Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

Changing labour laws not a solution


From UPSC perspective, the following things are important :

Prelims level: Not much.

Mains level: Paper 3- Changes in labour laws and growth in the economy.

Recently several State governments made changes in their labour laws and removed or expanded limits on working hours and changed several other provisions. The article argues that the move may not be as beneficial as it is thought to be. So, how come the changes turned out to be detrimental to the interests of the workers? and what are the other issues involved? Read to know more…

What changed laws mean?

  •  Uttar Pradesh introduced an ordinance that has scrapped most labour law for three years.
  • This was done ostensibly for two reasons- 1) creating jobs and 2)for attracting factories exiting China.
  • These laws deal with -the occupational safety, health and working conditions of workers, regulation of hours of work, wages and settlement of industrial disputes.
  • They apply mostly to the economy’s organised (formal) sector, that is, registered factories and companies, and large establishments in general.
  • Madhya Pradesh and Gujarat have quickly followed suit.
  • Reportedly, Punjab has already allowed 12-hour shifts per day.

Why it is not a good move?

  •  Significantly, migrant labour will be critical to restoring production once the lockdown is lifted.
  • In fact, factories and shops are already staring at worker shortages.
  • Instead of encouraging workers to stay back or return to cities by ensuring livelihood support and safety nets, State governments have sought to strip workers of their fundamental rights.
  • The abrogation of labour laws raises many constitutional and political questions.
  • Scrapping labour laws to save on labour costs will not help start the economy but will do exactly the opposite.
  • It will reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand.
  • Further, it will lead to an increase of low paid work that offers no security of tenure or income stability.
  • It will increase informal employment in the formal sector instead of encouraging the growth of formal work.

Demand is a reason for the slowdown

  •  There are no inherent shortages at the moment as the inflation rate remains moderate.
  • Before the lockdown, the annual GDP growth rate had plummeted to 4.7% during October-December quarter of 2019-20, from 8.3% in the full year of 2016-17.
  • The slowdown is due to lack of demand, not of supply, as widely suggested.
  • With massive job and income losses after the lockdown, aggregate demand has totally slumped, with practically no growth.
  • Therefore, the way to restart the economy is to provide income support and restore jobs.
  • This will not only address the humanitarian crisis but also help revive consumer demand by augmenting incomes.

2 concerns over the rationale of scrapping laws

  • The rationale for scrapping labour laws to attract investment and boost manufacturing growth poses two additional questions.
  • One, if the laws were in fact so strongly pro-worker, they would have raised wages and reduced business profitability.
  • But the real wage growth (net of inflation) of directly employed workers in the factory sector has been flat (2000-01 to 2015-16).
  • This is because firms have increasingly resorted to casualisation and informalisation of the workforce to suppress workers’ bargaining power.
  • Two, it is not right to blame the disappointing industrial performance mainly on labour market regulations.
  • Industrial performance is not just a function of the labour laws.
  • The industrial performance also depend on the size of the market, fixed investment growth, credit availability, infrastructure, and government policies.
  • In fact, there is little evidence to suggest that amendment of key labour laws by Rajasthan and Madhya Pradesh in 2014 took them any closer to their goal of creating more jobs or industrial growth.
  • The role of labour market regulations may be more modest than the strong views expressed against them in the popular debates.

Time to rationalise the labour laws

  • India’s complex web of labour laws, with around 47 central laws and 200 State laws, need rationalisation.
  • However, now more than ever before, reforms need to maintain a delicate balance between the need for firms to adapt to ever-changing market conditions and workers’ employment security.
  • Depriving workers of fundamental rights such as freedom of association and the right to collective bargaining, and a set of primary working conditions such as adequate living wages, limits on hours of work and safe and healthy workplaces, will create a fertile ground for the exploitation of the working class.
  • Presently, over 90% of India’s workforce is in informal jobs.
  • These informal jobs have no regulations for decent conditions of work, no provision for social security and no protection against any contingencies and arbitrary actions of employers.

Consider the question “There is a rising demand for reforms in the labours laws in India. Examine the issues with the current labour laws in India. Suggest the areas which require improvements “


The changes made by the State governments should not end up doing more harm than good. To ensure that there must be a careful calibration of the move and its consequences.

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