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INDIA’S LABOR REPORT 2005

Case For Temporary Staffing Reform To reduce Unemployment

A report by TeamLease
www.teamlease.com
This report is a confidential document of Teamlease Services prepared for private circulation. No part should be reproduced without permission and/or acknowledgement

Teamlease Labor Report 2005 Confidential – for private circulation

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SUMMARY •

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 Labor Report 2005 Confidential – for private circulation

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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 Labor Report 2005 Confidential – for private circulation

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India's Labor Market

Policy Issues

Regulatory Issues

UNEMPLOYMENT 30 milion officially,more than organized employment and growing rapidly POVERTY REDUCTION Given 269 million below the poverty line, even employed barely sustain themselves PUBLIC VS. 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. VS. MANUFACTURING VS. SERVICES Negative elasticity of agriculture and labor saving bias of manufacturing OUTSIDER ACCESS Bias against outsiders (poor, low skilled, women, and young) by insiders (not poor, middle-aged, men) RURAL VS. URBAN SECTOR Rural job growth 25% of urban and fallen more than half since 1980 REGULATION VS. 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. PRESERVING JOBS Shift from employment to employability

Temporary vs. 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 Labor Report 2005 Confidential – for private circulation

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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

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 Labor Report 2005 Confidential – for private circulation

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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; skill development and experience

Liquidity provider; 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 Labor Report 2005 Confidential – for private circulation

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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. Teamlease Labor Report 2005 Confidential – for private circulation 7 . enforcement consistency. Unorganized job creation. transparency. employee losses Only after 6 months. functions and industries Core. 18 months for employees with salary greater than Rs 6500 p. costs Create national licensing for contract staffing and move away from contract-by-contract Amend EPFO Act ESI Act High Mandatory Payroll Deductions Evasion.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).12 of CLRA Compliance philosophy & decentrallization Over-regulation and undersupervision. industry.m. Perenial. 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.

The Case for Temporary Staffing in India a. The Case for Labor Reform a. Indian Labor Laws c. Previous Indian Labor reform proposals d. Geo-Historic evolution d. Labor Reform in other Asian countries f. Results of Temporary Staffing Survey 7. Employees perspective 5. Public policy perspective b.Table of Contents Page No. Negative Perception vs. Background b. Labor Reform in China e. Global trends in work 3. Indian Labor Market – Facts b. Preface 2. Annexures a. Recommendations for Temporary Staffing Reform in India 8. Global markets c. b. Bibliography g. Labor Market Policy/ Regulatory Listing Historical Perspective – Three eras Key Issues 11 14 15 16 18 20 21 24 26 27 4. The coming unemployment explosion b. Global regulation e. About Teamlease 29 33 37 38 41 42 45 52 60 73 79 97 111 119 Teamlease Labor Report 2005 Confidential – for private circulation 8 . Employers perspective c. India’s a. 1. Reality 6. The Temporary Staffing Industry a. India’s employment environment c. c.

and create jobs. While a permanent. The much debated exit policy should be forgotten for now in the interest of moving forward. Current temporary staffing laws in India. lower unemployment. full-time job may still be the norm. unemployed. for a significant part of public opinion and policy makers. and increased labor mobility. multi-skilling. and a working life with multiple careers and flexible hours. staffing companies build stronger societies. We need a “thought world” shift from employment to employability. outsider access. In this way. However. This is unfair and needs to change. 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. namely the positive dimensions of flexibility. labor markets are changing. The Team lease Team Teamlease Labor Report 2005 Confidential – for private circulation 9 .PREFACE India’s economic reforms are on track and she has a new appointment to meet a heavily delayed “tryst with destiny”. However. favors a vocal minority (largely not poor. temporary staffing. But there is another side of the coin. The job-for-life is being replaced with life-long learning. from preserving jobs to creating them and from giving fish to teaching how to fish. greater employability. and self-employed). increment al steps are better than no progress. old. We make the case that temporary staffing companies address the flexibility needs of workers and companies. poor. Let the journey begin. women. lower skilled. middle-aged men in org anized labor) against the majority (young. This white paper is our attempt to create background for a debate on one of the many possible solutions to unemployment. as with broader labor legislation. Labor reforms are controversial but equating them with firing workers is wrong. temporary staffing still has the negative connotations of precarious employment. unorganized. there is justifiable disappointment with the lack of new job creation or shift from unorganized employment since reforms began in 1991.

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 Labor Report 2005 Confidential – for private circulation 10 .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.

Demographics. Bajaj Auto produced 2. growing youth India is the only country in the world growing younger and more than 60% of our unemployed are youth.06%. deregulation of government monopolies and overall liberalization. With an employment elasticity of GDP of 0. close to total tax receipts).The coming unemployment explosion 1. 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. The best and only viable social security is massive job creation. Teamlease Labor Report 2005 Confidential – for private circulation 11 . Low skill Levels The percentage of the Indian labor force with skills/ vocational training is among the lowest in the world at 5. 2.000 workers in 2004. End of public sector job machine Public sector employment forms the majority of organized. However. 7.400 vehicles with 35. For e. 8 million jobs need a sustained GDP growth of 13.15 and an Incremental Capital output Ratio (ICOR) of 3.500 vehicles with 21. 6.000 workers. 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. This represents massive underemployment due to the lack of alternative in rural areas and is not expected to change soon. in 1999 it made 129.g. 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. with an informal freeze or heavy slow down on recruiting and a tight fiscal situation. this sector cannot drive job growth. Also Tata motors made 311.6% and investments of $125 billion. 5. formal employment.000 workers. 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.500 workers. in the early 90s they made 1 million vehicles with 24. Negative employment elasticity of agriculture The employment elasticity of GDP for agriculture is negative i.4 million vehicles last year with 10. Reinforced by privatization of PSUs. we could increase production by reducing the number of people employed.e.75. this sector is shrinking. Poor skills reduce worker productivity and also makes them less likely to fit into the service/ knowledge economy. These numbers are practically impossible and we will not have massive job creation unless we raise our employment elasticity of GDP. More than 40% of the labor force is illiterate and only 5% are estimated to have the vocational skills for credible employment. 4.

Effective and incentivized HR industry An increase in HR firms has led to improved demand and supply matching in India’s labor markets. credit access. Unorganized employment explosion Unorganized employment is to be 93% of workforce. Furthermore. training. China ’s reform China has modified its labor laws to create an exceptional environment for investment and job creation. Their efficiency will only increase as global majors enter the country and raise competition Temp staffing . 4. Companies need flexibility to handle all this change. It is our biggest competitor for jobs arising out of global FDI and the globalization of supply chains . the formal sector is more desirable because it offers better working conditions. companies a particularly economically incentivized to keep people at work since re any gap or delays in matching candidates and jobs represents losses. machine tools and many more. This is particularly relevant in labor intensive industries like toys. and so on. pays taxes and has higher productivity. prices of products fall. improves employability. interest rates and exchange rates fluctuate. 7. benefits. The process d begun in 1990 of deregulation. the off shoring revolution had not yet begun. the end of textile quotas creates a unique need for labor flexibility for Indian companies. 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. 3. 2. privatization and liberalization has changed the economic and financial landscape but the assumptions underlying the labor regulatory regime have not been updated. Changed role of government India’s labor laws were written after independence with the philosophy of state domination in business an legislation. Teamlease Labor Report 2005 Confidential – for private circulation 12 . 5. etc. This fits well with our young population but current labor laws are stacked against first time job seekers. new competitors emerge and old ones die. A majority of new jobs in the next decade will be entry-level jobs in service and manufacturing. Companies must respond quickly when new products are launched.India’s employment environment 1. From a public policy perspective. 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. cost of input materials rise. The explosion of the unorganized sector is largely to avoid irrational labor legislation but comes at the expense of benefits of the formal economy. textiles. Internal and External competition Indian industry grew up in a protected environment but global competition and technological uncertainty have changed their habitat. new technologies are assimilated. 6. Offshore Markets/ FDI India has become an offshore services hub and is showing increased prowess as a manufacturing base. we need to worry about our relative attractiveness which seems to have weakened.

The underlying forces include a decline for unskilled and semi-skilled labor driven by technological innovations that greatly increase the productivity of skilled workers. Emergent workers are more concerned about opportunities for mentoring and growth and are less focused on the traditional arrangements of job security. Flexible work structures Many work relationships are different from the standard. This has also led to the monetization of benefits and a move to CTC (Cost-t o-Company) in compensation. a full time job (38-40 hours a week) with a permanent. 6. Changing worker expectations A study by Spherion Corp identified what it calls the “emergent workforce”. particularly married women with children is a major driver towards more flexible labor markets. technicians. workers who need to feel more in control of their careers and want an employer who rewards them based on performance. labor mobility (physical movement of people) and job mobility (offshore manufacturing and service delivery). 2.Global trends in work 1. and professionals forming the nerve center of the organization. Given the demographics and cost structures of developed countries. New forms of labor demand and supply have emerged as a consequence of the changing and more heterogeneous preferences of both employers and employees. The third leaf is the flexible workforce. Intellectualization Globally. Role of Employer Employers are no longer viewed as paternalistic providers of lifetime employment and benefits. the chance of finding a job rise with education. Internationalization Labor markets are globalizing in two ways. 3. Rising female workforce participation The huge entry of women into the workforce. 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. stability and tenure. r gardless of labor force composition by age or e gender. this may accelerate but specifics will depend upon politics and non-economic factors. There is more frequent use of self employment. Further. Embodied in this first leaf are the organization’s culture. The labor force is in transition from a uniform male breadwinner society towards a multiplicity of household working arrangements. limited duration contracts and temporary staffing. 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. open-ended contract with an employer. the transition to a service economy demands higher socials skills and accelerates skill obsolescence. part -time work. 4. The huge participation dip by women when families were formed (the children break) around age 30 is no longer significant. its knowledge and direction. Teamlease Labor Report 2005 Confidential – for private circulation 13 . The second leaf of the shamrock comprises the non-essential work that may be farmed out to contractors. 7. temporary and part-time workers who can be called on to meet fluctuating demands for labor. Charles Handy talks about the “shamrock organization” where the core structure of expertise consists of essential managers.

HR Teamlease Labor Report 2005 Confidential – for private circulation 14 .2% 3. Technology.08 million Largely Sales. Construction.2% 0.15 Agriculture. Admin.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 0.8% Unemployed 30-50 million Age 15-30 Female Men 12.26 1 0.1% 10% 7.01% of employment relative to 10% in some countries Temporary Staffing 0. 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 0.57 0.2% 1.3% 8.

URBAN SECTOR Rural job growth 25% of urban and fallen more than half since 1980 REGULATION VS. PRIVATE SECTOR The organized private sector is only 3% of employment ORGANIZED VS.India's Labor Market Policy Issues Regulatory Issues UNEMPLOYMENT 30 milion officially. UNORGANIZED SECTOR Small Organized (large scale) with low employment and large unorganized (small scale) with low capital AGRI.more than organized employment and growing rapidly POVERTY REDUCTION Given 269 million below the poverty line. and young) by insiders (not poor. low skilled. 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 Labor Report 2005 Confidential – for private circulation 15 . men) RURAL VS. SERVICES Negative elasticity of agriculture and labor saving bias of manufacturing OUTSIDER ACCESS Bias against outsiders (poor. 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. even employed barely sustain themselves PUBLIC VS. VS. PRESERVING JOBS Shift from employment to employability Temporary vs. middle-aged. MANUFACTURING VS. women.

larger share of the value added. industrial relations got politicized and the Indian National Trade Union Congress (INTUC) linked to the congress party. 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. nearly three times the second and third (Sri Lanka and Peru) with about 600. Teamlease Labor Report 2005 Confidential – for private circulation 16 . The general labor mood was militan geared to extracting a t. and the Bombay Trade Disputes Act of 1934. the Government of India Act of 1935. under the overall political perception of the private sector as exploitative of labor. liberalization. Thus reality was just the opposite of the rhetoric for reducing income disparity and giving lower income greater increases. However. the All India Trade Union Congress (AITUC). among others. and Centre for Indian Trade Unions (CITU) with the Communist movement. Gandhiji founded his Textile labor association in Ahmedabad in 1917 and was active in trying to settle labor disputes. This is particularly dangerous because labor market constraints have held back job creation that creates the broader social and political buy-in for reforms. 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. labor reforms have become so politically sensitive that there have been no changes to legislation or political rhetoric on labor since reforms began. deregulation. in line with global experience. 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. India had the dubious distinction of ranking first among developing countries by losing 1900 workdays per 1000 non-agricultural employees. Over the years. organized labor managed to achieve growth of real wages of 6. The biggest weak ness of the model was low employment generation. Also during this “politicization” phase of the 1980s. The government supported small industries through artificial constraints on larger businesses and ignored demand. this production focused model created excess capacity and low growth.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.46% relative to unorganized growth of 1%. privatization and much else. The formation of the ILO in 1919 gave a boost to the idea of a national organization and in 1920. In fact. THE LIBERALIZATION ERA (1991-DATE) The stagnation and bankruptcy of socialism forced economic change. labor reform has lagged other reform. During the 1980s. But. William Beveridge. the All India trade union congress was formed with Lala Lajpat Rai as its first president. 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. Later. a number of labor acts were initiated – the Trade Union Disputes Act of 1929.

have no protection. unemployed. 8. In the interest of progress. 5. old. We face the punishing combination of a globally uncompetitive labor environment with no effective social safety nets.g. HIRE AND FIRE CAN WAIT There is a lot more to labor reform than firing workers. public policy. 6. the controversial exit policy should be left out of any labor reform agenda for now. For e. LABOR MARKET INSIDERS VS. This creates a dualistic set-up in which the organized sector remains limited in terms of aggregate employment and most workers. unemployment is increasing and has led to a lack of grassroots social or political support for reforms since 1991. Labor market insiders (mostly not poor. lower skilled. men) oppress outsiders (young. TWO TIERING Over time. SHIFT FROM EMPLOYMENT TO EMPLOYABILITY We need a policy shift from employment to employability. middle-aged. 7. ESI. Teamlease Labor Report 2005 Confidential – for private circulation 17 . Any proposals presented as zero or hundred will get zero and let’s make incremental steps. with low investment. OUTSIDERS Labor legislation has been hijacked by a vocal minority at the expense of 93% of the labor force. who are largely unorganized. small progress is better than no progress. Minimum wages. women. UNEMPLOYMENT/ JOBLESS GROWTH The number of unemployed is above 30 million or equal to organized employment. employers and employees. 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. 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. and a huge unorganized (or small scale) sector. etc). poor. 4.KEY ISSUES 1. 2. 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. labor laws have become applicable to a small category of enterprises in the “organized” sector. temporary workers. EPS of PF. A first step could be the creation of a Ministry of Employment by merging the Ministry of HRD and Labor. With no explosion of unorganized or organized job creation. We need a reality check in which legislation that is beyond implementation capacity should be scrapped. etc. This dualism is characterized by a tiny organized (or large scale) sector with low employment. Such a focus will also reverse the current labor law situation of overregulation and under-supervision. LEGISLATION AHEAD OF CAPACITY TO PAY AND CAPABILITY TO EXECUTE Labor policies have been running ahead of implementation capacity and affordability. The Indian economy has responded well to reforms but job creation has been a disappointment. teaching a person to fish rather than giving him fish. 3.

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 Labor Report 2005 Confidential – for private circulation 18 .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 Employer Perspective Employee Perspective Unemployment Reduction Just in time labor. skill development and experience Liquidity provider.

companies would have hired permanent workers only for 14% of work now done by agency workers. OUTSIDER ACCESS/ INCREASED LABOR FORCE PARTICIPATION Most labor laws protect “insiders”. “Permanent declines in the unemployment rate may have been caused by. legal recognition for private employment agencies was formally granted in Italy (1997). etc. 3. Temporary staffing companies are particularly effective in offering job access to traditionally disadvantaged populations like students. but also with qualifying experience and training for longer-term positions. 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. and middle-aged. Internal solutions for flexibility that do not increase employment would have been used if temps had not been available. 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. mothers with young children. 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”. 4. male.1% and accounted for around 11% of total new job creation in the late 1990s. BETTER DEMAND AND SUPPLY MATCHING Temp staffing companies act as liquidity providers in labor markets. among other things. usually not poor. 2.PUBLIC POLICY PERSPECTIVE 1. This convention overturned a fifty year opposition to temporary staffing (Convention 96) and explicitly noted “their constructive role in a well-functioning labor market”. Their core competence is matching of demand Teamlease Labor Report 2005 Confidential – for private circulation 19 . A symbolic and materially important recognition of role came with the passage of Convention 181 by the International Labor organization in 1997. had these not been available. unemployed. A European study found that temporary workers are seldom a substitute for permanent workers. An Economic Report of the US President says. the development of the temporary help industry”. The staffing industry increased European Union employment by 0. retirees. Japan (1999). LIMITED SUBSTITUTION OF PERMANENT JOBS The service offering of temp staffing companies complement internal flexibility solutions and does not replace permanent jobs. 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 European study found that between 24 and 52% of first time agency workers were outsiders. and Greece (1999) while related regulations were liberalized in Belgium (1997) and Netherlands (1998). 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. Following the convention.

