1

-1

-1
98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13
19

19

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Value Percentage of total export value

Source: RBI.
India is the largest importer of carpets into the
United States

Source: Siddharth Kara, 2014

Labor in the Carpet industry
• Census 2001:12.6 million working children under 14
years .
• The carpet industry in Uttar Pradesh employs more than
1 million children.
• 22% of the total workforce employed by carpet industry
are children.
• Main findings:
• 45% of forced labor cases
• 28% cases of bonded labor
• 20% cases of child labor
• Chronic underpayment of by 40-655 with average hourly
wage being $ 0.21.
• Health hazards:
• Eye disease or loss of vision due to
insufficient light
• Spinal deformation
• Pulmonary disease due to thread dust
inhalation.

• What needs to be done, if anything?

• Tainted carpets
• Labeling
• Rugmark, Care and Fair, Kaleen and STEP.
• Compulsory Primary Education
• Different from Right to Education
Economic Impact of Labeling

• Chakrabarty and Grote (2009): probability a

child works is 72% lesser if the household has
knowledge of labeling NGOs.
• Differential impact in poor households versus
above-subsistence households. In poor households
trapped in poverty Labeling does not have a
significant impact in reducing child labor.
• Caveat and conclusion: Labeling can only be
successful if government first ensures ALL
households have enough subsistence food
Thank You!
 Labour – The Indian Reality

Papola, T. S. (2013). Role of labour regulation and reforms in India. Country case study on labour market segmentation. ILO
Working Paper No. 147.
Labour – The Indian Reality
• Marginal increase in GDP share of the manufacturing sector
– 22% in 1980 25% in 2006
• The manufacturing sector was disadvantaged because:
– Tough competition from China
– Restrictive labour laws
– Moderate corporate investment
– Ranked 134/175 on World Bank’s ‘Ease of Starting Business’ survey
– Skill shortage
• Example: In Maharashtra, only 17% of the workforce is
marginally skilled
• Unskilled labourers found it difficult to move out of the
agricultural sector due to lack of employment in the
manufacturing sector
On the macroeconomic front:
• Combined fiscal deficit or state and central government
remained high at 6.4% of GDP in 2006-07
• the balance on goods and services had been consistently in
deficit for the past three decades
• Portfolio investment was higher than FDI, this was a cause of
concern as such investments could be easily reversed.
• The increasing cost of living was a heavy burden on low-
income families
• India’s growth was taking place despite government polices
and not because of them.
REGULATIONS
Reducing them to have ease of doing business
 Modi’s Labor Market Reforms
Necessary for “Make in India”
Proposed:
• Make firing workers easier
• Increase cap to 300 employees.
• Women can work night-shifts
• Change child labor laws and Minimum wages laws
• Companies allowed filing one self-certified returns for a
clutch of labour laws
• EPF number portability
• Consolidation of 44 labour laws into four labour codes.
• Where are jobs? Which is a good job? What is a decent
work?
Introduced So Far
 Caution
• Some of the proposed reforms could make it a
“dangerous place to do business
• Removing “red tape” may leave vulnerable
groups exposed
• Removing red tape implies dismantling labor
inceptions, restricting labor unions, moving
employment violations to civil code, ending
absolute ban on child labor, removing penalties of
gender-based discrimination
• Bad, long run strategy as US and Europe
awake to more socially conscious produces!