From UPSC perspective, the following things are important :
Prelims level : Labour codes
Mains level : Paper 2- Challenges of contractual labour despite the provision of fixed-term employment
The recent incident of violence at the iPhone manufacturing factory brought into focus the issue of contract labour. The article explains the reasons for its persistence despite the provision of fixed-term employment.
Difference between a contract worker and fixed-term worker
- Contract workers, who are hired via an intermediary (contractor) and are not on the payrolls of the company on whose shop floors they work.
- Fixed-term employees can be directly hired by employers without mediation by a middleman.
- They are ensured of the same work hours, wages, allowances, and statutory benefits that permanent workers in the establishment are entitled to.
- Employers are not required to provide retrenchment benefits to fixed-term employees.
- With an aim to discourage the use of contract workers the government introduced the option of fixed-term employment in the Code on Industrial Relations (2020).
Issues with the provision of fixed-term employment
- Fixed-term employment in India is indeed quite open-ended.
- The Code does not specify a minimum or maximum tenure for hiring fixed-term employees.
- Nor does it specify the number of times the contract can be renewed.
- The absence of such safeguards can lead to an erosion of permanent jobs.
- Workers may find themselves moving from one fixed-term contract to another, without any assurance of being absorbed as permanent workers by their employer.
So, why firms still hire contract workers?
- The cost of hiring contract workers continues to remain lower than the cost of hiring fixed-term employees. who are required to be paid pro-rata wages and social security including gratuity.
- In addition, the monitoring, legal compliance, and litigation costs are shifted onto the contractor in case of contract workers, thereby reducing the transaction costs of recruitment to firms.
- To encourage a shift away from contract workers to fixed-term employees, the government should have completely prohibited the use of contract labor in core activities
- Instead of completely prohibiting contract workers in core activities the Labour Code on Occupational Safety and Health has allowed it under certain conditions.
- Such a provision encourages the use of contract workers, undermining the initiative of introducing fixed-term employment.
Using PLI and Atmanirbhar Bharat to boost formal job creation
- The production linked incentive scheme (PLI) offers government subsidies for a limited period which is five years for mobile handsets.
- The objective of the PLI scheme is to create “good jobs”.
- It may have been more useful to link these incentives for which a financial outlay of Rs 1.45 lakh crore has been approved over five years for 10 sectors explicitly to job creation.
- Significantly, under the Atmanirbhar Bharat Rozgar Yojana, the government is offering provident fund subsidies to employers for hiring new formal workers.
- Both these programs could jointly be leveraged to give a big boost to formal job creation in the manufacturing sector.
Consider the question “Examine the reasons for the persistence of contractual labour despite the option of fixed-term employment. Also suggest the ways to increase the employment opportunities that are secure.”
The government should focus on the creation of employment opportunities that are secure through policies and laws.