7.(jobs) with supply (people) increases the efficiency and speed of the job and candidate search process. On average temping companies create one permanent corporate staff position for every 50 workers placed on assignment. 5. 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”. About 35% of agency workers surveyed had been placed within a week while in Germany this was 54%. 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. Teamlease Labor Report 2005 Confidential – for private circulation 20 . on an average. 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. A global survey of temp workers finds that about 40% find a long-term job within a yea r of starting temping. A European study found that. the time between enrolment at a staffing company and assignment at a company was 4 weeks. 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. 6.

and amort ization). Their experience. gross margins and stock returns improved after the increased use of contingent labor. Temporary staffing companies also allow employers to access populations that have been traditionally disadvantaged in job access. 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. consumer demand is changing at an ever-faster rate. 4. Lee Willinger of the University of Oklahoma compared firms in a carefully constructed sample and found that earnings (before interest.EMPLOYER PERSPECTIVE 1. and new technologies are causing seismic shifts in the economic landscape. Start-ups use temporary workers to postpone incurring the high sunk costs of employing permanent workers until their financial situation becomes secure. A study published in the Decision Sciences journal by economists Nandkumar Nayar of Lehigh University and G. attitude and skills. IMPROVED COMPETITIVE NESS Companies have a clear and growing need for flexibility because product lifecycles are shortening. MATCHING EXPERTISE AND ACCESSING DIVERSITY Temporary staffing companies are experts at matching demand (jobs) with supply (people). STRATEGIC FLEXIBILITY For SMEs and start -up companies in particular. they typically organize their working practices in a flexible way. technology and liquidity position them better than in-house HR departments for matching quality.000 employees but only 17. Plus globalization of labor markets presents unique challenges to supply chain cost structures. start-ups often face an uncertain financial future and to hedge this uncertainty. 7. taxes. reflecting the desire to observe candidates for a trial period before deciding whether they are fit for the job. In the absence of a temping option. Steven Behm. 2. HANDLING ABSENCES Temporary staffing companies enable employers to handle both voluntary and involuntary employee absences. 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. 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. 6. employers would suffer service discontinuities and productivity breakdowns. former Cisco VP of global alliances said in the late 90s “We have 32. labor flexibility is critical. gender and age diversity. 5. racial. depreciation. 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. Relative to established companies. This i ncludes geographical. Teamlease Labor Report 2005 Confidential – for private circulation 21 . 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. 3.000 of them work at Cisco.

This “stepping stone” or bridge function of temp staffing companies is an attractive option for job candidates. 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. a large diversity of jobs. 7. 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. 5. retired people. A US government estimates puts this amount at over $700 million by US staffing companies alone Teamlease Labor Report 2005 Confidential – for private circulation 22 . SPRINGBOARD TO PERMANENT EMPLOYMENT Almost 40% of temp employees find permanent employment within a year. a European survey found this in 33% of temp workers. Temp staffing companies in the US are estimated to spend about $800 million per year in offering training to candidates. specialists and professionals considering entrepreneurial ventures. independence. electronic and other forms of specialized. Such experiences improve resumes and expose candidates to a work environment that may not be directly available. Temp jobs keep people in touch with the job market and avoid resume gaps. Temping offers working conditions others cannot – the opportunity to try out different employers. IMPROVED EMPLOYABILITY Many temp staffing companies offer training. 2. 28% for men). LIFESTYLE CHOICE Many people prefer the flexibility and independence that temp jobs offer. and in some cases higher pay. 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. TRAINING Temporary staffing companies globally offer a number of classroom. skill development and experience that greatly increase the ongoing attractiveness of candidates as employees. computer and health care workers who choose temping because of the flexibility. vocational and other training. This is particularly attractive to student. 3. An Employment policy foundation study found that 81% of high-tech independent contractors did not want to become regular employees. SUPPLEMENTAL INCOME Many employees and candidates are attracted to temp jobs by the supplemental income that they provide. 4. It was higher among women (40% vs. EMPLOYER ACCESS Temp staffing companies are often able to offer work at employers who may not be hiring directly or for permanent positions. time flexibility and short-term assignments. 6. A growing number of temps are highly paid and highly skilled technical.

For e.g. 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. Teamlease Labor Report 2005 Confidential – for private circulation 23 . outplacement. permanent placement. the mechanics. contingency recruiting.CHAPTER 5: THE TEMPORARY STAFFING INDUSTRY While economic cycles and labor costs influence the degree to which full employment can be attained. contract project staffing. 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. The traditionally static view of jobs (permanent. The global staffing industry has evolved from what once were several distinct kinds of businesses – temporary help. structure and legislation of the labor market are also a key variable in this battle. 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. retained search. 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). and professional employer organizations – to one industry where these many sectors that have blended together.

The relationship between the client/employer and the temporary company is captured in a Client Service Agreement (CSA). the Associate and Temp firm have an employment relationship (overlap 2). while the client retains the employees' services in its business and remains the employer for various other purposes.WHAT IS TEMPORARY STAFFING? Temporary staffing is a contractual labor market arrangement based on a three-party relationship between the temping firm. companies requiring temporary staff). client and employee: Temp Firm 1 2 3 4 Client Associates The Temp firm and Client sign a service level agreement (overlap 1). and c) all compliance. The staffing company is the employer of record though some countries also assign some responsibilities to clients for the temporary staff used. The worker may move from one client site to another depending on the staffing company’s clients. while the staffing company in turn receives payment from the client. and the Associate provides services to the client (overlap 4). The temporary company charges a comprehensive service fee. which is invoiced concurrently with the processing of payroll for the worksite employees of the client. the temporary company assumes responsibility for personnel administration and compliance with most employment-related governmental regulations. The staffing company assumes responsibility for a) employee payroll. The clients are often responsible for compliance with government regulations that are related to worksite supervision and safety. Teamlease Labor Report 2005 Confidential – for private circulation 24 . 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. Under the CSA.e. Temporary workers are employed by staffing companies and sent to work on specific projects or for specified periods of time with their clients (i. The temporary staffing company is responsible for the salary and benefits of the temporary workers.

and interim executives IT Staffing Services H ardware and software engineering. But as temping has become more widely accepted as a strategic component of work force composition the breadth of positions has expanded. paralegals. industrial. warehouse work (such as general laborers. medical and technical. application development. designers. executive assistants. software quality assurance and technical support. machine operators and pricing and tagging personnel). clerical/office. technical work (such as lab technicians. finance professionals (analysts. pharmaceutical contract research personnel. market surveyors. etc. etc). physicians. Also covers laboratory personnel. Internet/intranet site development. expediters and buyers) and general services (such as maintenance and repair personnel. "allied health" professionals including radiology and diagnostic imaging technicians. janitors and food service workers). accountants. material handlers. test operators. bench technicians.TEMPORARY STAFFING SEGMENTS Historically. data entry operators. Within professional/specialty. inspectors. checkers. legal secretaries. including customer service. stock clerks. temporary help also encompasses professional/specialty positions and information technology (IT) staffing. order takers. Professional/ Specialty staffing services: Accounting professionals (auditors. help desk/product support. solderers and electronic assemblers). order pullers. temporary staffing comprised four major segments. drafters. Medical Staffing Services Nurses. customer service representatives. clinical laboratory technicians and therapists. palletizers and shipping/receiving clerks). telemarketers. Now in addition to the four traditional segments.) Also includes scientists. general assemblers. electronic technicians. quality-control technicians. etc. controllers. and legal professionals (attorneys. factory work (including merchandise packagers. networking. other general office staff and call center agents. there are a number of sub-sectors including legal and accounting. Some details on each segment: Clerical/Office Staffing Services – Secretarial staff. forklift operators. Teamlease Labor Report 2005 Confidential – for private circulation 25 . collection agents and telesales. Industrial Staffing Services – Assembly work (such as mechanical assemblers. database design dev elopment. etc). word processors.

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. 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.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. CIET(2000 ) Teamlease Labor Report 2005 Confidential – for private circulation 26 .

7 0.3 1.4 0.8 3.5 0.1 3. 31%).7 1.8 0.7 0.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.9 0.3 2.5 0.5 0. Germany and Netherlands shows that six countries account for over 90% of global sales. 3.6 0.6 0.8 2.4 0.1 0.g.8 3.7 1.8 1. However.8 1. Randstad (2003) As the table shows. The inclusion of the next four markets.7 1. France and Japan.0 0.8 2.2 1% 10% 3% 4. Randstad (65% vs.7 10% 3% 0.7 1. 42%).2 2000 0. etc.1 2. Many global staffing firms accelerat ed their international expansion between 1995 and 2000 and consequently reduced home market revenues e. 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).6 0.4 0.0 Teamlease Labor Report 2005 Confidential – for private circulation 27 .2 0. Manpower (43% vs.2 2.7 0. The global market remains concentrated in the UK and North America which account for 60% of global sales.8 3.6 4.7 0. Addecco (82% vs.8 0. France.2 2. the largest staffing market is that of the US economy followed by UK.9 0.0 1% 1998 0.1 0. 30%). Japan. Europe where the top three control upto 50% in some markets.5 1.2 2.8 1.5 4.1 0.0 1.9 0. The market in the US is highly fragmented with the top three players players controlling only 12% of the revenues vs.8 2003 0.8 0.6 1999 0. The total share of European countries in worldwide staffing turnover is 38%.

IT staffing.. Specialty staffing is a high-growth and high -margin area and includes Legal staffing. Manpower Inc. There are around 10 staffing agencies that have a turnover of $1 billion or more. Spherion. Bureau of Labor Statistics (Department of Labor) says there were 2. Nurse staffing. There are many competitors.S.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. and have net profit margins of only 0. or around $25 billion.000 temporary help firms a one-branch operations.S. while overall employment growth has been only around 2% and economic growth has been only around 4%.S. it is estimated that about 90% of the estimated 11. The industry is highly fragmented. staffing industry has been growing at above 10% per year in the last decade. The U.e. employs more people than any other firm in the U.8%) and payroll (52. • • • • • • • Teamlease Labor Report 2005 Confidential – for private circulation 28 . including employee benefits and sales & administrative expenses.2% of the receipts and a similar percentage of the temporary help sector’s payroll (Source. Adecco. The large staffing companies in the U.1%). Key players in the industry include Manpower Inc. sales & administrative (GSA) expenses.S. These companies spend approximately 10%-15% on general. this is the ‘mark-up’ they charge up over the labor costs of the temporary staff they provide. Accounting staffing. i. and Robert Half. Kelly Services. Staffing Industry Sourcebook 2002). 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.3%of the firms but generated more than half of the sectors receipts (51.5%1%. typically operate on a 15%-20% gross margin. But these firms generate re only 31. Key points • • The US temporary staffing industry has revenues of around $100 billion The U.. Gevity HR.85 million temporary workers as of January 2003 including those placed by staffing agencies and those directly hired by employers. etc. Firms with more than 10 or more branches represented only 1. with no single company having a highly dominant position.

9 9.3 4.9 12.4 14.3 20. Eurostat LFS (2002.2 10.the Netherlands.4 7.2 7. 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 7.0 7.1 12.0 20.8 7.3 6.7 10. and most immature in Denmark and until recently Italy.5 14. Germany and UK.7 10.7 6.9 10.9 14. Except Greece.1 8. However.1 11.6 10.6 11.3 21.5 10.2 7. OECD LMS 2001 (2002). The relative size of the agency work business is largest in the Netherlands and the United Kingdom.3 1990 1995 6.7 8. but the industry is less developed than in the U.9 14.5 8.2 12.3 29.3 31. they work predominantly in services industries.0 35.1 14.6 18. France.0 12.7 9.5 10.1 12.0 5. though certain countries have rules restricting the types of jobs or the durations for which temporary staff may be employed.2 15. It is estimated to be about 38% of the global $200 billion staffing industry. In March 2002 the European Union (EU) brought out a new set of directives on the use of temporary staffing.7 4.6 Source. Data s hows that in general agency work in Europe is most common in the manufacturing sector. Teamlease Labor Report 2005 Confidential – for private circulation 29 . Also clear is that agency workers are on average lowly educated and very young (about 20-50% are below age 25).8 12.3 2000 7.0 13.0 6.4 32.1 2001 8.8 31.2 7.4 10. all European countries permit temporary staffing. this is still under finalization.8 2002 7. About 80% of the temporary workers in Europe were employed in 4 countries .3 10.9 5.0 12.6 6.4 3.8 10.2 12.0 5.0 5. This also explains why women are mostly underrepresented among agency workers (except for Scandinavian countries). 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. Overall Netherlands has the youngest population of agency workers and UK has the oldest.3 4.5 5.3 9.S.THE EUROPEAN STAFFING MARKET The use of temporary staffing in Europe is common to most countries.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.

9%) AGE WOMEN 16% SECTOR 51% Industry and Construction 65% industry and construction 23% industry and construction.000 in 1996 243.1%) LFS:254.000 (0. 27% healthcare 58% industry and construction Mainly services.3%) Doubled since 1992 305.5%) Very rapid recent growth 9. 38% Average 27 <25.8%) Rapid growth 557.3%) Moderate recent growth 6.661 (1.8%) Five fold rise since 1995 32.000. 45% Average 32 <25.7%) Doubled since 1992 31.7%) Rapid growth 15. 28% Average 32 <25.COUNTRY Austria EXTENT (1999) AND GROWTH 24.000 (1.000 (2. 19% Average 32 <25.7%) Quadrupled since 1992 62.0%) Doubled since 1995 109.000 (0.000 (2.6%) From 11. 46% 41% Denmark 70% France Finland Average 29 <25.000 (0.0%) Doubled since 1992 45. 31% 49% Portugal 40% Spain 43% Sweden UK 60% 47% Teamlease Labor Report 2005 Confidential – for private circulation 30 .000 (0. 51% Average n/a <30.9%) Five fold rise since 1992 623. 52% Average n/a <25.000 (0. 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. 37% Average 30 <25. 40% 30% 78% Germany 22% Italy 38% Ireland N/A Luxembourg 25% Netherlands Average 27 <25.639 (0.277 (0.065 (2.000 (1.65%) Doubled since 1992 18.(4.

Asia IT. growing range of recruitment functions. 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. possible oligopolies in alongside fragmentation. some provision of HR functions. 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 Labor Report 2005 Confidential – for private circulation 31 . global firms Global branch/ franchise network and internet service delivery Growth in national. 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. penetrating more segments of the economy and developing long-term relationships Intensified consolidation.GEO-HISTORIC EVOLUTION LOCALIZED GROWTH Industry Structure Limited. healthcare. Accountants. national vs.clerical and light industrial. US/UK labor market model finding favor globally and World Bank/IMF push reforms Temporary vacancy filling. senior management Independent vs. multisite agreements. evidence of complete process Latin and South America. Independent firms Independent vs. some generalist agencies Fragmented NATIONAL ROLLOUTS Still limited – but growth in some specialist niches Fragmented. early evidence of market power of global firms Increasing liberalization.

has come to the front. With the benefit of liberalizing employment regulation. sometimes dramatically. full time. movement towards a more liberal. to erode rigid social protections and to de-collectivize employment relationships. Teamlease Labor Report 2005 Confidential – for private circulation 32 . What is crucial is the quantitative and qualitative nature of each markets development. The extent to which a market is “attractive” depends upon the particular configuration of state regulation. The primary objective has been to encourage labor markets to behave more like “real’ markets. The pattern of regulatory reforms across most industrial nations and many developing countries has been favorable. The privileged normative and institutional status of the “standard” job – relatively secure. In this changing regulatory environment. to strengthen the play of competitive pressures. industrial and occupational mix. which means the industry is operating in the context of a “positive” regulatory environment for the first time in its history. A symbolic and materially important recognition of role came with the passage of Convention 181 by the International Labor organization in 1997. Social-welfare and employment policies. and the in/formalization of employment relations. the temporary staffing b usiness has enjoyed explosive growth in many countries. albeit uneven. flexible and contingent jobs many of which are part-time or temporary. Japan (1999). both to accommodate and facilitate these developments. just as the numerical weight of jobs has declined. though invariably from a small base. decentralized and individualized pattern of regulation over recent decades. regulated by an open-ended contract of employment. The flip side of these developments has been the sustained growth of “nonstandard”. Following the convention. often unionized and well-paid – has been eroded. temporary work. legal recognition for private employment agencies was formally granted in Italy (1997). and Greece (1999) while related regulations were liberalized in Belgium (1997) and Netherlands (1998). once the very definition of undesirable or marginal work. This convention overturned a fifty-year opposition to temporary staffing (Convention 96) and explicitly noted “their constructive role in a well-functioning labor market”. have been extensively redesigned.GLOBAL REGULATION Globally there has been a generalized. prevailing wage conditions. along with labor and industrial relations laws.

1 2 2 2 7 de-regulating Austria Restrictive. deregulating Luxembourg Moderately Liberal. mostly static Portugal Moderately 1 1 1 1 4 Liberal.Overall de/regulation (1989-1999) Working Time regulation 0 Index of employment regulation (0=non-existent or weak. deregulating Greece Highly restrictive Source: Peck. regulating Italy Restrictive. established UK Liberal. static Spain Highly 2 1 2 2 7 restrictive. 2= strict) Temp Work regulation 0 Job Protection regulation 0 Minimum Aggregate Wage Index laws 0 0 USA Liberal. static France Moderately 1 1 1 2 5 Restrictive. de0 0 0 0 1 regulating Finland Moderately 0 1 0 0 0 liberal. 0 0 0 0 0 established Ireland Liberal. de regulating Norway Moderately 0 0 1 0 0 liberal. de1 0 1 1 3 regulating Sweden Liberal. established Netherlands Liberal. de regulating Belgium Moderately 0 1 1 1 3 Liberal. de regulating Denmark Moderately 0 0 0 0 0 liberal. Theodore and Ward (2004). derived from CIET and Randstad Teamlease Labor Report 2005 Confidential – for private circulation 33 . deregulating Germany Highly 2 2 2 1 7 restrictive.

