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Labour Market in India

Labour Market in India. R Nagaraj , Indira Gandhi Institute of Development Research, and Princeton University Email: nagaraj@igidr.ac.in. Labour market size . Consists of 430 million workers in 2004-05, growing 2% annually, with a stable worker-population ratio (40%).

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Labour Market in India

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  1. Labour Market in India R Nagaraj, Indira Gandhi Institute of Development Research, and Princeton University Email: nagaraj@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 women’s participation in workforce. • Child labour’s share in workforce declining, but in absolute numbers still quite large. Oecd presentation

  3. 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. Oecd presentation

  4. 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. Oecd presentation

  5. 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. Oecd presentation

  6. 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. Oecd presentation

  7. 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. Oecd presentation

  8. 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. Oecd presentation

  9. 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. Oecd presentation

  10. 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). Oecd presentation

  11. 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. Oecd presentation

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

  13. 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. Oecd presentation

  14. 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. Oecd presentation

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  19. Figure 5: Wage-rental ratio 120 100 80 Index 60 40 20 0 81 85 87 89 91 93 95 97 99 83 2001 Year ending Wage-rental ratio Oecd presentation

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