as industry and services become more and more sophisticated,
and economies of scale force aggregation in a competitive
market, more workers should be in the origanized sector
with regular, relatively secure wage employment. But the
trends in India are contrary to these expectations in a
employment generation is far short of economic growth, and
low-level skills make many 'educated' youngsters unemployable.
But the most important cause for growing share of unorganized
sector is the well-intentioned, but misplaced state policy.
At about 7 percent per annum, India has fairly rapid growth.
But overly regulated labour markets have played havoc with
our employment. Despite several-fold increase in our manufacturing
and services over the past two decades, there is hardly
any increase in the number of workers engaged in the organized
sector. Anecdotal evidence corroborates this empirical evidence.
Most employees are reluctant to hire new workers, even as
rapid expansion is taking place. This is particularly true,
as the monopolies created by the license-permit raj have
disappeared. Now every enterprise has to survive on its
own in the market. Quality of the product, price advantage,
and effective marketing are crucial as trade barriers disappear.
With rapid obsolescence of technology and changing demand
patterns, an industry that is flourishing today could be
in doldrums tomorrow.
such a climate, the employer needs the flexibility to rapidly
expand or reduce production, and to diversify. This in turn
demands flexible labour markets. If a worker hired in times
of prosperity becomes a liability in time of adversity,
then the industry will find ways of minimizing risks in
a fluctuating market.
policy makers over the decades have been motivated by high
principle. But often the way to hell is paved with good
intentions. High minimum wages, excessive regulation, near-impossibility
of removing errant workers, and the frightening prospect
of being burdened with huge wage and retrenchment costs
when the inevitable downturn comes - all these mean that
no prudent employer today hires workers if he can possibly
avoid it. Therefore labour-displacing technology, outsourcing,
and contract workers have become the norm.
evidence from most of the world too is compelling. The US
has flexible labour markets and minimal regulation. The
result is more working hours, greater production per worker,
and higher employment. Contrast this with Europe, where
there is far greater regulation and employee protection.
The unemployment rates in Europe are almost double that
of the US. In Germany, France and Italy, unemployment exceeds
10%. As the Economist (March 19, 2005) points out, "The
evidence that excessive interference to "protect"
people in work penalizes those out of work has seldom been
as clear as in Europe over the past five years". This
is the lesson our policy makers have not internalized. That
is the reason why the entrepreneurs are adjusting to the
conditions of the market, and hiring casual workers or outsourcing
many jobs to keep pace with expanded capacities. More and
more people are finding employment in the unorganized sector,
albeit at lower wages and with less job security. That is
why despite our poverty the urban unemployment levels are
relatively low at 4.8%.
fact, however, remains that excessive protection to a small
number of the relatively well off workers in organized sector
is denying employment to the bulk of the people outside,
and impoverishing them. And yet, serious labour reform is
resisted on the ground that it is "anti-labour"
and "anti-poor". There cannot be a greater gulf
between intentions and outcomes!
efforts to give some degree of protection to unorganized
workers illustrate the dilemmas facing the government. The
draft Unorganized Sector Workers' Bill - 2004 is symptomatic
of the traditional mindset plaguing our public administration.
The Bill seeks to create a top heavy structure and a large
bureaucracy. A Central Workers' Welfare Board, and State
Boards are envisaged. Workers' Facilitation Centres are
proposed to be established for registration of workers and
employers in the unorganized sector, and ostensibly to 'guide'
and 'educate' the workers. The government will formulate
schemes for ensuring safety, social security and welfare
of the workers. In order to implement these schemes, a Welfare
Fund is to be created, to which the workers and the employers
each contribute 5% of the wages and the Union government
will contribute 2.5%. Where employers are not identifiable,
the State government will contribute employers' share. In
other words, the workers and employers are expected to contribute
hefty sums to the bureaucracy in the hope that some future
good will emerge out of the Fund.
experience of Employees State Insurance Scheme and Central
Government Health Scheme shows how little the employees
get in terms of value for the money deployed. Corruption,
inefficiency, poor quality services, inadequate coverage
and callousness are ubiquitous in all such state-administered
schemes. But such schemes are at least feasible because
contributions are deducted at source, as they deal with
organized sector. However, in case of unorganized workers,
the assumption that poor, daily-wage workers eking out a
precarious livelihood will gladly part with hefty sums of
money every month in the hope that a benevolent state apparatus
will guarantee their welfare in the future is highly questionable.
workers need dignity, security and opportunity. But the
Bill in the current form is certainly not the right way
to ensure these. We need to devise more practical, effective
and citizen-centered set of security measures. Social security
involving direct payments through citizen-friendly institutions
like post offices, quality healthcare through innovative
risk-pooling mechanisms ensuring choice and competition,
a massive programme to upgrade the skills and make the workers
more productive and employable, increased credit flows through
thrift cooperatives and microfinance institutions, and a
large housing programme with citizen-involvement and ownership
- all these should form part of a package to protect the
poor and vulnerable population in the unorganized sector.
Good intentions are no substitute to practical, sensible
policies and effective, citizen-centered execution.