A company cannot discriminate in assignments based on 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). They are also covered by state disability insurance in states that provide it. age. Employees of private temporary/day labor firms who work for public agencies are covered. race. • • • • • Teamlease Labor Report 2005 Confidential – for private circulation 34 . and some states like Georgia prohibit transportation fees entirely. 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. religion. A company cannot fire a temporary staff based on gender. In addition. 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. The company cannot pay a temporary staff less than other temps doing the same work on the basis of gender. religion.” “Living wage” laws in some states may cover temps/day laborers working under contracts or for public agencies. age. at least half the states have laws that cover public sector workers. $5. Temporary workers and day laborers are covered by workers’ compensation. The Occupational Safety & Health Act covers most private employees.250 hours within the past year. subsidized childcare. Eligibility for unemployment insurance varies by state.15 per hour. and Temporary Assistance for Needy Families (TANF). religion. In over 20 states. day laborers and independent contractors may be eligible for federal earned Income Tax Credits and state credits where they exist. The company must pay the temporary staff at least the rate that was agreed upon at the start of the assignment. or national origin. To claim the EITC. or the higher state minimum wage. Low-wage workers may also be eligible for food stamps.TEMPORARY STAFING LAWS IN THE US • • • • • • • • • • Temporary staff is ent itled to at least the minimum wage. or national origin. age. or national origin. Some states have a cap on the amount that a company can charge a worker for transportation to the worksite. Temporary workers on construction projects may be entitled to the “prevailing wage. To be covered. race. Medicaid. Temps. race. Part-time workers are also often denied coverage. d isability. disability. the temporary staff must be work authorized with a valid Social Security number. and to 1½ times the regular hourly rate for all hours worked above 40 hours per week. the employer must have at least 50 employees within a 75-mile radius. disability.

Furthermore. staffing companies can offer their workers income security over the longer-term by providing them with a continuous stream of assignments. This removes the traditional disadvantages of temp workers. This observation may undervalue the importance of staffing companies in career development. such as differences in qualifications. they are in an excellent position to provide security of employment to their own workers. and job content. temp staffing is still associated with a number of negative attributes and t is important to i surface and confront this issue. Temping provide many unemployed workers with a s social link to the job markets. and health benefits. etc) to increase their competitiveness. or take leave of absence can lose some of their gratuity. Given the short time that workers stay with temp jobs. temp workers acquire a diverse set of work experiences. In establishing wage levels. DIFFERENTIAL WAGE LEVELS It is very difficult to compare wage levels among different populations of workers. experience. However.NEGATIVE PERCEPTION VERSUS REALITY A well-developed staffing industry offers an organized and transparent work arrangement that enhances employment opportunities for workers. As a result workers who change jobs frequently. even for so -called permanent workers. Pay differences among companies within a sector can be significant. Since staffing companies manage a portfolio of employment opportunities with multiple employers. Teamlease Labor Report 2005 Confidential – for private circulation 35 . This assumption is no longer valid. 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. LOW LEVEL OF TRAINING Some academic research points out that while formal training is low overall for workers. the over-riding principle should be that it is the agencies that are employers of agency workers. 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. However. return to education. pension. There are often valid reasons why wages differ. temp workers receive less formal training than permanent workers. A more important trend is the move to CTC (Cost-to-Company) where most benefits are monetized into wages. such on -the-job learning may be more useful than formal training. seniority. which adds to their overall career development and employability. LACK OF BENEFIT CONTINUITY Benefits are based on the outdated assumption that workers remain in their jobs for long periods of time. this was estimated at over $700 million for the US market alone. and. Plus staffing companies are starting to offer innovative training (e-learning. have the right to determine the wages of their work ers. and are sometimes larger than pay differences between permanent and temporary workers. two forms of equality need to be balanced carefully. Comparing the wages of highly diverse populations is even more problematic. webinars. like other employers.

We were more interested in understanding the key issues. we publish only the aggregate results of the survey. Our attempt was to understand at a macro level the problems that companies face due to our existing labor laws around temporary staffing. and added to the richness of the feedback we received from respondents. broad trends and estimating potential and less interested in conducting statistical analysis by surveying hundreds of companies. 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. 3) SAMPLE SIZE Our survey covered 75 companies in various cities in India. Qualitative: Presented in the two tables on the next page Presented in the form of recommendations for staffing reform in the next section Teamlease Labor Report 2005 Confidential – for private circulation 36 . some professionals may believe our sample size and techniques may not be statistically significant. and not individual responses from specific companies. Multinational 60% 4) FINDINGS • • Quantitative. Services 55% Indian owned 40%.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. with the following break-up: § § Manufacturing 45%. This has helped us uncover subtle qualitative issues. most respondents agreed to participate in our survey on the condition of anonymity. However.

Given the number of assumptions (labor force growth.6% 4% 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. The Contract Labor Act does not help employers or employees Agree Do not agree 74% 26% 100% Source: TeamLease survey. 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. Teamlease Labor Report 2005 Confidential – for private circulation 37 . employment elasticity.5 13. GDP growth) and the nature of our survey.7 % of workforce 2.

economic efficiency and social cohesion. which are not contradictory.12 of CLRA Compliance philosophy & decentrallization Over-regulation and undersupervision. If the potential of this sector is to be fully realized. in line with global experience. 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. Teamlease Labor Report 2005 Confidential – for private circulation 38 . Regulations should aim at promoting the development of well functioning staffing companies and ensuring proper protection for workers. costs Create national licensing for contract staffing and move away from contract-by-contract Amend EPFO Act ESI Act High Mandatory Payroll Deductions Evasion. Perenial. employee losses Only after 6 months. 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. the approach towards its regulation needs to be focused on tomorrow’s labor market challenges rather than yesterday’s problems. transparency. enforcement consistency. industry.m. faced large legislative restrictions on its growth and penetration.CHAPTER 7: RECOMMENDATIONS FOR TEMPORARY STAFING REFORM IN INDIA Temporary staffing in India has traditionally. 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. functions and industries Core. 18 months for employees with salary greater than Rs 6500 p. The debate around staffing companies needs to be less ideological and more oriented towards two main considerations.

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. 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 Labor Report 2005 Confidential – for private circulation 39 .e. clients of temporary staffing companies to get registered under the CLRA. 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. payment of minimum wages. 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. coverage of such employees for PF/ESIC.ISSUE 1 DEFINITION OF PRINCIPAL EMPLOYER Section 2(G).

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. Direct contracts that disguise contract employees as service providers/ retainers Lower usage of temporary staffing. • • • • • • CONSEQUENCE • • • • • • • • • Companies enter into sham agreements to disguise contract labor in what can be considered as core/perennial activity. Typists. Central Government CLRA notifications also restricts temporary staffing in certain process and companies like o Telephone operators by International Airports Authority of India. INDUSTRY. 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. Labor authorities assume that that once a prohibition order is notified. Contracts longer than this carry the potential for a permanency claim with the Principal Employer.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. For e. some State Governments have notified Canteens in factories to be core and perennial. industries . Maharashtra has 90 days. PERENNIAL. States have different rules e. Amend 25B to revoke powers of Labor authorities under Industrial Disputes Act to grant permanency to contract employees Teamlease Labor Report 2005 Confidential – for private circulation 40 . 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. locations and durations. 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.ISSUE 2 CORE. 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. o Fire fighting.g. accountants. b) the process is of perennial Nature. the contract employees become employees of the client.

CONSEQUENCE • • • • • Over-regulation and under -supervision. very low compliance levels Lack of consistency in interpretation and enforcement of laws across cities. 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. 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. email and post. 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. 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. states and nationally Lack of transparency encourages evasion and corruption Encourages a fragmentation of the market into small.ISSUE 3 COMPLIANCE PHILOSOPHY AND DECENTRALIZATION Section 7. Teamlease Labor Report 2005 Confidential – for private circulation 41 . individual and local firms who do not service more than few companies in a locality and do not invest in systems. 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.

and b) the days worked in a month. As a corollary. IT. women etc willing to work part time due to other family. Minimum Wages notified based on a) the hours worked in a day. Biased against outsiders like freshers. academic or professional commitments. etc. 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. students. Teamlease Labor Report 2005 Confidential – for private circulation 42 . CONSEQUENCE • • • • Lower job opportunities due to the hesitation in using part-time workers in seasonal businesses like BPO. 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. Retail.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.

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 Labor Report 2005 Confidential – for private circulation 43 . 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.

ANNEXURES Annexure A Annexure B Annexure C Annexure D Annexure E Annexure F Annexure G India’s Labor Market .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 Labor Report 2005 Confidential – for private circulation 44 .

but was employed for most of the preceding yea r.05 397 Growth rate (% p.03 0.05 381.2 below.29 1994 895.93 1. reflecting ‘jobless growth’. a person who was unemployed on the date of the survey. and Current Weekly Status (CWS) that tend to understate the extent of unemployment. The unemployment according to the CDS measure is much higher.a.45 1999-00 1004.32 6.03 1977-78 1983 1987-88 1993-94 1999-00 Source: Report of the Task Force on Employment Opportunities (Montek Singh Ahluwalia Committee). Fig 1. which means 2. Of these. Planning Commission.21 308. labor force & employment data Sector 1983 Total Population Total Labor Force Total Employment (UPSS) 718. would be classified as unemployed under the CDS measure and employed under the UPS measure.05 2. 397 million persons are employed (UPSS measure).1.3% in 2000.3% of the workforce. Planning Commission.04 19942000 1. Figure 1. compared to other indicators like Usual Principal Status (UPS).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 8.2% of the workforce are unemployed.ANNEXURE A – INDIA’S LABOR LAWS . unemployment has risen quite sharply to 7. Government of India.64 302. which based on the reported employment position of the surveyed individuals on each day of the week.09 6. Usual Principal and Subsidiary Status (UPSS). CDS is generally considered the most useful measure of unemployment.12 2.FACTS 1.75 Employment (Million) 1988 790 -324. RISING UNEMPLOYMENT/ JOBLESS GROWTH As seen from Figure 1. India’s workforce includes around 40% of its 1 billion population.18 8. As seen in Figure 1. For example. July 2001 Teamlease Labor Report 2005 Confidential – for private circulation 45 .98 Source: Report of the Task Force on Employment Opportunities.1 406. at 7.) 1983-94 2.94 374. July 2001 Note: Throughout this White Paper.28 7. we generally use the Current Daily Status (CDS) measure of unemployment.1: Population.

As expected.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 1.73 2.541.29 2. As seen in Figure 1.14 2. Unemployment would have been far higher today if there had not been a fall in the growth of the labor force. Planning Commission.4 below shows the Labor Force Participation Rate (LFPR) rates for various age groups.27 2.03% per year.1 1.03 Employment Population Labour Force Source: Report of the Task Force on Employment Opportunities (Montek Singh Ahluwalia Committee).3: Growth of Population.04 2. LFPR is substantially lower for the younger age groups and senior citizens. July 2001 Teamlease Labor Report 2005 Confidential – for private circulation 55 -59 60 + 46 . while the labor force is growing at 1.74 0.43 2.94% in the mid 1970s to just 1.4: 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).93 2 1.5 2.19 2.98% in the latter half of the 1990s. the number of jobs has grown at only 0.98 1 0.03% in the late 1990s.17 2.94 2. July 2001 Figure 1.5 1. Labour Force and Employment 3 Rate of growth (%) 2. Planning Commission.3 below. from 2. Fig 1. Fig 1.Of particular concern is the decline in employment growth compared to labor force growth.

Planning Commission.53 Employment Elasticity 1977 to 83 1983 to ‘94 0. It is zero for agriculture due to overstaffing and marginal work..15% more workers) Figure 1. Transport.5: Elasticity of Employment to GDP Sector 1.83 0. Finance.00 0.Construction 6.69 0. Storage & Construction 8.00 0.2. which means that a 1% growth in GDP results in only 0.80 0. Figure 1. July 2001) Teamlease Labor Report 2005 Confidential – for private circulation 47 .69 0.33 0.00 0. Real Estate.73 0.41 1994 to 2000 0.45 0.Agriculture 2.00 for the construction industry.5 below reveals interesting patterns in employment elasticity in the Indian economy in recent decades: i. Community.63 0. It has declined sharply in manufacturing and electricity.Electricity 5.15.92 0.52 1.78 1. reflecting the low productivity in this sector (i.Wholesale & Retail Trade 7.. DECLINING EMPLOYMENT ELASTICITY According to the Planning Commission of the Government of India.50 0.Manufacturing 4. 1% increase in output requires 1% more workers. implying that productivity is increasing (i.00 1. Insurance & Business Services 9.55 0.15% growth in jobs.73 1. Employment elasticity has been declining continuously for the last several decades ii.e. unlike the economy as a whole where 1% increase in output requires only 0. employment elasticity of the Indian economy is currently around 0.Mining & Quarrying 3.15 (Source: Report of the Task Force on Employment Opportunities.26 0.00 0.e.07 0.49 0.00 1.00 0. 1% increase in manufacturing output requires only 0.50 0. reflecting the lack of alternative employment opportunities in rural areas iii.67 0. It is as high as 1.26% more workers) iv. Social and Personal Services All Sectors 0.00 0. Government of India.

90 2.04 1994-00 -0.85 6.34 -2. Planning Commission.57 3. i.13 374.68 27.00 Growth (1994-00) (%) 1983-94 1.3.50 5.33 3. Agricultural production is heavily dependent upon the monsoon rains. and has grown at barely 2% per year. while industry (69 million.39 1.46 2. Storage & Communication Financial Services Community Social & Personal Services Total Employment 207. which is not sufficient to substantially improve income levels or generate additional employment ii.34% in the late 1990s.27 48. SECTORAL SKEW As seen from Figure 1. and this is barely offset by the growth in employment in industry and services.80 302.24 7.45 1999-00 237. and marginal workers are compelled to migrate to cities in search of jobs iii. July 2001 Teamlease Labor Report 2005 Confidential – for private circulation 48 . or 17%) and services (90 million.16 2.01 1.69 5.04 6. the bulk of employment (237 million out of the total of 397 million. Gas & Water Supply Construction Trade Transport.52 32.20 0.e. Employment in agriculture has been falling by 0.05 33.35 11.51 4. or 60%) is in the agricultural sector.09 5. agricultural production can be increased further with even fewer agricultural workers Figure 1.78 19.98 Source: Report of the Task Force on Employment Opportunities.85 2. or 23%) account for a much smaller chunk of employment.70 23.14 4. In addition.28 17.55 0.6 below. Employment in agriculture has been falling over the ity years.6: Growth of Employment by Sectors (UPSS) Industry Employed workers (1999-00) (Million) 1983 Agriculture Mining & Quarrying Manufacturing Electricity.70 42. Employment elasticity in agriculture is negative.76 1993-94 242.04 6.32 3.50 1.20 397.03 0.32 14.05 -0.23 1..88 7. Government of India.76 34.78 10.22 7. the agriculture sector offers poor prospects for employment: i.18 2.56 2. Chronic under-employment means that tens of millions of agricultural workers have low productiv and wages.62 37.

06 36. This adversely affects workers’ welfare in several ways: i. Government of India. among the lowest in the world. In the context of globalization. Planning Commission.23 43.33 81. LOW SKILL LEVELS As seen from Figure 1.11 68. and iii. the proportion of youth in India who have skill levels is only 5%.24 68. Figure 1. July 2001 Poor skill levels among the workforce reduce workers’ productivity.42 28.89 66.58 64.11 78.46 Source: Report of the Task Force on Employment Opportunities.06 22.08 27.7: 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 5.03 86. It reduces the total basket of goods and services produced by the economy. It reduces workers’ income levels and hence their standard of living ii. it reduces the competitiv advantage of the economy e and makes companies uncompetitive Teamlease Labor Report 2005 Confidential – for private circulation 49 . This reflects the shamefully low levels of literacy among our workforce. reducing the standard of living.39 95.7 below. as well as the lack of adequate infrastructure for imparting vocational training.4.88 80.57 75.86 63.

reflecting the classification of farmers as self-employed.9 55.7 40. mining.9 (Source: Report of the Task Force on Employment Opportunities. There are clear differences in the proportion of self employment in rural and urban areas.9 44. 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. community. Almost all of this has happened in the rural areas.9% in 19992000. as well as farmers and craftsmen struggling to make a living.6 42. mining.3 52. electricity. according to the Planning Commission this was 53% of the workforce in 1999 -2000. and lower in rural areas at around 7% of the workforce.2 52. The proportion of salaried employees is much higher in urban areas at around 40%. construction.1 48.9% in 1977-78 to 52. gas and water supply. financial. where the proportion of farmers cultivating their own land has fallen due to fragmentation of land holdings. electricity. LOW PROPORTION OF SALARIED/ RISING SELF-EMPLOYMENT Only 14% of the workforce in India is salaried with some measure of stability in their earnings.8: Proportion of self-employment by industry: 1999-2000 (%) Industry Agriculture Manufacturing. financial. July 2001) Teamlease Labor Report 2005 Confidential – for private circulation 50 . while it was only 42% in urban areas.4 Urban 57.8 below. transport. especially in sectors like (1) Manufacturing. and (2) Trade. the proportion of self-employment is higher in rural areas. As seen in Figure 1. lawyers and consultants. social and personal services.2 33. Government of India. The low proportion of salaried employees implies huge self-employment. community. transport. Figure 1.5. ownership of dwellings.9 45. gas and water supply. This includes high income professionals like doctors.8 Combined 57. ownership of dwellings. social and personal services All industries Rural 57. It was as high as 56% in rural areas. The share of self-employment has declined from 58. Planning Commission.

