Labour Market in India - OECD

Labour Market in India - OECD

Labour Market in India R Nagaraj, Indira Gandhi Institute of Development Research, and Princeton University Email: [email protected] Labour market size Consists of 430 million workers in 2004-05, growing 2% annually, with a stable workerpopulation 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. March 28, 2007 Oecd presentation

2 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. March 28, 2007 Oecd presentation 3 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. March 28, 2007 Oecd presentation 4 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. March 28, 2007

Oecd presentation 5 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. March 28, 2007 Oecd presentation 6

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. March 28, 2007 Oecd presentation 7 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. March 28, 2007 Oecd presentation 8 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. March 28, 2007

Oecd presentation 9 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). March 28, 2007 Oecd presentation 10

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. March 28, 2007 Oecd presentation 11 Employment concern Declining employment elasticity. Related to it declining agricultural growth, and agrarian distress. Poor rural infrastructure Employment guarantee scheme.

March 28, 2007 Oecd presentation 12 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. March 28, 2007 Oecd presentation

13 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. March 28, 2007 Oecd presentation 14 Figure 1: Growth in Agriculture output, 1980-05 3.8 3.2

2.9 Per cent per year 2.3 2.2 2 1.1 All Crops Foodgrains March 28, 2007 1991-00 1991-05

3.6 3.6 3 2.7 1.2 1981-90 3.6 1.3 2 1.3 Nonfoodgrains Cereals

2 1 Rice Wheat Crops Oecd presentation 15 Figure 2: Unit labour Cost in Registered Manufacturing 140 Index 120 100

80 60 40 20 0 Year ending Unit labour cost March 28, 2007 Oecd presentation 16 Figure 3: Unit labour cost in public sector Excluding electricity Ratio 0.6

0.4 0.2 0 80 82 84 86 88 90 92 94 96 Fiscal year ending Unit labour cost March 28, 2007 Oecd presentation 17 Figure 4: Mandays Lost by Disputes 60000 50000 40000 30000 20000 10000

March 28, 2007 Oecd presentation 1996-97 1994-95 Strikes 1992-93 1990-91 1988-89 1986-87 1984-85 1982-83

0 Lockout 18 Figure 5: Wage-rental ratio 120 Index 100 80 60 40 20 20 01

99 97 95 93 91 89 87 85 83 81

0 Year ending Wage-rental ratio March 28, 2007 Oecd presentation 19

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