In an earlier post “Labour Reforms is key to Legal Market Economy” it was highlighted that only 6 per cent of Indian labour is formalized and the utmost priority is to formalize all labour employment. This post revisits Labor reform to outline the impact it shall have on the development of labour skills.
In a famous speech in Parliament in 2015 he called MNREGA as ‘living monument of UPA’s failures and at the same time committed to continuing it. There was a clear recognition by him that while this safety net to unskilled poor was required, it is a market economy that alone could make labour learn new skills to attain middle-class status.
The COVID fallout on migrant labour has brought forth into public consciousness the plight and scale of the migrant labour. There is labour migration within states as well, from villages and small towns to cities. The actual size of the migrant workforce is actually much larger than exposed by COVID.
Labour laws that are uniformly applicable to all economic activities, irrespective of location, type or size of the operation are required in the current stage of development for enabling rapid mode formalization of Indian labour.
Impact of formalization of Indian labour:
To expand rapidly, the economy first needs reliable data on labour skill sets. This is necessary both at individual and collective levels to identify their employability, verifiable track record of their employment history, in terms of work done, skills and wages would enable fixing wage levels, performing potential appraisal and identify skill gaps for training needs.
In the labour market context, capability creates demand, and demand creates capabilities; it is a two-way relationship. Formalization of labour enables creating new databases and opens up the market for training in all skills required for rapidly emerging labour demand for modernization of the economy. Formalization shall the biggest productivity driver of the Indian economy.
Formalizing labour means enabling Indian laws to regulate the hiring, termination, compensation, benefits, safety, health and rights of labour. It enables various intermediaries like government institutions, unions, education and training institutions, courts and adjudicating agencies to interface legally within the context of employer-labour relationship.
The criticality of Labor Unions in the context of Employer-Labor relationship:
Of all legal institutional interfaces in the Employer-Labor relationship, the most critical one is the Labor Union. Organizing labour by unions is the starting point for the formalization of individual labour. Success hinges on all Unions accepting the premise of labour market economy and employer’s prerogatives enshrined in law.
Union levels up the bargaining context for labour. Union not only provide expertise for successful negotiation; their political heft helps in a big way towards social equality and according to respect to labour by the employer. The dignity of labour is a social empowering process that serves as a gateway to the middle class.
Employers have long resisted unions since their bargaining power drives up wage rates. Labour reform if done right shall enable Unions to be a facilitator of skill up-gradation and participants in creating healthy work-related norms. The persuasive power of unions over labour can be quite productive.
Economic development presents enormous human resource challenges. Labour reform did per the basis that unions are a central element in formalization of labour meets the challenges which are outside the scope of institutions spawned by employers. Productivity unleashed by formalizing labour shall pay for continuous wage rate upgrades in a growing legal market economy.
The political context for prioritizing Labor reforms:
Quoted here is a report in Hindustan Times of June 23, 2014, by Shri Pramit Pal Chaudhari:
‘On the day Chinese foreign minister Wang Yi arrived in New Delhi, Prime Minister Narendra Modi said India would need to work on “skill, scale and speed” if it hoped to compete with its northern neighbour. … The PM was speaking at the release of a book, Getting India Back on Track, edited by economist Bibek Debroy and Indian-American foreign policy analyst Ashley Tellis.’.
Labour reform to fully formalize labour market is essential to address the labour skills and provide those at the scale necessary to level up with China.