8% compared with 7.1 1. (c) According to gender: Female unemployment in urban areas was 9.8 9.9 5.2% for illiterate persons.1% for persons with secondary education and above.7 8. July 2001) (b) According to age: The unemployment rate is significantly higher in the younger age groups.2 7.3 7. this reflects the lower skill level of women entering the workforce.9 0.0 2. against 7.9 below.2 3. during 1999-2000 the unemployment rate for the 15-29 years age group was 12. As seen from Figure 1.2 0.5 7.8 7. and as high as 7. it was as low as 0.7 7.3% for the whole population.2% for their male counterparts. and the barriers that women face in achieving appropriate employment.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. 1.1 2. UNEMPLOYMENT (a) According to education: Contrary to what one may expect unemployment sharply rises with the level of education.3% for those with middle school education. female unemployment will increase as more women enter the workforce in the decades to come.2% for persons with primary school education.1%.7 1. Teamlease Labor Report 2005 Confidential – for private circulation 51 .1 9.2 1.9 3.8 8.7 0. 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.2% in 1999-00. Figure 1. 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.2 (Source: Report of the Task Force on Employment Opportunities. To some extent.4 6. Clearly. Planning Commission. 3.3 8. while the unemployment rate (UPSS) for the overall population was 2.9 9.3 5.6. For example. Government of India.

7 2.45 1.23 0.67 34. improves employability.11 Share of Organized Sector (%) 1993-94 0.) 397 28.37 15.28 17.31 21.18 1999-2000 237.56 2.97 1. July 2001 Key issues evident are a) low level and declining share and growth rate of organized employment.46 2.37 19. therefore it is more desirable.70 42.45 Source: Report of the Task Force on Employment Opportunities. ORGANIZED VS. complies with labor laws and pays taxes.85 10.70 1.87 1999-00 1983-94 1994-2000 302.13 374.06 78.46 34. Storage & Communication Financial Services Community.01 16.45 0. Teamlease Labor Report 2005 Confidential – for private circulation 52 .44 7.11 1. Government of India.49 3.7.71 18.10 shows the relative shares: Figure 1.05 33.52 0.78 10.93 Growth rate (% p.11 43.98 0.53 10.02 7.11 19.18 0. The industry skew is also interesting: Figure 1. The organized sector provides better working conditions.29 374.39 1994 27.93 27.00 1.a.20 397.35 11.62 30.50 1.61 7.65 11.55 Employment (Million) 1988 25.45 3.32 14. Figure 1.40 0.48 1.00 1.53 1.62 37.52 32. UNORGANIZED The organized sector reflects institutions employing more than 10 people.75 1. Government of India.03 1. Social & Personal Services All Sectors 242.10: Organized versus unorganized employment Sector 1983 Total Employment (UPSS) Organized Sector Employment -Public Sector -Private Sector 24.13 6.01 1.44 32.53 -0.26 1999-00 0. July 2001) .04 1.15 1.08 Organized Total Organized (Source: Report of the Task Force on Employment Opportunities. and b) the private sector is mostly unorganized.11: Organized sector jobs in employment by industry Industry Employment (million) 1993-94 Total Agriculture Mining & Quarrying Manufacturing Electricity Construction Wholesale & Retail Trade Transport.75 324.46 7.01 6. Planning Commission.27 48.09 6.58 44.49 14.49 28.61 40.33 3.05 71. Planning Commission.69 5.2 1.68 27.41 8.39 1.32 7.

Effect of non-registration. § Principal employer and contractor must maintain registers showing details of contract laborers employed Key clauses: 7. rest rooms and other amenities to workers. .(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. the principal employer is liable. Teamlease Labor Report 2005 Confidential – for private circulation 53 . . In case of default by contractor. Registration of certain establishments. Prohibition of employment of contract labor. (b) in the case of an establishment the registration in respect of which has been revoked employ contract labor in the establishment. 12.No principal employer of an establishment shall . § Principal employer must nominate a representative to certify that the contractor has paid wages. Licensing of contractors. . 10.(a) in the case of an establishment which has not been registered.(1) the appropriate Government may prohibit the employment of contract labor in any process.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 contractor must provide canteens. . § The government may prohibit the use of contract labor in certain types of jobs/occupations § Where more than 100 contract laborers are employed. 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.(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. operation or other work in any establishment.

16. Liability of principal employer in certain cases. to give any information. (4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment. (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. then the principal employer shall be liable to make payment of wages in full or the unpaid balance due. such amenity shall be provided by the principal employer within such time as may be prescribed. section 17.an inspector may --. (b) wherein work requiring employment of contract labor is likely to continue for such period as may be prescribed. . as the case may be. 28. . . ---. for the purpose of examining any register or record or notices required to be kept or exhibited by or under this Act ---. Canteens. Contravention of provisions . Registers and other records to be maintained. which may extend to three months.(1) Every principal employer and every contractor shall maintain such registers and records giving particulars of contract labor employed. . or with both ---.any premises or place where contract labor is employed. and (e) exercise such other powers as may be prescribed. 29. (b) examine any person whom he finds in any such premises ---. . Rest-rooms. 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. the nature of work performed by the contract labor.(a) to which this Act applies. which may extend to one thousand rupees. Inspecting staff.Whoever contravenes any provision of this Act --. and (c) wherein contract labor numbering one hundred or more is ordinarily employed by a contractor. or with fine.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. 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. 17. record of wages or notices or portions thereof ---. (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. Teamlease Labor Report 2005 Confidential – for private circulation 54 .(1) If any amenity required to be provided under section 16. Responsibility for payment of wages.(1) The appropriate Government may make rules requiring that in every establishment .(2) --. (d) seize or take copies of such register. (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 ---. 23. 21. one or more canteens shall be provided and maintained by the contractor for the use of such contract labor.(a) enter --. – (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. 20. the rates of wages paid to the contract labor and such other particulars in such form as may be prescribed.shall be punishable with imprisonment for a term.

the work performed by them. the wages paid to them. factory or industrial or other establishment. Deduc tions. 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. supervise and seize documents relating to payment of wages § The government can order the employer to refund the deductions made from the wages.Payment of Wages Act 1936 Objective: § Regulate the payment of 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. Time of payment of wages (1) The wages of every person employed upon or in(a) Any railway. factory or industrial or other establishment upon or in which less than one thousand persons are employed. the Teamlease Labor Report 2005 Confidential – for private circulation 55 . 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. shall be paid before the expiry of the seventh day. (b) Any other railway. inspect. shall be paid before the expiry of the tenth day 7. Maintenance of registers and records (1) Every employer shall maintain such registers and records giving such particulars of persons employed by him. 13A. 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.

17A.the authority shall hear the applicant and the employer --. by notification in the Official Gazette.may direct the refund to the employed person of the amount deducted. Conditional attachment of property of employer or other person responsible for payment of wages (1) Where --. 20. incidental to such claims (3) When --. together with the payment of such compensation as the authority may think fit ---. for each such offence. or delay in payment of the wages.the Court --.is satisfied that the employer --. or the payment of the delayed wages.is likely to evade payment of any amount that may be directed to be paid under section 15 or section 17.and --. the receipts given by them and such other particulars and in such form as may be prescribed. the authority or the court --.(any deduction has been made from the wages of an employed person. including all matters. appoint a presiding officer of any Labour Court or Industrial Tribunal ----. be punishable with fine which shall not be less than two hundred rupees but which may extend to one thousand rupees Teamlease Labor Report 2005 Confidential – for private circulation 56 .sufficient to satisfy the amount which may be payable under the direction.may direct the attachment of so much of the property of the employer or other person responsible for the payment of wages as is -. 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. or any payment of wages has been delayed) --. 15.to be the authority to hear and decide for any specified area all claims arising out of deductions from the wages. of persons employed or paid in that area. 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.deductions made from their wages.

Payment of minimum rates of wages (1) Where in respect of any scheduled employment a notification under section 5 is in force. Fixing of minimum rates of wages (1) The appropriate government shall.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. if necessary 12. such intervals not exceeding five years. (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. in the manner hereinafter provided. 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. Teamlease Labor Report 2005 Confidential – for private circulation 57 . 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. the minimum rates of wages so fixed and revise the minimum rates.

§ Minimum bonus payable. etc. 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. whether or not the employer has any allocable surplus in the accounting year 12. 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. as specified by the appropriate government by notification in the Official Gazette Key provisions: § ‘Establishments’ include departments. based on the gross profits. regardless of whether the establishment is profitable or not § Maximum wages upto which employees are entitled to bonus Key clauses: 8. in accordance with the provisions of this Act. Payment of minimum bonus Subject to the other provisions of this Act. as the case may be.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. whichever is higher. under section 11. Teamlease Labor Report 2005 Confidential – for private circulation 58 . bonus. 10. shall be calculated as if his salary or wages were two thousand and five hundred rupees per mensem. 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. a minimum bonus which shall be 8. depreciation.33 per cent of the salary or wages earned by the employee during the accounting year or one hundred rupees. tax.

Penalties (1) Whoever (a) fails to maintain a notice -book.Government may by notification in the Official Gazette direct that every person employing workmen --.shall send --. claim against employer. 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. 18A. enforcing the attendance of witnesses. 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. compensation paid. 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. § 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. Returns as to compensation The --. Teamlease Labor Report 2005 Confidential – for private circulation 59 .a correct return specifying the number of injuries --and the amount of such compensation together with such other particulars --.shall be punishable with fine.as the --Government may direct. which he is required to maintain --. etc. which may extend to five thousand rupees. 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.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.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 --.

To whom does it apply? § All establishments and workshops Key provisions: § Prohibits the employment of children.The Child Labor (Prohibition and Regulation) Act. 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 --. those below 15 years. in the 5 occupations mentioned in Part A of the Schedule. Teamlease Labor Report 2005 Confidential – for private circulation 60 . Hours and period of work . .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. 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. 1986 Objective: § Prohibit the engagement of children in certain employments and to regulate the conditions of their work in certain other employments.(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. i.

Industrial Disputes Act 1947 Objective: § Make provision for the investigation and settlement of industrial disputes To whom does it apply? § All industries. 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". whether the terms of employment be express or implied”. courts or tribunals o An industrial dispute may be referred to boards. unskilled. (iii) managerial or administrative personnel. or by the parties to the dispute o Where an industrial dispute has been referred to a board. clerical or supervisory work for hire or reward. trade. skilled. including Conciliation Officer. 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. (ii) police officers. Section 2A is also applicable “where any employer discharges. o All industrial establishments employing 100 or more workmen must have a Works Committee consisting of representatives of employers and workmen. § Chapter 2 specifies the various labour authorities under this Act. court or tribunal. retrenches or otherwise terminates the services of an individual workman” o The Act protects all workmen. which are defined in section 2 (k) as “any dispute or difference between employers and employers. undertaking.600 per month or exercising functions of a managerial nature. of any person”. Board of Conciliation. service. or between workmen and workmen. technical. dismisses. The persons excluded under the Act are (i) armed forces personnel. which is connected with the employment or non-employment or the terms of employment or with the conditions of labour. operational. and National Industrial Tribunal. handicraft. or between employers and workmen. and (iv) supervisory personnel drawing wages exceeding Rs. Labour Court. Industrial Tribunal. courts or tribunals either by the government. 1. defined in section 2 (s) as “any person (including an apprentice) employed in any industry to do any manual. Court of Inquiry. where "industry" is broadly defined in section 2 (j) as any business. the government may prohibit any strike or lock-out in connection with such dispute § Chapter 4 deals with the procedure. manufacture or calling of employers and includes any calling. of which at least half should be workers’ representatives o The central government has the power to appoint various authorities. employment. powers and duties of the various labour authorities Teamlease Labor Report 2005 Confidential – for private circulation 61 .

is the most controversial part of the Act. Starting. Leave with wages and holidays. Compensatory and other allowances. 5. 6. Wages. 3. 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. in respect of such other matters as may be prescribed. Wages. court and tribunal shall have the powers of a Civil Court in respect of enforcing the attendance of any person. 7. which deals with strikes and lock-outs. including the period and mode of payment. 3. 5. alteration or discontinuance of shift o 62 Teamlease Labor Report 2005 Confidential – for private circulation . 6. Hours of work and rest intervals. Retrenchment of workmen and closure of establishment Fourth Schedule: Conditions of service for change of which notice is to be given: o 1. Classification by grades. Employer’s contribution to any provident fund or pension fund. 8. The legality of an employer’s order under the standing orders. including the period and mode of payment. 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. and perhaps of all labour laws in India o Prohibition of strikes and lockouts in a public utility service. 9. 4. 4. 4. Bonus. 5. Shift working otherwise than in accordance with standing orders. Rules of discipline. Illegality of a strike or lock-out Third Schedule: matters within the jurisdiction of industrial tribunals: o 1. 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. examining him on oath. 2. The application and interpretation of standing orders. 3. compelling the production of documents. Compensatory and other allowances. 10. Dismissal of workmen including reinstatement of workmen wrongfully dismissed. With drawal of any customary concession. profit sharing.§ § § § § § § § Every board. o The report of a board. Leave with wages and holidays. Hours of work and rest intervals. provident fund and gratuity. 2. issuing commissions for the examination of witnesses. 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. Rationalisation. 2.

courts or Tribunals (1) Where the appropriate government is of opinion that any industrial dispute exists or is apprehended. Reference of disputes to Boards. 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. 7.shall make the reference accordingly. Tribunal or National Tribunal and two months after the conclusion of such proceedings. --. 11. 10. 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. Powers of Labour Court Tribunal.the Labour Court. Right of workmen laid-off for compensation Teamlease Labor Report 2005 Confidential – for private circulation 63 .(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. Withdrawal of any customary concession or privilege or change in usage. Notice of change No employer. 11A.is satisfied that the order of discharge or dismissal was not justified. 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. it may. not occasioned by circumstances over which the employer has no control Key clauses: 9A. Introduction of new rules of discipline. Classification by grades. Tribunal or National Tribunal --.the appropriate government --. or (c) during any period in which a settlement or award is in operation. 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 --. (b) during the pendency of arbitration proceedings before an arbitrator and two months after the conclusion of such proceedings. (b) during the pendency of proceedings before a Labour Court. by its award. in respect of any of the matters covered by the settlement or award. except as provided in standing orders. it may at any time. 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. or alteration of existing rules.Rationalisation. 25C. 9. 8. standardization or improvement of plant or technique which is likely to lead to retrenchment of workmen. shall effect such change.working otherwise than in accordance with standing orders. or (b) within twenty-one days of giving such notice 10. Any increase or reduction in the number of persons employed in any occupation or process or department or shift.

grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen. 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. 25N Conditions precedent to retrenchment of workmen (1) No workman employed in any industrial establishment to which this Chapter applies. (9) Notwithstanding anything contained in the foregoing provisions of this section. --.) 25FFF. 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).he shall be paid --.be entitled to notice and compensation in accordance with the provisions of section 25F. Teamlease Labor Report 2005 Confidential – for private circulation 64 .is laid-off. who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until. may. as if the workman had been retrenched 25K Application of chapter 5B . having regard to the genuineness and adequacy of the reasons for such lay -off. flood.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. obtained on an application made in this behalf unless such lay-off is due to shortage of power or to natural calamity. the workmen concerned and the persons interested in such lay-off. the appropriate Government may. sub -section (3) shall not apply in relation to such establishment for such period as may be specified in the order.in which not less than 100 workmen were employed on an average ---. (8) Where no application for permission under sub-section (1) is made. or where the permission for any lay -off has been refused. or. if it is satisfied that owing to such exceptional circumstances as accident in the establishment or death of the employer or the like. it is necessary so to do. 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”. direct that the provisions of sub -section (1). by order and for reasons to be recorded in writing. (4) Where an application for permission under sub-section (1) or sub-section (3) has been made the appropriate Government or the specified authority.(1) The provisions of this Chapter shall apply to an industrial establishment --. every workman --shall --. Compensation to workmen in case of closing down of undertakings (1) Where an undertaking is closed down for any reason whatsoever. as the case may be. by order. excess of inflammable gas or explosion. such lay -off is due also to fire. or where no application for permission under sub-section (3) is made within the period specified therein.Whenever a workman --. and in the case of a mine. the interests of the workmen and all other relevant factors. after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer.

wages for the period of the notice. apply. or the workman h been paid in lieu as of such notice. etc. manager. 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.every director. Where a person committing an offence under this Act is a company. to the appropriate Government. Teamlease Labor Report 2005 Confidential – for private circulation 65 . --. Offence by companies. unless he proves that the offence was committed without his knowledge or consent.(a) the workman has been given three months' notice in writing indicating the reasons for retrenchment and the period of notice has expired. agent or other officer or person concerned with the management thereof shall. 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. for prior permission at least ninety days before the date on which the intended closure is to become effective. be deemed to be guilty of such offence. in the prescribed manner. secretary. 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.

