Labouring under an illusion

Source– The post is based on the article “Labouring under an illusion” published in The Indian Express on 15th September 2022.

Syllabus: GS3- Employment

News- The article explains the complex labour laws in our country and reforms needed in the system.

Employment elasticity of growth has declined. It is half of what it used to be two decades ago.

What are the reasons behind low employment elasticity?

Labour laws are very rigid. There are about 50-55 Union laws. Their definition differs, which increases the scope of litigation and complicates case law.

There is a lack of harmonisation in these laws as they were enacted at different times.

Sections of the Industrial Disputes Act related to lay-offs and closures are offending.

It increases the non-wage transactions cost of hiring labour.

Complex labour law affects the working of an enterprise in all three stages of life cycle- entry, functioning and exit.

Which states have introduced flexible labour laws?

Economic survey classifies states into those having flexible labour laws and those without them. Almost half of the states have introduced flexible labour laws.

What is the meaning of flexibility?

It does not always mean statutory changes. It can be done by flexible orders and regulations.

Why is it difficult to assess the impacts of flexibility?

First, there is not a long enough time-series.

Second is the lack of data sources. The only data source is the Annual Survey of Industries.

Third, Services are covered by state level Shops and Establishment Act.

Fourth, Covid has disrupted the labour market.

Fifth, technology has turned the manufacturing sector into capital-intensive and there is an increasing trend of contract labour.

Sixth, labour intensity is a function of labour prices and capital. It is influenced by subsidies and tax exemptions.

What steps have been taken by the Union government and state governments?

On the recommendations of the Second National Labour Commission (2002), and several other reports, the Union government unified 29 statutes and passed (2019, 2020) four Codes on wages, safety (and health), industrial relations and social security. These are statutory changes, to be followed by new rules under the new Codes.

Except for two or three large states, most states have announced these rules

What needs to be done?

Labour market rigidities and complex procedures also exist in state-level Shops Establishments Acts. These need to be made flexible in the spirit of Model Shops and the Establishment Act.