BackDon’t just labour over laws
Labour reforms have had little effect on improving the quality of employment
PremiumPrime Minister Narendra Modi’s readiness to implement labour reforms and simplify India’s employment laws, though laudable, will not be a panacea for India’s employment woes. State-level labour law reforms carried out till now have had little effect on improving the quality of employment in the country.
In a 2008 the Organisation for Economic Cooperation and Development (OECD) paper, Sean Dougherty created an index that ranked Indian states according to the number of labour reforms they had carried out. More recently, the Institute for Human Development in its Indian Labour and Employment Report 2014 created an index that ranked states according to the quality of employment they provided—a combination of factors like wage per day, proportion of casual workers, proportion of regular workers, etc. The index was created using National Sample Survey Office (NSSO) data for 2011-12.
Comparing these two indices, thus, allows us to see whether states that have carried out more labour reforms do indeed provide a higher quality of jobs.
Given the piecemeal nature of the labour reforms till date, there is no relationship between the two factors. For example, Uttar Pradesh, which ranks the best when it comes to labour law reforms, ranks low (19th out of 20) when it comes to the quality of jobs it offers. Contrastingly, Delhi ranks 13th in the Dougherty index but ranks second in terms of providing quality employment.
There is a long-running debate among economists regarding the effect of labour reforms on employment, with no consensus yet on whether reforms have helped or not. Bishwanath Goldar in a paper titled Growth in Organised Manufacturing Employment in Recent Years argued that there is a strong correlation between labour law reforms and an increase in organized manufacturing employment.
This assertion was met with some resistance, with R. Nagaraj of Indira Gandhi Institute of Development Research (IGIDR) finding methodological problems with Goldar’s computation. “Indeed the growth [in factory employment] is a welcome change in the employment scene. But when viewed over a longer period, and in relation to the trends in output and investment, the turnaround appears meagre in relation to the growth in the workforce. On a closer statistical scrutiny, however, his [Goldar’s] finding of a positive association between the employment boom and the labour law reforms at the state level is not tenable," Nagaraj argued in a rebuttal to Goldar’s paper.
The need for labour reforms is clear—almost all economists agree to this. As India’s chief statistician T.C.A. Anant, historian P. Mohapatra, and economists R. Hasan, R. Nagaraj and S.K. Sasikumar argued in a 2006 research paper, India’s curious blend of stringent labour laws and lax implementation is harming both employers and the employed.
However, it must be noted that labour law reforms will not magically address all of India’s employment problems. As this set of graphs shows, India’s employment situation is beset by a host of problems, including the predominance of informal employment, a lack of education and skills among the workforce, and a lack of access to regular jobs.
Labour laws must be reformed, but in conjunction with a wider effort to provide India’s growing workforce with the employment opportunities it needs.
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