one crore on average per year”. According to the committee. The committee submitted its report in July 2001. Teamlease Labor Report 2005 Confidential – for private circulation 66 . 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. ‘workmen’ and forms of ‘retrenchment’ that were probably never contemplated by the lawmakers § While the body of laws has changed so little.e. set up by the Planning Commission in January 1999. P. Gupta committee Second National Commission on Labor Montek Singh Ahluwalia committee This committee. the central challenge was to promote economic growth and thereby encourage employment generation. the business environment has changed rapidly. The committee noted with concern the worsening employment scenario in the country in recent years: (1) the rate of unemployment has increased. Besides relatively minor modifications. which have argued for liberalizing our labor laws: • • • 1. covering categories of ‘industries’. especially since economic reforms were initiated in 1991. i. There have been numerous proposals for reforming labor laws to make them more responsive to changing business conditions. Montek Singh Ahluwalia committee S. was called the ‘Task Force on Employment Opportunities’ and was chaired by Planning Commission member Montek Singh Ahluwalia. but the government has largely ignored such proposals. We discuss below the key findings and recommendations of three such bodies set up by the government.ANNEXURE C – PAST INDIAN LABOR REFORM PROPOSALS India’s labor laws have not been substantially altered since their adoption in the late 1940s. and (3) employment elasticity has reduced drastically. 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. (2) employment creation has slowed. 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. “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. To quote from page 4 of the committee’s report.

leading to a continuing worsening in the rate of unemployment”. etc. The objective is to create a labor environment that allows companies to operate freely. “Our assessment is that the existing labor laws. 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. To quote from page 12. and (2) allowing companies to hire workers on temporary employment contracts The committee recognized that while the case for reforming labor laws was compelling. “Our growth simulations suggest that continuation of 6. and in particular the way they have been administered and implemented. To quote from page 12 again. (1) freedom for companies to terminate and retrench workers.5% GDP growth will only generate additional employment of 5. it is necessary to increase GDP substantially. 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. so that GDP growth and employment generation are facilitated. have this unintended effect of discouraging employers from investing and expanding in labor intensive areas. a trend which is unavoidable and should be continued”. and warned that even the relatively high GDP growth rates achieved in recent years were not sufficient to avoid worsening unemployment. and to achieve this. “Reform of labor laws is a particularly sensitive issue and there is understandable reluctance to proceed with reforms which may appear ‘antiTeamlease Labor Report 2005 Confidential – for private circulation 67 .9 million per year. The employment elasticities we have used imply that 6. To quote from page 5 of the report. To create sufficient number of jobs.The committee called for dramatic steps to be taken to prevent a rise in unemployment. This has made us uncompetitive in these areas in export markets denying us the possibility of la rge expansion in organized sector employment. this would face substantial opposition and therefore needs to be addressed tactfully. 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. The committee has recommended several changes to be made in India’s labor laws. It has also made our producers uncompetitive vis-à-vis imports in an environment where the economy is increasingly becoming more open. food processing.5% GDP growth is not likely to bring about a significant improvement in the employment situation.) The committee was blunt in asserting that restrictive labor laws have been primarily responsible for the increasing unemployment in the country.

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. 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). § § The Contract Labor (Regulation and Abolition) Act § § § Allow all peripheral activities to be freely outsourced from specialized firms. courts have interpreted non-renewal of a fixed term employment contract as ‘termination’.labor’. 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. 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”. Scrap section 9a. though this is contrary to the intention of the contracting parties and the intent of the legislature while framing the law. Currently. 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 Labor Report 2005 Confidential – for private circulation 68 . While the committee had major recommendations.

However. and was formally called the ‘Special Group on Targeting Ten Million Employment Opportunities per year over the Tenth Plan Period’. To quote from page 6 of the committee’s report. as compared to the organized sector. repeated in future. The committee feels that employment generation can be maximized by developing the unorganized sectors of the economy. member of the Planning Commission. The committee submitted its report in May 2002. 69 (b) (c) Teamlease Labor Report 2005 Confidential – for private circulation . and to recommend sectoral programmes for creation of employment opportunities. skills. 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. The committee makes three recommendations to reduce unemployment: (a) The key to India’s unemployment problem is more legislation. institutions and often even indigenous technology. animal husbandry. (2) small and medium industries and construction. financial sector. and (2) To look into sectoral issues and policies having a bearing on employment generation. the employment strategy for future. Gupta. the committee has suggested an innovative grassroots-based approach. education and health. horticulture and related areas. these proposed changes in policies and programmes would not entail any significant additional finance. and employment growth in the organized sector is stagnating. in general and to rejuvenate the growth of the unorganized sector in particular. S P Gupta committee This committee was set up by the Planning Commission in September 2001.. The committee starts by examining the employment data. and concludes that we are likely to face rising unemployment. fishing. 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”.e. “All these Reports bring out a common message that if the experiences of the late nineties are extrapolated i. This should be further supported by creation of an enabling environment by removing all legislative hurdles and bureaucratic interference”. They would ask for involvement of grassroots enterprise. Since majority of the workforce are employed in the unorganized sector. then India is going to face increasingly higher incidence of unemployment. information technology. To quote from page 13 of the report. “To sum up. P. “In many instances. To promote growth in these unorganized sectors. such as: (1) agriculture. such legislation has to be focused on improving the job quality in the unorganized sector. especially social forestry. S. and Chairman of the Tenth Plan Steering Committee on Labor and Employment.2. with an ever-increasing gap between the demand for jobs and supply of job opportunities” (page 3 of the committee’s report). which at present contributes 92% to the country’s employment and enjoys more than 7 times labor intensity per unit of production. to meet the Plan’s employment goals is to encourage the use of labor intensive and capital saving technology. and (3) services such as tourism. Its chairman was Dr.

468 pages.3. medical services. the National Commission on Labor has concluded that the current system of labor laws is excessively restrictive. and (2) suggest an Umbrella Legislation for ensuring a minimum level of protection to the workers in the unorganized sector. i. with compensation for workers Prior government permission not necessary for lay off and retrenchment. and that it needs to be liberalized given the changed business environment in India after 1991.. 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. To understand what lessons India could learn from China’s experiments with reform. NCL noted that “China has made spectacular progress in globalization and the post-globalization scenario. not adjudication or government intervention Labor Relations Commissions to be set up at State. While the NCL has submitted a massive report that runs into 1. The NCL was chaired by Ravindra Varma. For example. headed by a sitting or retired High Court judge Contract labor permitted for temporary and seasonal work. provided workers get notice and compensation Resolve labor disputes through arbitration. NCL also studied the labor laws in China and noted that these provide substantial freedom to companies in managing their labor. its key recommendations on labor reforms are contained in its Chapter VI that deals with ‘Review of Laws’. the NCL visited China and had discussions with government and labor officials. but not for core production or services activities. Essentially. 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. Central and National levels. unions and employers’ associations. NCL studied the ‘Shanghai Municipal Regulations of Labor and Personnel Management in Foreign Invested Enterprises’ in detail. etc. etc.210 of the NCL report). Its mandate was to (1) suggest rationalization of existing laws relating to labor in the organized sector. After a comprehensive review of the labor scenario and detailed discussions with representatives of unions and employers. and noted the following provisions in this law: (1) Teamlease Labor Report 2005 Confidential – for private circulation 70 . Employer must be free to close down or retrench workers. and had representatives from the government. ‘check off’ system for negotiating agent. 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. clause 4.e. and for maximum 2 year contracts Restrict unions in terms of minimum 10% votes. as compared to the tardy progress that India has made” (page 215. calling strikes.

The contract labor will be remunerated at the rate of a regular worker engaged in the same organization doing work of a comparable nature. sickness. (2) where such services are being performed by employees on the payrolls of the enterprises. Off-loading perennial non-core services like canteen. (3) for dismissed employees. will be permitted with the condition that: (1) perennial core services should not be transferred to other agencies or establishments. etc. unskilled. However. no transfer to other agencies should be done without consulting the bargaining agents.109. the employer may engage temporary labor for core production/service activity.e. or if such worker does not exist in the organization. at the lowest salary of a worker in a comparable grade. 6. cleaning. along with the clause number in their report: § 6. (3) where the transfer of such services do not involve any employee.110. negligence. the management will be free to entrust the service to outside agencies. and instead the law defines four other mechanisms available to workers to redress their grievances. i. No worker should be kept continuously as a casual or temporary worker against a permanent job for more than 2 years. Contract labor shall not be engaged for core production/services activities. (4) strikes are neither permitted nor banned. the employer must pay compensation of 1 month’s salary per completed year of work. semi-skilled or skilled. Given below are the specific recommendations made by the Second National Commission on Labor with a bearing on the Temping industry. § Teamlease Labor Report 2005 Confidential – for private circulation 71 . The principal employer will also ensure that the prescribed social security and other benefits are extended to the contract worker. incompetence). (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. watch & ward.companies can terminate employees with compensation (under circumstances such as indiscipline. for sporadic seasonal demand.

their paths diverged in the 1970s. Surprisingly. there are three fundamental distinctions between the economic systems in China and India: (1) Emphasis on growth: The Deng Xiaoping government. when China undertook a series of bold. population. However. delegated powers to local governments to attract investments. placed economic growth as the top priority for the nation. Such pragmatism springs from the top in China. cultural heritage. and Britain in this regard. China has achieved rapid growth and rising income levels. and implemented a series of bold steps including legal status for private companies. China has (1) encouraged trade and investment from Taiwan which it still considers a break -away province. and its prosperous coastal cities resemble those in Europe and North America. Unlike the previous decades where Chairman Mao’s writings represented the ultimate gospel. China has realized that economic growth and job creation are ultimately more important for workers’ welfare than anti-business legislation. illiteracy. 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. while India has been a spectacular under-achiever where 70% of the population still depend upon monsoon rains for sustenance cultivation. Communist China is closer to ‘capitalist’ states like U. Sadly. modern China is driven by Deng Xiaoping’s mantra that “it is glorious to be rich”. compared to even ‘welfare states’ like France and Germany. which inflicted hardship and misery on millions in the name of ideology. poverty. Sadly. so long as it catches the mice”. “it does not matter whether the cat is black or white. 2 systems’ framework. (2) Pragmatism : China experienced stagnation and poverty in the 1960s and 1970s during the ‘Great Leap Forward’ and the ‘Cultural Revolution’. (2) set up ‘Special Economic Zones’ giving foreign companies almost total freedom. Subsequent governments have been careful to avoid these mistakes. Such pragmatism is rare in the Indian political economy. The government acted decisively to create laws and institutions that promote growth.ANNEXURE 3 – LABOR REFORM IN CHINA India has important lessons to learn from China particularly since both were very similar in the 1950s –size. Teamlease Labor Report 2005 Confidential – for private circulation 72 . For example. incentives for foreign investment. colonial legacy. (3) Labor flexibility: Labor laws in China offer significant flexibility to companies to hire and fire employees without excessive restrictions. and socialist ambitions. which came to power in China in 1978. (3) reclaimed Hong Kong from British rule while giving it autonomy under the ‘1 nation. far-reaching and decisive economic reforms that established private enterprise and foreign capital as the essential pillars of the economy. and (4) privatized or closed thousands of state owned enterprises while retai ning a few large ones. and have acted with exemplary pragmatism. Indian politics still revolves around self destructive themes. As Deng Xiaoping put it.S. and membership of the World Trade Organization (WTO). mostly preoccupied by rhetoric rather than action. India took giant leaps in the backward direction. According to our research.

high employment rate.8 249 INDIA 480 1. and high level of government subsidies. the Communist system in China guaranteed jobs for its people and provided housing and other amenities.a. and gathered pace in the early 1990s after the economic boom in the coastal provinces demonstrated the success of reforms.1 below captures some of the key economic indicators in China. and had no choice regarding the type or location of jobs. in which each person was tied to a specific organization which provided work as well as benefits like employment.300 9. Economic reforms China began its economic reforms in 1978. and presents comparable figures from India to place them in perspective: Figure 3.120 1. which stood for low salary for workers. the people of a locality were made members of the ‘danwei’. housing. College students would be allotted to a danwei upon graduation.3 465 6 2.030 3. and were often tied to their danwei for the rest of their lives.6 860 10 46.1: 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. state-owned enterprises). China’s employment philosophy was characterized by the ‘one low.3 43 Source: compiled by TeamLease from various sources Traditionally. Teamlease Labor Report 2005 Confidential – for private circulation 73 . after three decades of communism under Mao Zedong.g. rising income levels. China’s reforms were slow and tentative at first. or work unit system. The Figure 3. and the rise to power of Deng Xiaoping. % $ Billion $ Billion 1. Workers received their benefits from their employers (e.Background Nearly 25 years after the onset of economic reforms in China. and not directly from the government. its macro-economic environment is characterized by rapid GDP growth. and booming exports. income levels and standard of living were very poor under this ‘iron rice bowl’ system. three high’ principle. Even though job security was assured. education and medical care. Under this system. huge foreign investments. high level of benefits for workers.

and reform of state-owned enterprises (SOE). 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. in this phase the private sector developed without explicit legal recognition and support. which tried to reform every aspect of the economy. This was followed in 1993 by the government’s ‘grand strategy’ of transition to a market economy. the Communist Party issued ‘Decisions about Economic System Reform’. 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. 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. 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. (4) large-scale a retrenchment of employees from the government and state-owned enterprises. Subsequent reforms included (1) liberalisation of foreign investment norms. 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. (5) reforms in banking. § § Teamlease Labor Report 2005 Confidential – for private circulation 74 . and other areas. In March 1999. 1984–92: This phase is characterized by ‘siying qiye’ firms (privately run enterprises. However. Firms could also obtain a license by paying an administration fee to a collective unit or local government. (3) ratification and specific regulations by the government after the reform has become well established. (2) closure and privatization of state owned enterprises. taxes. nd Private firms were limited to individual businesses (‘getihu’ or sole proprietary concerns). In October 1984. and reform of state -owned enterprises (‘gaizhi’). with an emphasis on a rule-based system. another milestone was achieved as private ownership was incorporated into the Constitution. and contract farming was introduced in the rural areas. building of market supporting institutions. which encouraged the growth of the private sector. This later prompted Deng Xiaoping to make his famous comment that “it is glorious to be rich”. agriculture. In 1992. including support for town and village enterprises (TVE) in the rural areas. The Fifteenth Party Congress in September 1997 recognized private enterprise as an important component of the economy. reflecting the changing economic philosophy of the government. Phase 3. employing more than 8 people) as distinct from the smaller ‘getihu’. the Fourteenth Party Congress of the Chinese Communist Party declared its new goal of creating a ‘socialist market economy’. Phase 2.Three stages in the reform process § Phase 1. (2) general ‘in principle’ approval for such enterprises from the regional government. and emphasized economic development and individualistic incentives. exchange rate. and was intended to play a marginal role to supplement the state sector a fill the gaps in the economy. (3) restructuring of the bureaucr cy.

acquisitions.e. the private sector was expected to complement the state sector and was tolerated in areas where state enterprises did not exist. In 1995. leasing.300 crores). The vast majority of companies and workers in China are now in the private sector.800 bankruptcy and merger proposals among SOEs were approved.Privatisation of state-owned enterprises Until the late 1970s. called ‘eating from separate kitchens’. Key Features of Reforms § Experimentation under uncertainty: Private business was permitted in the late 1970s in order to tackle economic stagnation and rising unemployment. It has evolved through cycles of unpublicized e xperimentation. The government proposed to retain only around 1. SOEs were the dominant force in the Chinese economy. and light industry.490 small-sized SOEs (i. China did not restructure its SOEs in the 1970s and 1980s. Reforming the bureaucracy: The government mandatorily retired the ‘revolutionary veterans’ in the bureaucracy. launched administrative and fiscal 75 § § § Teamlease Labor Report 2005 Confidential – for private circulation . Dual -track approach: Initially. with the slogan ‘zhuada fangxiao’. services. 45. and allowed the local governments to experiment with various reforms without disrupting the organization as a whole. More than 81% of the 63. SOEs owned by local governments were targeted for reform (as opposed to larger SOEs owned by the central government) because they were performing badly. and the fiscal contracting system rewards local governments for promoting economic development in their areas. by 1998 its share had shrunk to just 31%. meaning ‘keep the large ones and let the smaller ones go’. as well as to highlight successful reforms to encourage further reforms. in 1997 the 500 largest state-owned firms accounted for 37% of all assets held by all state -owned firms. Decentralization: Local governments have a high degree of autonomy. such as agriculture. and this has totally changed China’s economic landscape. and 1. In 2000 around 2.000 large enterprises owned by the central government. While SOEs accounted for 77% of industrial output in 1978. and created a larger drain on the budgets of the local governments. This system. more than 50. Because the private sector was initially viewed as a supplement to the state sector. enabling reformers to avoid ideological debates. This protected state -owned enterprises and bureaucrats from competition.504 of these implemented. sold or restructured by 2000. with a total w rite-off of RMB 81 billion (Rs. While 24% of SOEs owned by the central government were making losses in 1995.. closed down. China declared a bold policy to restructure SOEs. 72% owned by local governments were loss making. while all the other SOEs were to be privatized. or restructured (through mergers. followed by general ‘in principle’ approval. replaced the previous centralized system. and reduced opposition to reforms. or sale to employee-owned cooperatives). The process of SOE reform in China has been quick as well as dramatic. For example. and contributed 46% of tax revenues collected from all state-owned firms and 63% of their total profits. then by ratification and specific regulations.000) had been privatized.

