Labour Market in India

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Labour Market in India

• R Nagaraj,
• Indira Gandhi Institute of
• Development Research,
• and
• Princeton University
• Email nagaraj_at_igidr.ac.in

2
Labour market size

• Consists of 430 million workers in 2004-05,
  growing 2 annually, with a stable
  worker-population ratio (40).
• Low level of open unemployment (3.1) high
  level of disguised unemployment, mostly in rural
  areas and in agriculture.
• Low level of womens participation in workforce.
• Child labours share in workforce declining, but
  in absolute numbers still quite large.

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Labour market structure

• Labour market consists of 3 sectors.
• Rural workers constitute about 60 of the
  workforce.
• Organised sector employing 8 of workforce, and
  declining producing 40 of GDP.
• Urban informal sector the growing sector
  represents the residual.

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Employment growth

• Structural transformation agriculture's share
  declining from 62 in 1993-94, to 54 in 2004-05.
• Low or negative employment elasticity.
• Employment is shifting towards services, not
  industry.
• Between 1997-04, 1.8 million (6.4) jobs lost in
  organised sector including 1.2 million (18) in
  manufacturing.

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Wages

• Agricultural Wages have ? since 1980s
• Yet lower than minimum wages.
• Casualisation of employment contracts in all
  sectors.
• Decline in self employment.
• Wages still low to overcome absolute poverty.

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What are the major concerns?

• Deteriorating employment scene, despite
  acceleration in output growth since 1980 need
  for massive employment generation effort,
  especially in rural areas.
• Deceleration in agriculture since 1990 (Figure
  1).
• Agrarian distress suicides, extremism
• Labour market rigidity.
• Cannot hire and fire.

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Labour legislations

• Mostly deal with the organised sector. Extent of
  protection and benefits increase size of firm or
  factory.
• Minimum wages practically ineffective no
  national minimum wage no social security.
• Job-security law in organised sector reportedly
  makes it impossible to lay-off and retrench
  workers.

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Rigid labour market?

• Small and declining organised sector workers with
  high and growing wages with job security
  amid an ocean of unorganised, and competitive
  labour market.
• So what?Leads to labour market rigidity
• substitution of capital for labour,
• reducing economic growth,
• hurting labour intensive exports.

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Policy implications

• Dismantle state intervention in labour market
  pay and perks to be market driven wage
  bargaining to be decentralised.
• Repeal job-security laws and contract labour act.
• National minimum wage.
• Social security.

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Inflexible labour market ?

• No nominal or real wage rigidity.
• ? in unit labour cost (Figure 2).
• True in public sector too (Figure 3).
• No evidence of adverse effects of job security
  law.
• Secular ? in union strength.
• More lockouts than strikes (Figure 4).
• ? in wage-rental ratio (Figure 5).

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What does the evidence tell?

• There exists functional flexibility, which the
  unions are prepared to negotiate.
• Job-security law does not have much bite.
• 18 of organised industrial workers lost jobs.
• Does it mean everything is fine? No, I do not
  think so.
• Need for rationalisation of laws.

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Employment concern

• Declining employment elasticity.
• Related to it declining agricultural growth, and
  agrarian distress.
• Poor rural infrastructure
• Employment guarantee scheme.

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In sum

• Reformists believe lack of flexibility in
  industrial labour market is holding up industrial
  out and export growth.
• Evidence does not seem to support such a
  proposition.
• But it does not mean that the labour market is
  working fine far from it.
• Need to move towards income security, more
  rational labour laws, and greater shop floor
  democracy.

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In sum

• Perhaps the bigger concern is agricultural
  deceleration, agrarian distress, and inadequate
  rural employment growth.
• Employment guarantee scheme hold promise, but
  faces political and bureaucratic resistance.
• These two alternatives perspectives hold
  divergent visions of India.

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