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Shovelling away
The Financial Express, India Tuesday, November 16, 2010

Bibek Debroy
The World Bank has just brought out a volume titled India’s Employment Challenge, Creating Jobs, Helping Workers. Indian labour markets are segmented; they are segmented geographically. A large part of the answer on why labor markets are not flexible lies in labour market regulations and these can be divided into those that are wage-related, safety-related, social security-related and industrial-relations related, writes Bibek Debroy in The Financial Express.

The World Bank has just brought out a volume (OUP) titled India’s Employment Challenge, Creating Jobs, Helping Workers. Indian labour markets are segmented; they are segmented geographically.

...

Labour markets are also segmented across formal/informal and organised/unorganised sectors. The National Commission for Enterprises in the Unorganised Sector (NCEUS) had a pronounced leftward slant and is generally remembered for pushing social security for unorganised sector workers and deciding that 77% of India is BPL.

...

The reform objective is to break down segmentation, which is highlighted in the Bank document. Within rural, we need to move away from farm employment. Within farm employment, we need to move away from foodgrains. We need to move away from subsistence-level self-employment to more remunerative wage employment. We need to move away from informal wage employment (where labour standards are non-existent or not enforced) to formal wage employment (where we have created high wage islands today). Labour markets need to become more flexible.

Why aren’t labour markets more flexible? A large part of the answer lies in labour market regulations and these can be divided into those that are wage-related, safety-related, social security-related and industrial-relations related. Too often, the focus is on industrial relations, particularly the Industrial Disputes Act (IDA) of 1947 and IDA should be changed.

...

Consequently, for existing enterprises, IDA is probably not as much of a deterrent as is commonly made out to be. In any event, existing enterprises have found ways to circumvent Chapter V-B. It is a deterrent for enterprises that propose to enter, including foreign ones. And yes, we should change it. But as the abortive attempt under the NDA government proved, this isn’t going to be easy. We will reform Chapter V-B, probably only if one of two things happens. First, labour moves to the state list in the Seventh Schedule, so that states that wish to reform can go ahead and do so. In any case, the binding constraint in Chapter V-B is about obtaining permission from governments and some state governments, post-1991, have been more forthcoming in granting such permissions. Second, we unbundle the lay-off, retrenchment and closure provisions.

...

The World Bank report states, “Of the 413 million prime-aged persons in the Indian labour force in 2004-05, the overwhelming majority, about 90%, are employed in low productivity informal sector jobs.” True, and there are informal jobs (on contracts) in the ostensibly formal sector too. The 2008 NCEUS report states that 92% of the workforce is in informal employment, while 86% of the workforce is employed in the informal sector. So there is a difference between informal enterprises and the informal nature of employment. In any analysis, an additional problem is data. Large sample NSS data still date to 2004-05. Oddly, most of the Bank figures are from NSS 1999-2000 and one reason for that is the Bank relies on earlier work done by K Sundaram and Suresh Tendulkar. While propositions don’t change, 2004-05 would have been better.

This article was published in the The Financial Express on Tuesday, November 16, 2010. Please read the original article here.
Author : Mr Debroy is a noted economist, based in New Delhi.
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