Some estimates from leading agencies are shown below: § According to official estimates. which created pressure for the reform of the overall state sector. the unemployment rate is 7%. China also faces massive unemployment.300 million.1% in 1997 and 1998. Official statistics suggest that at mid-2001 the unemployment rate in urban areas was around 3. Employment China has a population of 1. Millions of these unemployed people are expected to migrate to the cities in the coming years.6% if workers laid off from state-owned enterprises are included. The success of these agricultural reforms created powerful forces that supported further reforms – e. While employment data in China is somewhat unreliable. or the non-state industrial sector). China’s workforce is increasing by 13 million per year.decentralization. Based on these. the extra income from agriculture was channeled into the industries in rural areas and fueled a boom among ‘town and village enterprises’ (TVE.5%. According to statistics from the Information Center under the Ministry of Labor.g. where the problem has even led to workers’ riots. § Start with agriculture: Agriculture was the starting point for reforms in China. According to the ‘Green Paper on Population and Labor’ published by the Chinese Academy of Social Sciences in 2002. or 6. registered unemployment stood at 3 . These reforms have forced the bureaucracy to support economic development and promote the private sector. though the official rate is just under 4%. which also reduced political and bureaucratic opposition since the bureaucrats had little vested interests in poor rural areas. out of China’s workforce of 724 million. while only around 11 million new jobs are being created every year. § § § § Unemployment in China is expected to rise dramatically in the years to come. and around 7 million workers are laid off every year from state-owned enterprises being closed down. 26 million are unemployed. and allowed bureaucrats to quit the bureaucracy and join businesses. and the unemployment rate is 3. various estimates place China’s unemployment rate between 3% and 10%. unemployment was around 10% percent since the mid 1990s. According to the Development Research Center of China’s State Council. and its labor force is around 724 million. and as high as 13 15% in 1997 and 1998. the unemployment rate for the next decade is predicted to exceed 10%. Unemployment is much higher in the interior regions of China. Economic stagnation and closure of state-owned enterprises in the rural a reas have left around 150 million people out of work. putting Teamlease Labor Report 2005 Confidential – for private circulation 76 . While economic growth has been rapid.2%.

most of them led by the jobless ‘xiagang’ workers. work -related injury.pressure on the infrastructure in the over-populated cities. By shifting to a “defined contribution” scheme. receive larger benefits compared to workers who have worked for shorter durations. with the number of retirees growing at twice the rate of new workers entering the workforce. Social security Since China’s market reforms of 1978. Teamlease Labor Report 2005 Confidential – for private circulation 77 . the responsibility for workers’ benefits ha s gradually shifted from the government to the workers themselves. As a result. According to certain sources. and not from the government. illness. medical benefits and unemployment benefits in accordance to the premium that has been paid by the worker. e. Thus workers who have worked for longer periods. some pension fund payments have been delayed. workers used to get certain guaranteed benefits from the government. and set up social insurance funds so that laborers may receive assistance and compensations under such circumstances as old age. the Chinese government has shifted the responsibility for social security to the workers. and at least 100 million eligible pensioners never receive payments. In spite of the tight restrictions on demonstrations and political activity. § The measures relating to such social security benefits are contained in China’s Labor Law of 1995. and around 12 million are ‘xiagang’ workers made redundant in privatized state-owned enterprises. China has witnessed several workers’ riots in recent years. and the government has no liability. In response. the government has wriggled out of its huge liabilities in paying pensions and other benefits to workers. unemployment and child bearing”. by introducing two major changes: § It has moved away from so-called “defined benefit” schemes to “defined contribution” schemes. the pension system in China has a deficit of over $10 billion. This is mainly due to the severe funds shortages faced by the government. pensions were fixed as a percentage to the last drawn salary. The worker and the employer pay a certain share of salary towards purchasing insurance policies from private insurance companies. who have made larger premium contributions to the insurance company. and is technically bankrupt. establish a social insurance system.g. 70 million are migrants from the rural areas to cities. The insurance company pays the worker a pension. Previously. which read as follows: § Section 70 of China’s Labor Law of 1995 states that: “The State shall develop social insurance undertakings. For example. Now the benefits received by workers are based upon the contributions made by the worker and his employer to wards a social security fund. Social security has been partially privatized. 42 million are poor farmers. there are 24 million unemployed people in China. The situation is expected to grow more serious in the coming years. such that the worker receives health and other benefits from private insurance companies.

In 1999. they also receive medical.e. 2. § Training China’s educational system stagnated during the years of the Cultural Revolution (19661976). The minimum hourly wage in China is thus $0. Where workers are employed beyond 176 hours per month. Teamlease Labor Report 2005 Confidential – for private circulation 78 . the percentage of the populatio with n university education rose steeply from 1. Not surprisingly. (2) illness or injury. when all schools and colleges were closed to prevent “anti-revolutionary activities” by intellectuals. 16 per hour. Schools and colleges began to operate normally only after 1978. and (5) child bearing”. Apart from pay. Section 73: “Laborers shall. Chinese law requires employers to pay overtime pay at two times the minimum wage. Workers in China’s state-run factories typically are paid around $150 (Rs. and millions of teachers and educated people were sent to prison or labor camps. This was a sad period in Chinese history when a whole generation lost the opportunity to learn. The employing unit and laborers must participate in social insurance and pay social insurance premiums in accordance with the law”. Income levels The Chinese government specifies the minimum salary that all workers in China must be paid. when China undertook major economic reforms. 31. China’s per capita income is only around $860 per year. according to the Chinese census of 2000. (4) unemployment. work and live a normal life. compared to 48% in Japan and 51% in the US.§ Section 72: “The sources of social insurance funds shall be determined according to the categories of insurance. which means that a majority of casual laborers and self employed workers receive less than the minimum legal salary. according to the Chinese government.33. This implies an annual minim um salary of $660 (Rs. in accordance with the law.000) per year. The government has specified that the maximum duration of work must not exceed 176 hours per month.42% in 1990 to 3. or Rs. China faces a severe shortage of qualified local candidates for managerial and technical positions. Currently.500) per month. even by 1995 only 10% of individuals entering the workforce had a university education. However.. (3) disability caused by work-related injury or occupational disease. However. or a rise of 154%. the minimum salary is RMB 450 (i. While the government has invested large sums of money in building the educational infrastructure. enjoy social insurance benefits under the following circ umstances: (1) retirement. especially in the coastal regions where large job opportunities have been created. retirement and unemployment insurance. only 11% of the Chinese population had enrolled for college degrees.61% in 2000. 7. For example.585) per month. China still has poor levels of education and training. and an overall pooling of insurance funds from the society shall be introduced step by step. especially in terms of the proportion of population having a college degree or technical training. $55 or Rs.

accountants. There are also large differences in the pay offered by private and state-owned firms.632 $2.781 19. There will continue to be a severe shortage of local managers in China.50% 17.860 2.g. 7. especially in the booming coastal regions.20% Source: Various websites referring to survey by Beijing Youth Post newspaper dated 1 April 2002 (Rupee salary calculated at Rs. sharp rises in salaries (e.297 123.7% per year compared to just 2.155 14. income levels in the top decile grew at 9. During 1998-2000. 2. Teamlease Labor Report 2005 Confidential – for private circulation 79 . education allowances.20% n/a n/a 8. In the urban areas.263 54. while their counterparts in SOEs earned only around $14. and annual bonuses.072 (Rs. lawyers and other professionals and few candidates.772 21. Faced with labor shortages.963 13.729 $1.308 9.000 (Rs.442 Increase 2000. This has led to poaching of personnel from other companies.000 per year) annually. Typical salaries for expatriates were around $300. income levels of households in the top decile grew by 9.000. and increased job -hopping among employees (e.g.097 38.151 $829 $286 Rupees 129.2% for the bottom decile.000) per year.400. average retention for good English-speaking candidates is only 1-2 years).2: Booming salary levels in China’s coastal regions City 2001 Average Annual Salary RMB Guangzhou Shanghai Beijing Tianjin Chongqing Urban average Rural average 22.000) per year. 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. 47 per $) The pay is even more attractive for professionals in the major cities of China.3% per year. China has attracted large numbers of expatriates from North America and Europe.314 $1.704 108. There is a severe shortage of qualified local candidates for managerial and technical positions in China.7% in the bottom decile.758 81. especially in new and hi-tech industries. hardship allowances.70% 17.50. For example. according to a survey conducted by the Guangzhou Association for Labor Administration in 2001.000 (Rs.50% 4. 15. For example.000 per year). 700. studies indicate that most workers in these regions receive attractive pay and benefits. and it is estimated that there will be at least 8 good jobs for every trained local Chinese mid. general managers in foreign-invested companies in Guangzhou province earned around $48.523 6.366 US$ $2.751 $2. % from 15. where there are lots of vacancies for engineers. the average pay for professionals with 5 years experience is $15.While workers in some ‘sweatshops’ in the coastal regions receive poor pay and working conditions.000 (Rs. including living expenses. salaries often double within a few years). compared to only 1.to senior-level manager for the next 2 decades.

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. Communist China is closer to ‘capitalist’ states like U. 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. o “Where the employing unit is to recruit personnel six months after the personnel reduction effected according to the stipulations of this section. provided workers are given 30 days notice and have been paid compensation (one month’s pay). and Britain than even to ‘welfare Teamlease Labor Report 2005 Confidential – for private circulation 80 . and if reduction of its personnel becomes really necessary. solicited opinions from them and reported to the labor administrative department”. 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 reduced personnel shall have the priority to be re-employed”. 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”. 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. while India has rules that make it virtually impossible for companies to terminate workers. § § 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.Labor laws Termination China has liberal laws allowing companies to terminate and layoff workers without excessive restrictions.S. These provisions are contained in China’s 1995 Labor Law. without having to pay any compensation to the worker. In this respect. or when the worker is guilty of indiscipline and violence. which lays out the rules regarding termination: § Section 25 of China’s Labor Law of 1995 allows companies to terminate employees on disciplinary grounds.

while China has succeeded in attracting large foreign investments. Clearly.000 grass roots trade unions. All Chinese workers are automatically members of trade unions in their workplaces. (1) mutual talks. the Chinese government sits on both sides of the negotiating table. In page 207 (clause 4. Instead. closure of state-owned enterprises. Chinese unions appear very powerful. unions have no power to confront managements of state-owned enterprises. lack of social security. especially foreign invested enterprises which are seen as the engine behind the economic miracle in China’s coastal provinces. in reality the unions in China are relatively powerless. etc. and does not seem to be supported by labor laws. which is controlled by the government. The ACFTU is the apex body of 31 provincial-level trade unions and 900. the Chinese government has taken great care to ensure that labor laws do not restrict companies from operating freely. for these reasons: § The right of workers to strike has been removed from the Chinese constitution. and union officials are part of the government machinery. it defines four other mechanisms available to workers to redress their grievances. which also controls all the unions in China. which has ultimate responsibility for workers’ welfare. They cannot agitate for their rights and benefits on their own.166) of their report. creating millions of high -paying jobs and boosting its exports. This gives rise to a peculiar situation: if there is a dispute between unions and management in a state-owned enterprise. For example. However. even when they face widespread layoffs. Unions are controlled by the Chinese Communist Party. and has 103 million members. and it is mandatory for employers to pay fees equal to 2% of wages to support local trade unions. and (4) adjudication by the courts. the tri-partite body set up by the government of India to suggest labor reforms. State-owned enterprises (SOEs) are controlled by Communist party. Unions have no real powers to undertake collective bargaining. (3) arbitration by the government. Workers have to accept the decisions of the Chinese government. which visited China to study Chinese labor laws in detail. Sadly. all unions are required to be affiliated to the All China Federation of Trade Unions (ACTFU). Therefore. 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. Trade unions China’s unique combination of a market economy within a communist state poses peculiar challenges for its trade unions. § § § Teamlease Labor Report 2005 Confidential – for private circulation 81 . Labor disputes are resolved through discussions with between employers and labor ministry officials rather than negotiations with unions. This was commented upon by the National Commission on Labor.states’ like France and Germany. (2) approach the ‘Mediation Centre’ required in every enterprise. Indian business is constrained by outdated laws that destroy companies’ ability to operate freely and compete in global markets. On paper.

§ China has strict controls on freedom of speech and association. (3) labor protection and working conditions. This is in contrast to The Child Labor (Prohibition And Regulation) Act of 1986 in India. Moreover. which does not prohibit child labor – it merely prohibits the use of child labor in certain hazardous occupations. Chinese workers are employed by FESCO which “rents” them to the foreign company. Chinese laws prohibit all anti-government protests and demonstrations. while also ensuring that workers’ rights are protected. This is fortunate since contract terms are best left for the parties to freely contract. where employers and employees are free to frame contracts according to their preferences. where millions have lost their jobs due to closure of state -owned enterprises. § Section 15 of China’s Labor Law of 1995 prohibits child labor. in May 2003 the government arrested two union leaders for organizing demonstrations in the north -eastern city of Liaoyang. Other provisions China’s Labor Law of 1995 contains two provisions that are absent in India’s labor laws: (1) prohibition of child labor. and (7) responsibility for the violation of a labor contract”. and prescribe severe punishment for such “subversive” and “treasonable” activities. and (2) standard format for an employment contract. the massive migrations of jobless peasants suggests that workers prefer the superior job opportunities. wages and standard of living in the “capitalist” coastal regions than the “iron rice bowl” in the interior regions. hence all labor laws are applicable to FESCO and not to the foreign company. It says that “No employing units shall be allowed to recruit juveniles under the age of 16”. serious crimes that carry the death penalty. (6) conditions for the termination of a labor contract. (4) labor remuneration. and has often jailed union leaders. 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. (5) labor disciplines. and in fact specifies the conditions of under which child labor can be used in other occupations. For example. § Employment by foreign companies In 1979. Section 19 prescribes the format for an employment contract. provides workers the benefits guaranteed by the government. It says that an employment contract must “be concluded in written form and contain the following clauses: (1) term of labor contract. and charged them with “subversion of state power” and for having contact with “hostile elements and foreign media”. and specifying the format of such contracts amounts to unnecessary micro-management. (2) contracts of work. 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. Technically. FESCO recommends qualified candidates to the foreign company. China’s government has suppressed “independent” unions that are not controlled by the Communist party. There is no such parallel in India’s labor laws. which restrict the ability of unions to function freely. helps the foreign company comply with employment Teamlease Labor Report 2005 Confidential – for private circulation 82 .

(4) salary for part-time staff at a rate equal to two-thirds of the full-time rate. as well as aviation and aerospace technology. though no benefits are provided to parttime employees. rapid rise in salaries and increasing employee turnover. and helps settle labor disputes. In the coastal areas. they have less control over salaries. Immigration reforms Due to the shortage of skilled labor in coastal regions. export-oriented units have created vast employment opportunities for millions in industries like toys. FESCO charges recurring fees of around 30% of the employee’s compensation.formalities (e. The large employment opportunities created in the coastal regions has created a severe manpower shortage in the SEZs in coastal China. The new immigration law will apply to overseas Chinese. FESCO offers Chinese employees: (1) salary as agreed to by the foreign company. this dual employment structure – with FESCO as the nominal employer and foreign companies as the de facto employer – can also cause problems. chemicals. in addition to a one-time recruitment fee. and in particular the labor reforms. Impact of reforms The economic reforms in China. promotion. Long term or permanent residency status will be granted to overseas professionals i volved with expertise in n information technology. and termination. residence permits. foreign headhunting firms have been officially allowed to form joint ventures with local recruiters to do business in China. and so on. Since they employees are “leased” to foreign companies. have created a huge and widening gulf between the prosperous coastal provinces where private companies and foreign investment have been encouraged.g. the average annual salaries for workers in the coastal areas was more than three times the average salaries in the interior areas. Teamlease Labor Report 2005 Confidential – for private circulation 83 . Salaries in the most developed areas like Guangzhou and Shanghai were almost ten times higher. light manufacturing. This has led to poaching of candidates from other companies. In return. biotechnology. productivity. as well as expatriates.700). These companies pay much higher wages than state-owned enterprises. or Rs. FESCO also charges a large fee for its services. New regulations have also been introduced to make it easier for foreign headhunting firms to gradually enter the Chinese job market. In addition. passport applications). Chinese returnees. As found in the survey by the Beijing Youth Post newspaper. new materials and manufacturing technology. and the interior regions where inefficient and loss-making state-owned enterprises are facing stagnation or closures. Since October 2002. electronics. However. the Chinese government has changed immigration laws to attract overseas professionals. (3) unemployment insurance. 1. (2) medical reimbursement of 70-100% of medical expenses beyond a threshold amount per year (RMB 300. and offer better working conditions as well.

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. U. 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 Britain. Indonesia. the situation is bleak in the interior provinces where there are few private firms. and other Western countries.S. This is a reflection to the pragmatic leadership of Chinese government. Singapore and other East Asian countries.K. estimates suggest that unemployment in the interior provinces have reached alarming proportions. Taiwan.The employment opportunities in the coastal areas have attracted numerous expatriates from the U. Teamlease Labor Report 2005 Confidential – for private circulation 84 . similar to ‘capitalist’ states like U. with as many as 150 million out of work.. While the situation is positive in the coastal areas where private companies and foreign investment is encouraged. It is ironical that labor laws in Communist China offer substantial freedom to companies to hire and fire employees. and so on. 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.S. Contrary to official statistics. Taiwan.

