[op-ed snap] Protect workers, not jobs


Mains Paper 3: Economy | Development and employment

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Employment generation is a hot topic of discussion these days, due to low employment generation from last few years.


What is the issue?

  1. Last year, an estimated 75,000 jobs were lost in the telecom sector due to financial stress in companies
  2. Another 50,000 jobs may have been lost in the information technology sector, as the industry faces new challenges due to Artificial Intelligence and H-1B visa woes
  3. According to the BSE-CMIE (Centre for Monitoring Indian Economy) survey, the estimated job losses due to the impact of demonetisation could be anywhere between three million and 12 million

India’s main concern on Employment front

  1. India’s challenge is to create 10-15 million jobs per year as new aspirants attain working age
  2. In addition to this number are the workers seeking to escape the trap of low productivity jobs in agriculture

What we need?

  1. Not only do we need sustained creation of new jobs, but also of good quality, that are ready to meet future needs and with higher productivity and wages
  2. All of this should preferably happen in the formal sector
  3. Else the spectre of jobless and restless youth could spell social instability and much wors
  4. Political analysts believe that joblessness among youth has been one of the factors behind the recent caste- and quota-based agitations

Labour intensive sectors

  1. The four most labour-intensive sectors are agriculture, including agro-processing, textiles, especially garment making, construction and tourism
  2. Labour is constitutionally on the state list, so reform will come largely from states’ initiatives

Efforts done by the Central Government

  1. Two years ago, the Central government announced a special package for the textile sector, with an employment subsidy
  2. The Centre agreed to pick up the provident fund (PF) contribution of the employer, to incentivize hiring of workers
  3. That initiative largely failed, because most of employment creation happens in the informal (non-PF category) sector in apparel making. This basic problem should have been anticipated

Examples of protecting the worker, not jobs
Indian Example

  1. The Centre’s own MGNREGA provides 100 days of employment to one member of every rural household, without the attendant liability of having to make those workers “permanent” employees of the government
  2. In that sense MGNREGA is actually a proxy for unemployment insurance
  3. Indeed, MGNREGA work can cover all kinds of jobs, including road construction, forestry, small irrigation projects or horticulture
  4. This is the principle of protecting the worker, not the jobs

Germany in the post-2008 crisis period

  1. Fearing massive job losses, the federal government offered private companies a salary subsidy to retain workers
  2. The German government figured it would be less costly to provide a wage subsidy and retain workers rather than having a large number of unemployed collecting the dole
  3. It worked
  4. This too is an example of protecting the worker, not jobs

Other major concerns

  1. There is a wide gap in pay and benefits between formal and informal sector employees in the same organization
  2. But more importantly, labour laws have ended up discouraging the hiring of new formal sector workers
  3. Casualization and contract workers have become the norm, leading to low productivity, low wages, insecure tenure and no benefits

What should be the big policy reform?

  1. The big policy reform needed in India for job creation is around reforming labour laws
  2. These laws are supposed to exist to protect workers
  3. But de facto they have ended up protecting jobs, not workers as a class
  4. It is time to reorient labour laws to abide by the principle of “protect the worker, not the jobs”
  5. Since the central government enjoys immense political capital, it is time to bite the labour reforms bullet
  6. As suggested by many others, this can be done by grandfathering all the existing formal sector employees, who will continue to be under the old laws, so as to reduce their opposition to reforms
  7. All new entrants would be under new labour laws, which will hopefully lead to large-scale job creation
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