937) per month 1.3 ce below summarizes the key differences between labor scenario in India and China: Figure 3. The Figure 3.585) per month Key events Guiding mantra “It is glorious to be rich”. fiscal irresponsibility. 1.3: 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. under pressure from IMF and World Bank. says Deng Xiaoping.120 million $ 860 per year $ 249 billion $ 46. politicians oppose reforms to exploit vote banks. where he saw the benefits of economic reforms and foreign investment Half-hearted reforms were initiated in 1991 during a fiscal crisis.8 billion $ 365 billion 724 million 56% 3. and (4) amended the Industrial Disputes Act “Garibi hatao”. which resulted in reckless populism.32% Above 10% $ 41 (Rs. 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. supreme head of Teamlease Labor Report 2005 Confidential – for private circulation .3 billion square km $ 480 million $ 465 $ 43 billion $ 2.3 billion $ 85 billion 406 million 39% 7.Lessons for India We believe that China’s experiences hold important lessons for India’s reforms. when the government (1) took over textile mills and banks. 2.030 million 3.300 million 9.5% to 10% (estimates vary) Above 10% $ 55 (Rs. (3) amended the constitution to remove the fundamental right to property. as we start from a similar state of backwardness and fa similar challenges. (2) drove away Coke and IBM.6 billion square km $ 1. and anti85 INDIA 1. Even today. The 1970s.

regional and local governments competeto offer incentives for FDI Started since 1979. The right to strike was removed from the constitution Minimal. Unions are most powerful in public sector companies. without compensation. Ministers and bureaucrats fight to prevent privatization of units attached to their ministry. Unions are controlled by the government.the Communist state of China Entry of foreign companies Strong focus on attracting foreign investment. since it can be treated as an “industrial dispute”. Any 7 persons can create a union Freedom of unions Permitted. seen as “neo colonialism”. Lots of talk but no action. leased or closed. 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 Labor Report 2005 Confidential – for private circulation . as ministries argue over who should have jurisdiction and what rules should apply. All unions have to be affiliated to the government-run All China Federation of Trade Unions. FDI in India is just 5% of what China receives. SEZs in China have been hugely successful in attracting foreign companies with liberal rules Around 50. Central. which also runs state-owned enterprises. Difficult. and labor courts usually order reinstatement Difficult.000 state-owned units have been sold. Section 26 of China’s labor Law of 1995 allows companies to terminate employees with 30 days’ business laws Reluctance to take foreign investment. The “zhuada fangxiao” policy seeks to retain only 1. and are government controlled Independent union leaders are routinely jailed. Permitted. Section 26 of China’s labor Law of 1995 allows companies to terminate employees with 30 days’ notice and compensation. Very few units have been privatized. that too after intense opposition and controversy. and the bureaucracy has no option but to support reforms Strictly controlled.000 large state-owned enterprises and privatize all the others Push for reforms from the top of the Communist Party. Section 25 of China’s labor Law of 1995 allows termination of employe for disciplinary es reasons. Constitutionally guaranteed Special Economic Zones Privatization of public sector units Reforming the bureaucracy Workers’ rights Freedom of expression and association Independent unions Permitted. and are not accountable. since it can be treated as an “industrial dispute”. and labor courts can order reinstatement Difficult. Right to strike Ability to redress workers’ grievances Termination of workers Termination for disciplinary reasons Permitted. Antigovernment protests and demonstrations are banned Banned. and could face the death penalty for “subversion” Limited. since the employer has to follow cumbersome procedures. Bureaucrats oppose reforms in order to maximize perks and patronage.

Workers pay premiums to insurance companies and receive pensions based on their contributions. since it can be treated as an “industrial dispute”. Companies and employees are free to frame their contracts. No such provision. 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. The Act prohibits it only in certain hazardous occupations. Government and PSU employees get fixed pensions guaranteed by the government. Source: Compiled by TeamLease from various sources Teamlease Labor Report 2005 Confidential – for private circulation 87 . 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. Virtually absent.g. Workers pay health insurance premiums and receive medical coverage based on their premiums. and specifies conditions where it can be used in other occupations. and labor courts can order reinstatement Section-25 of Industrial Disputes Act makes it impossible for a company with over 300 employees. Rs. Employment contract Section 19 of China’s labor Law of 1995 specifies the format of an employment contract. 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. The government assumes no liability. Workers pay insurance premiums and receive unemployment insurance benefits based on their premiums. though some state governments offer nominal benefits (e. Workers get health benefits from ESI hospitals and reimbursement of medical expenses. The government assumes no liability. regardless of their contributions to the fund.notice and compensation. Section 15 of China’s labor Law of 1995 bans employment of children below 16 years reinstatement Difficult. even if it is sick and unviable “Defined benefit” scheme under which benefits are guaranteed by the government. regardless of their contributions to the pension fund. Workers pay premiums to private insurance companies and receive various benefits from them. The government assumes no liability.

5.210 of the NCL report). clause 4. the 2 nd National Commission of Labor set up by the government of India visited China and had discussions with government and labor officials. 7. Regarding China’s system of labor laws. 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. as compared to the tardy progress that India has made” (page 215. According to Article 13. and the concerned parties cannot reach an agreement to change the contents of the labor contract. 2. 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. is yet incompetent for doing it. When the employee is in serious violation of labor disciplines or of relevant regulations of the enterprise. enforced to labor reform or sentenced to prison. Teamlease Labor Report 2005 Confidential – for private circulation 88 . When there are other particular terms defined in the labor contract. 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. When the employee.What the 2nd National Commission on Labor says about China To understand what lessons India could learn from China’s experiments with reform. clause 4. thus causing huge losses of the enterprise’s interests. is unable either to continue the work or to take other posts reassigned by the enterprise after a designated medical care period. NCL noted that these laws provided substantial freedom to companies in managing their labor. but the maximum shall not exceed twelve months’ actual salary” (page 203.150 of the NC L report). due to sickness or non-working related injury. When the employee is proved unqualified during the probation period. The NCL noted that “China has made spectacular progress in globalization and the post-globalization scenario.” 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. When the employee seriously neglects his/her duty or is engaged in malpractice for self ends. Those whose service length is less than one year shall get economic compensation equivalent to their half a month’s actua l salary. “the foreign invested enterprise may dissolve the labor c ontract and fire its employees upon one of the following circumstances (page 202.148 of the NCL report): 1.149 of the NCL report). 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. When the employee is incompetent for doing the job and after training or change of the post. clause 4. 3. 4. NCL studied the local laws applicable in Shanghai. clause 4. When the particular circumstances under which the labor contract is concluded undergoes great changes so that the labor contract can no longer be implemented. 6.

and strikes are neither permitted nor banned. (2) The NCL felt that the environment in India is fundamentally different from what in China.166 of the NCL report). Even though the NCL found the Chinese reforms to be very successful.The NCL notes that labor laws in Shanghai do not mention strikes at all. Instead. and (4) adjudication by the courts (page 207. and hence we cannot blindly adopt China’s laws (page 209 of the NCL report). (3) arbitration by the government. Teamlease Labor Report 2005 Confidential – for private circulation 89 . (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”. (2) approa the ‘Mediation ch Centre’ required in every enterprise. it did not want to follow the Chinese model of labor law in India for two reasons. clause 4. and that “it will be erroneous to think that ‘flexible’ labor laws are the main reason for China’s progress” (page 215). (1) mutual talks. the law defines four other mechanisms available to workers to redress their grievances.

and received subsidies from the Skills Development Fund to offset the cost of worker training for approved courses. Companies were encouraged to invest in training their workers. The tri-partite system has its roots in the circumstances surrounding Singapore’s birth as a nation in 1965. Teamlease Labor Report 2005 Confidential – for private circulation 90 . achieved full employment. this pragmatic approach has been successful in devising solutions to several of Singapore’s labor problems. (2) it places emphasis on training and skill development in order to transform the country into a postindustrial economy. However. it was able to achieve a harmonious industrial environment that helped businesses to grow.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. With the GDP shrinking. However. In 1979. It was in 1972 that the tripartite National Wages Council (NWC) was established to help build labor-management relations through negotiations and consensus. limited population and natural resources. and the nation’s survival at stake. Funded by union members. high-technology industries instead of the labor -intensive. The government decided to encourage capital-intensive. low-skilled industries that were more common in East Asia. unemployment rising. and competition from neighbors who could offer cheaper labor costs. as well as free disability and life insurance for all union members under a group insurance scheme. when it faced political and economic turmoil after separating from Malaysia. employers and the government to work together to solve common problems. Singapore had attracted large foreign investments. and helped workers raise their income levels and standard of living to western levels. The Singapore Labor Foundation (SLF) was set up in 1977 by an Act of Parliament to improve the welfare of union members. illness or death. high-skilled. the government. (3) it highlights the unique problems of an democratic system where the government has extensive powers and political freedom is restricted. By the end of the 1970s. and imposed a payroll tax on companies requiring them to contribute to this fund. and improved the standard of living. This policy was begun in the late 1970s when the government made a visionary decision that fundamentally impacted the economic fortunes of Singapore. the government set up a Skills Development Fund to facilitate workers’ training. Background Singapore’s labor system is built around a tri-partite system that encourages workers. SLF provides financial assistance to families of workers who suffer disability. Singapore faced serious challenges due to its limited geographical area. 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. Singapore government has also been active in developing the skill base of the workforce. increased its GDP and per capita income. employers and unions were forced to abandon adversarial positions and adopt more cooperative labor-management relations.

the government also has schemes to provide workers with affordable housing.Singapore’s social security system is built around the Central Provident Fund. As the economy improved. a tripartite panel was created. health. In November 1998. high income levels and standard of living by consciously following a labormanagement relationship that helps businesses grow while providing benefits and support for workers. This was especially evident during the two recent recessions where cooperation between unions. and education. These were: (1) 5-8% cut in workers’ wages. A tripartite Wage Reform Sub-committee looked into the issues of wage cuts. (2) 10% cut in employers’ CPF contributions. encouraging employment of older workers. Singapore is a successful example of a country that has achieved rapid growth. and economic restructuring. which created a Retrenchment Advisory Programme and an 91 § Teamlease Labor Report 2005 Confidential – for private circulation . Singapore has a population of 4 million and a work force of 2 million. Unions and management also worked out a flexible wage system with variable bonus payments that were closely matched to company and industry performance. by companies and employees. preserve jobs and enhance employability.g. (3) addressing the longer-term constraint of limited human resources. unions and workers to continue to work together to strengthen Singapore’s competitiveness. and extending the retirement age beyond 55 years. which provided workers with a minimum of 1 month and upto 5 months bonus -9 each year. which was established in 1955. (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. These include: (1) wage restraint in the immediate term. which recommended several measures to address the problems faced. and accepted a 15% cut in the employers’ CPF contributions (against the usual level of 25%). by increasing female labor force participation. 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. which have been successful in devising solutions to several of Singapore’s labor problems. Instead. In addition. and (4) employers. and (2) longer term measures to build economic capacity through skills upgrading. To provide assistance to retrenched workers. This is best seen in Singapore’s tri-partite system and its focus on workers’ skill development. and full employment was achieved. expanding trade with growing economies. e. Labor reforms Singapore does not fit the classic case of labor ‘reform’. (2) reform of the long-established seniority -based wage system to a more flexible system for longer-term competitiveness. 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. including cut in wages and other business costs. employers restored workers’ wages. where a country starts with a dysfunctional labor system and achieves favorable outcomes by making appropriate changes.

In consultation with all bodies. In 1996. Employers were given several incentives to send their workers for training. so that businesses and workers could respond to changes in the business environment. which focuses on lifelong learning for lifelong employability and redefining tripartite partnerships among all stakeholders. and sought employers’ assistance in counseling and helping retrenched workers take up retraining or find alternative employment as quickly as possible. skills and creativity of its people. development and management. in April 1998. In addition. But we also want to have strong unions who are partners in economic progress. National manpower strategy: Singapore plans to develop into a knowledgebased economy where its strategic competitive advantage will come not from its infrastructure or industries. 92 § § Teamlease Labor Report 2005 Confidential – for private circulation . Unions will moderate the shortcomings and extremes of the free market. 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. reduced working hours or retraining. A Skills Development Centre was set up in January 1999 to improve training opportunities. the Ministry created a national blueprint for manpower development. the government initiated a Skills Re-development Programme (SRP) to help workers remain employable throughout the life. 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. unions negotiated retrenchment benefits to help workers seeking re-employment. by ir providing nationally certified skill training and upgrading. but from the knowledge. Vision and pragmatism : At an inaugural manpower summit in September 1999. and in May 1999. If lay-off was unavoidable. and (2) the government agreed to provide funding of S$3 for every S$1 raised by the unions. 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. To achieve this. the former Ministry of Labor was restructured.Employment Assistance Programme. and Ministry of Manpower was created to look into all issues relating to manpower planning. But they must understand the needs of knowledge workers. and strengthen the stability and flexibility of our economy. less-skilled workers who were more at risk of redundancy. (2) reimbursement of 70% of absentee payroll costs up to a ceiling (S$4. § Focus on skill development: Faced with globalization and technological uncertainty in the 1990s.20 per hour). and set up early consultation between employers and trade unions on anticipated retrenchments in order to explore alternatives such as redeployment. to help workers who we not sent for training by their employers. To help retrenched employees pay for their children’s textbooks and other expenses. the government and unions recognized that job security would come only from upgrading the skills levels of the workforce through training. (3) training programmes tailored to meet the needs of particular industries. an re Education and Training Fund (ETF) was set up in May 1998 under which (1) workers were given 85% of the training costs. This was seen as particularly vital for older. unions raised money and received a matching grant from the government. the government committed additional funding for retraining workers. including (1) reimbursement of 80% of the cost of training.

since (1) pay is based on the employee’s seniority. the employers' organization. The third consists of the certain protected sectors of the economy. Teamlease Labor Report 2005 Confidential – for private circulation 93 . The first is the organized sector. the Japanese economy has been facing severe recession since the 1990s. Since Japanese companies recruit people only at the entry level. rather than the external labor market. and (2) Japanese companies emphasize multi-skilling through in-house training programmes. However. with widely varying dynamics. and Nikkeiren. which led Japanese companies to dominate several industries. the Japanese government has been unable to undertake tough reform measures. just as employers have to adjust to unions playing new roles. and not the job function or department. rising unemployment. Secondly. employers and the government will have to tackle together. shipbuilding. These companies offer life-long employment to workers. The desire to avoid retrenchment is also related to the dominant role played by the company in the employee’s life and identity. rather than using layoffs and retrenchment. 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. Employees have no reluctance in being relocated within the company. The labor-management relationship is dominated by the bi-partite relationship between Rengo. They have to adapt themselves to the knowledge economy. during the recession. which makes it easy for workers to adapt to their new work environments. and cutting back on recruitment in lean times. where firms are inefficient and uncompetitive.and the way the knowledge economy works. with the result that the recession has been prolonged for more than a decade and shows no sign of recovery. Yet. pay salaries link ed to seniority rather than merit. For example. such as retail and agriculture. training and relocating workers. and so on. This is not just a union problem. these companies are able to operate efficiently because they use the ‘internal labor market’ within the company. with the ‘bursting of the bubble’ leading to fall in GDP. in order to achieve employment adjustment. financial services. and do not layoff or retrench workers. 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. For political reasons. declining prices and rising bankruptcies. consisting of large and efficient multinational companies which offer life-long employment to its employees. automobiles. and yet are politically very powerful. The two bodies have traditionally worked in close cooperation. The large organized sector is globally competitive. ensuring that Japan’s industrial environment is largely peaceful.” JAPAN Japan presents a clear case study of an economy mired in prolonged recession due to its failure to undertake tough reforms. Rengo and Nikkeiren worked closely to create a joint ‘One Million Job Creation Plan’ in 1998. These companies achieve a high degree of flexibility for the workforce by moving workers to different jobs within the company. retrenchment can mean a loss of livelihood and identity to the employee. including electronics. but an issue which unions. and yet operates under a rigid labor environment. Japan’s association of trade unions.

Japan’s labor laws were designed to provide companies the freedom to grow and become globally competitive. (iii) pension programmes. In practice. prohibiting discrimination by gender in § § Teamlease Labor Report 2005 Confidential – for private circulation 94 . Benefits: All workers in Japan are entitled to the following benefits from the government: (i) employment insurance and accident compensation schemes. reflecting a social consensus and working as an information -disseminating mechanism for all industrial sectors. In the decades immediately after World War II.partite discussions. In 1986. 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. as opposed to focusing on economic growth per se. There are no industry-wide or nationwide wage negotiations as in certain European countries. and (v) compulsory schooling up to the age of 15. but in effect the wage hikes are uniform within a particular industry and even across industries. when Japan enjoyed unprecedented economic success. the ‘Equal Employment Opportunities Law’ was enacted. The unions lost most of these big disputes. Since the late 1980s. (ii) health insurance schemes. the emphasis has turned to providing social security and quality of life for workers. (iv) nursing care for the aged. For example. The following are the key provisions of Japan’s labor laws: § Retrenchment: While there is no legal restriction on retrenchment. and this led to a tacit understanding between labor and management to avoid lay-offs as far as possible. which caused enormous hardship to companies and workers. and leave most aspects of employee-employer relations to be decided by bi.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. Labor laws Japan’s labor laws allow companies a great degree of freedom in they way they operate. or shorter working hours. and are based on productivity gains. Wage increases during the spring labor offensive are moderate. Japan does not have laws to restrict a company’s right to terminate or retrench workers. but companies also incurred enormous expenses. 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. pressure from unions and social factors prevent companies from retrenching staff. however. companies rarely do so for cultural reasons. Japan’s labor laws deal with basic working conditions and social security benefits. Generally. Women’s rights: Japan’s New Constitution of 1945 stipulates equal rights between men and women. the 1950s and 1960s saw protracted labor disputes caused by dismissals. For example. as well as due to pressure from unions. and companies generally have few legal restrictions in the way they manage their workforce.

Temporary contracts: Since the late 1980s. posting and promotion. With amendments to the Labor Standards Law in 1987. Before the amendment.975 hours in 1995. effective April 1988. § Employment Unlike in the US. and has progressively liberalized the rules that regulate temporary employment. training. this was reduced to 1. the jobless rate was only 4. less than those in several Western countries. with women earning only 63% of the average wages for men. Wage disparities between men and women are also wide. which have been badly hit by the real estate crash and subsequent drop in new investments. the ratio of unionized labor to the total workforce is shrinking. these provisions have now been scrapped. (2) confirming whether temporary workers want to continue working. income inequalities and wage discrepancies are relatively minimal in Japan. which is relatively low by global standards but very high by Japanese standards. The most seriously affected sectors are construction and civil engineering. § Working hours: Japan has an ageing population with a low birth rate.189 hours in 1988. hiring. these wage discrepancies have widened. comparable to the levels in the US and UK. the Japanese government has permitted companies to recruit workers on temporary employment contracts. and (3) conducting tests to determine which positions the temporary workers will be assigned to. until immediately before their contracts ended. such as industrial workers. and companies could not switch temporary workers to permanent jobs. However. The proportion was only 22% in 1998.879 hours in 1998. more than in any country in Europe or the US. the Law was amended to also ban discrimination on recruitment.3% in 1999. In spite of stagnation in the 1990s. Labor reforms Reforms in Japan have been primarily focused on macro-economic measures to mitigate the effect of the prolonged recession since the 1990s.education. The Japanese government has Teamlease Labor Report 2005 Confidential – for private circulation 95 . and its average life expectancy is among the highest in the world. Previously. In 1997. marketing. As the recent recession has hit u smaller enterprises harder than big companies. and retailing. temporary workers were prevented in certain defined job categories. According to the Ministry of Labor. employing 6 million workers. While average working hours for manufacturing workers was 2. and 1. under the Personnel Dispatching Law (now amended). 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). However. and Japanese companies have substantial freedom to employ temporary workers. mandatory working hours were reduced to 40 hours per week from the previous 48 hours. compared to 56% in 1949. there is greater wage disparity between big companies (organized sector) and smaller businesses ( norganized s ector). this law prevented companies from: (1) interviewing temporary workers sent by a temporary staffing provider. retirement and lay-off.

in spite of opposition from trade unions. the proportion of people employed on a temporary or part -time basis has increased. Rising retrenchment: The proportion of companies resorting to retrenchment has been rising steadily since the 1990s. and not implemented through legislation. Japan has been reluctant to undertake bold measures that could jeopardiz e vocal sections of the economy. However. In 1999. but these have been negotiated through bi. in June 1997 Japan passed a half-hearted Financial Systems Law. there is no end in sigh to the current recession. especially for managerial staff and certain blue-collar workers. but it is much lower than the corresponding figures during previous crises. but have received the assurance that transparency will be maintained in grating performance-based pay. while the Japanese economy was able to quickly overcome the previous crises in the 1970s and 1980s due to such restructuring. and postponed the inevitable bouts of restructuring and retrench ment. Since the late 1980s. Unions have been forced to accept performance-based pay systems. In 2000. While previously the Personnel Dispatching Law restricted the use of temporary workers. Due to political compulsions and vested interests. Japanese companies have recently introduced performance-based pay. and allowed companies to evaluate a temporary employee's potential and let workers decide if they want to work for that firm. the deregulation of the Temporary Dispatching Law removed restrictions on the type of jobs for which temporary staff agencies were allowed to provide workers. the proportion of companies resorting to retrenchment was 38%. 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. Flexible wage structure: Breaking the traditional practice of annual performance bonuses based on seniority. in contrast to East Asian countries like Taiwan and Korea which quickly undertook reforms to overcome the crisis of 1997. 96 § § Teamlease Labor Report 2005 Confidential – for private circulation . from nearly 10% in 1980 to around 20% in 1995. overturning the previous Personnel Dispatching Law. which did not sufficiently address the core issues of non-performing bank. few labor laws in Japan have been changed in recent years. loans. the Japanese government has permitted companies to recruit workers on temporary employment contracts. Impact of reforms § Temporary workers: After temporary work was legalized in the 1980s. This reflects a consensus to avoid retrenchment and other tough reform measures during the current recession. this was amended in 1986 to permit temporary staffing firms to operate with approval from the Labor Ministry. the temporary-to-hire program also permitted temporary workers to be hired as permanent employees if deemed suitable. For example. Apart from this.generally been criticized for not undertaking serious reforms in its economy or lab or system.partite discussions. One key labor reform that has been implemented is the legal recognition for temporary employment contracts. The ongoing recession has triggered several important changes in employer-employee relations. In 1998.

This ‘development first and distribution later’ policy. This is another example of how the internal labor market has expanded into include all the companies within a group. which has helped achieve dramatic increase in GDP and standard of living. there has been a sharp rise in the practice of loaning. including cheap loans. South Korea also followed an ‘import substitution policy’ in the 1950s and 1960s to protect domestic companies through tariffs and licensing. which some believe is triggered by political repression. However. The unemployment rate in South Korea rose from 3. and many firms faced bankruptcy. tax exemptions. typically 3 years.e. SOUTH KOREA Like India and other developing countries in Asia and Africa. In recent decades. frustrated upward mobility.§ ‘Loanin g’ and labor mobility: Since the mid-1980s. tariff rebates and protection from foreign competition. Korea has undergone two basic changes in its economic environment: (1) economic liberalization from 1988 to 1993. as demonstrated during the Asian crisis of the late 1990s. unemployment worsened. with the result that chaebols employed around half of all industrial workers in Korea during the early 1990s. and was over 10% if under-employment (i. rather than undertaking pro-worker measures that eventually cause harm by retarding growth. 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. Korea dumped this policy in the mid 1960s and replaced it with a policy of ‘state-led capitalism’ and aggressive export promotion. when GDP shrank. Teamlease Labor Report 2005 Confidential – for private circulation 97 . the economy faced its biggest challenge during the Asian crisis of the late 1990s. but was reintroduced during the East Asian crisis in the late 1990s. the Korean government has placed primary emphasis on achieving growth by developing exports and building companies that are globally competitive. takes the view that workers’ welfare is better served by boosting economic growth and creating jobs. The government has also tightly curtailed the power of unions in order to avoid obstacles to growth. followed by the often authoritarian governments in Korea. which involves transfer of employees to other jobs within the same company or to its subsidiaries or affiliates for a certain period of time. and relative income disparity – though economic growth since the 1960s has reduced absolute poverty.1% in December 1997 to 6. and (2) globalization since 1994. This policy was loosened to some extent in the late 1980s with the inset of democratic reforms in South Korea.5% in March 1998. boost c exports. which was the highest level for 40 years in Korea. 17 hours or less per week) was considered. Since then. This helped promote rapid economi growth. Unions have accepted loaning provided that the affected workers consent and that their working conditions at the host company are not unfavorable. However. However. and improve income levels. inflation went up. Korean unions are notorious for their militancy. this system was also inefficient and vulnerable.

(2) more equity (i. with the percentage of people living below the poverty line rising from 3% in late 1997 to 7. and fell to below 15% in the late 1990s due to the recession. 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. the government has considered unions as an impediment to economic growth. cut in lending to chaebols). and policies that curtail the power of unions. including removal of authoritarian controls. Income inequality also worsened. especially in the 1970s when the country experienced rapid industrialization.e. This included: (1) better balance between large and medium -sized firms (i. Unemployment was low and life-long employment was assured – in 1997. (3) more reliance on market forces (deregulation and structural adjustment).g. Unions also had to report on their activities and submit their annual budget to the Ministry.49 to 28. and GDP growth was between 5% to 15%. This period also saw fundamental changes in labor laws: Teamlease Labor Report 2005 Confidential – for private circulation 98 . Labor reforms Faced with the crisis of the late 1990s. unemployment rose to 6.5% in March 1998.1%.. and (4) reform of financial institutions (e. the Kim Dae Jung government in Korea introduced an IMF-inspired austerity policy. just prior to the crisis. employment was only 3.e. authoritarian labor control was a basic feature of Korea’s economic development. it was only in 1998 that worker representatives were invited to tripartite negotiations. It reached a peak of 23% per cent in 1989 due to pro-worker reforms. This has led to widespread anti-labor feelings in society. The proportion of organized workers in Korea has been around 20%. The economy grew rapidly. However. Massive and violent strikes in 1987. The process of easing labor laws was very slow. with the onset of the crisis in late 1997. and allowing unions to negotiate with government and employers. and the Geni coefficient rising from 24. more share of income to workers). while new labor laws allowing teachers and public sector employees to organize came into force only in 1999. Labor laws limited union activity and blocked the intervention of unions in labor disputes and collective bargaining. called the “Ulsan Typhoon”.. For example.19. Employment Korea has enjoyed strong economic performance until the Asian crisis of the late 1990s. Like with many other East Asian count ries.Labor laws Since the 1960s when Korea’s industrial revolution began. which could be withdrawn if the unions were involved in severe disputes or violent strikes. and took several years. break -up of chaebols).5 % in late 1998. For example.

from 6 million in 1989 to 6. the unemployment rate.9 million in 1999. While companies used these reforms to undertake radical restructuring in order to survive. the government created a tripartite committee. 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. In January 1998. it was now possible for younger employees to be higher paid than their seniors. Faced with the reality of economic crisis. Korea achieved economic recovery by early 2000. it was 1.§ § § In February 1998. the number of temporary and part -time workers rose by 15 %. To manage the reforms process. These changes had a dramatic impact on the employment system. For example. for workers it meant reduced job security and the end of life-long employment. 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. While the proportion was only 4% in 1997. unions were forced to adopt a passive stance amidst these changes. in 1999 Samsung reduced its workforce by nearly 30% through spin-offs and early retirement schemes.5% in March 1998. As temporary employment contracts were legalized in Korea. While previously older employees were higher paid. the Korean government announced the creation of public works schemes and the expansion of the Employment Insurance programme. The wage gap between occupational categories has widened – while white-collar workers earned 1. which was 6.57 times Teamlease Labor Report 2005 Confidential – for private circulation 99 .52 times more than blue-collar workers did in 1995. For example. A survey conducted by the Labor Ministry in 1999 showed that more companies were implementing performance-based pay (instead of guaranteed annual pay hikes). it had risen to 18% in 1999 and another 30% were preparing to introduce performance-based pay. the pay structure was formally severed from ranking according to the formal (pre-existing) ladder of sequential promotions. while previously lifelong employment was virtually guaranteed Temporary employment contracts for short and medium-term work was legalized From 1998. fell below 5% in late 1999. companies were allowed to retrench staff.

Labor laws Like Korea. It involves the use of foreign investments for upgrading technology while promoting domestic companies and supporting ‘affirmative action’ for the Malay population. In 1987 the finance minister called for voluntary wage freezes for three years. EPF. To help the economy shift from labor-intensive to capital. which are made available to use for government -approved training programmes. and holiday pay from the negotiations and sought to reduce holiday and overtime pay. creating jobs and improving the standard of living. and (4) increase the amount of local content in foreign-owned export manufacturing. Like Korea. Malaysia has followed an export oriented development strategy that has succeeded in attracting large foreign investment. MALAYSIA Background Like most East Asian countries. The government has frequently cracked down on union strikes and demonstrations. since Korea does not have a strong social security system. even where it means alienating unions and small businesses. Malaysia’s industrial transformation and rapid economic growth has been particularly impressive since the reforms undertaken after 1987. Malaysia’s development strategy has often been called ‘techno-nationalist’. the government created the Human Resource Development Corporation which established a human resource development fund to facilitate firm-level training.in 1996. 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. boosting exports. In the early 1990s the government implemented a New Development Policy that was intended to: (1) increase the labor supply. only 7% of the unemployed received unemployment insurance benefits even in the recession. it has jailed labor leaders involved in strikes. Malaysia has followed pro-growth policies that helped companies (especially MNCs) grow. Further.63 Times in 1998 and 1. 1. overtime. legislation in 1989 eliminated bonuses.and knowledge-intensive industries. and promoted in-house unions that adopt a less antagonistic approach towards management. However. (3) advance the level of technology in both foreign and domestic firms. these reforms aimed at achieving developed country status by the year 2020. Firms meeting certain thres holds are levied 1% of their employee’s salaries.7 times in 1999. The training reform programme has been very successful. limited union rights. The Industrial Relations Act of 1967 has put a freeze on wage hikes by making wage negotiations through collective bargains valid for three years. (2) boost the level of skills in the local work force. and threatened that else the government would implement a required freeze. Following Prime Minister Mahathir’s Vision 2020 pronouncement. The government has also sought to reduce excessive wage increases that prevent companies from being globally competitive. and these funds are deposited in firm-specific accounts. and by 1997 more than half a million workers had received such Teamlease Labor Report 2005 Confidential – for private circulation 100 . For example.

Several ministries developed comprehensive vocational and industrial training systems. especially in the electronics sector. Payment of Gratuity Act 3. and entry of over 2 million foreign by 1996. Wages Board Ordinance 2. Employees Trust Fund c. Employees provident Fund b. Certain high technology companies received 10-year tax holidays.training. and began to experience labor shortages and rising wages. d Between 1987 and 1991 wages in the electronics industry rose 12% for unskilled labor and 20% for skilled labor. and 7% of employees with certificates or diplomas in technical fields. and units are involved in promoting. Trade Union Ordinance 5. with their own physical infrastructure. Industrial Disputes Act b. curricula. In addition. the economy enjoyed full employment. greater access to foreign skilled labor. Within the manufacturing sector as a whole wages rose 6% in 1991. 10% in 1992. and supervising the education and training effort. especially in the electronics industry. Termination of Employment (Special provisions) Act c. R&D expenditures of 1% of sales within 3 years of starting operations. SRI LANKA Sri Lanka’s labor law framework is broadly similar to that of India. and has attracted large amounts of FDI. Employment of women and children a. Terms and conditions of employment a. Young Persons and Children Act Teamlease Labor Report 2005 Confidential – for private circulation 101 . Faced with labor shortages. and full access to foreign exchange accounts in local banks. Employment of Women. and teaching staff. Workmen’s Compensation Ordinance 4. Social security a. the economy witnessed a huge increase in female workers.000. The Shop and Office Employees (Regulation of employment & remuneration) Act b. The government introduced tax incentives to encourage both R&D and education and training. By 1993. The key categories of labor laws are: 1. and 15% in 1993. Industrial safety a. committees. This has create many jobs and improve d the standard of living in the 1980s. since b countries oth have inherited laws framed by the British. Tax exemptions were provided for companies that me more stringent t requirements for technology content and sharing. planning. Factories Ordinance b. Impact Malaysia has been able to position itself as an attractiv global destination for e manufacturing. These included capital investment per employee of at least RM 55. several government departments. Industrial relations a.

a set of rules adopted by the Cabinet of Ministers. Arbitration processes within two months and involuntary termination of service applications within one month. 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. and various Labor Tribunals / Industrial Courts. and it addresses industrial disputes. labor arbitration. Maternity Benefits Ordinance The Industrial Disputes Act in 1950 is the basic law regulating the labor-employer relationship. However. and they are governed through the Establishment Code.b. termination of services of employees. 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. § § Teamlease Labor Report 2005 Confidential – for private circulation 102 . public sector employees are not covered under the Industrial Disputes Act. The Sri Lankan government has undertaken a process of liberalizing its system of labor law. collective bargaining.

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and Visakhapatnam. Chennai. New Delhi. Goa. Lucknow. The Permanent staffing group undertakes turnkey and recruitment mandates for permanent fulfillment.000 employees in over 464 locations. Our core team of 850+ employees operates via a network of branches that give us a national footprint. an integrated contact centre for voice and email response (1800-4258575. Hyderabad. Bangalore. info@teamlease. Nagpur. Chandigarh. Indore. HR and administrative of employees on assignment. The Temporary staffing group establishes a co-employment relationship with clients and takes responsibility for all compliance.com) and a dedicated team of relationship managers. TL Net is India’s first Temporary Job Network helps job seekers by providing current job opportunities across various Industries. The company is country’s largest HR services provider and is on track to be India’s largest private employer by 2007. receive status on the interview schedules and details of the timings of the interviews are just some of the few features that this has to offer. Jaipur. namely Ahmedabad. Kolkata. applying for jobs online.com). Mumbai. ALCS Associate Life Cycle System (ALCS) is a customized in-house web centric module with 24/7 access to a centralized HR database with standardize operational process to ensuring a uniform delivery. TeamLease started operations in 2002 and now has 70.teamlease. Nashik. We view ourselves as a liquidity provider that enables better matching of demand and supply in labour markets. Technology: CLCS Designed and Integrated with the TL net. Kochi. Pune. Our offices are present across 18 cities in India. so as to bring about real time matching of jobseekers to positions. Guwahati. Enabling jobseekers to build their resume and post it on our website. Clients and Employees are serviced via a proprietary portal TLnet (www. Teamlease Labor Report 2005 Confidential – for private circulation 109 .ANNEXURE 6 – ABOUT TEAMLEASE TeamLease Services is India’s leading staffing company and provides a range of Temporary and Permanent manpower solutions to over 650 clients.

WHY CHOOSE TEAMLEASE AS A PARTNER? • • • • • • • • • Strong track record Pan India presence Single window for staffing. temp and perm Vertical domain knowledge Large validated talent pool Guaranteed turn -around time Standardized processes Comprehensive Web Interface. web. TLnet Associate self-service suite (email. IVRS) Teamlease Labor Report 2005 Confidential – for private circulation 110 .