Tuesday, March 27, 2012

Labor Pains

In a recent article, M. Sabarwal pointed out that the recent surge of  worker-strikes in the Indian manufacturing industry (Orient Craft, Maruti-Manesar, Munjal Showa, Honda-India) were not about the usual labor-related issues: minimum wages, a safe working environment, or social security.The flash-point, he noted, was the informalization of work (90% of employment) and the explosion of contract labor (30% of total; 50% of non-farm employment).

This adds an interesting dimension to a long-standing complaint of FII and FDI investors in India, voiced by the World Bank (2008) - "India’s labor regulations - among the most restrictive and complex in the world - have constrained the growth of the formal manufacturing sector...Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions..."

So which are the labor laws & regulations that need to be re-designed?

A paper by Ghosh, Fields and Dasgupta (2006) offers some pointers:

Industrial Disputes Act, 1947:

  • Provisions introduced in 1953 relating to payment of compensation for layoff and retrenchment
  • Amendment in 1957 required the employer to compensate the workers affected by closure in the same way as if they were retrenched.
  • The 1976 amendment reduced the demand for labor by 17.5%, increasing the pressure on the unorganized sector to absorb excess labor supply.
  • Chapter V-A requires an establishment employing 50 or more workers, in the case of valid retrenchment, to provide the workers with thirty days’ notice and 15 days’ pay for every year of continuous work by the worker at the firm.
  • 1982 Amendment - Employers employing 100 or more workers must give notice of a closure to workers or their representatives and to the government, 90 days prior to the date of intended closure.

Indian Contracts Act, 1972:

  • Provisions can be used  to resist dismissal under grounds that are not covered by IDA, 1947


Sabharwal, Manish (2012): PUTTING INDIA TO WORK, Indian Express, 26Mar12 p11

Basu Kaushik, Fields Gary and Debgupta Shub (2006): Retrenchment, Labor Laws and Government Policy: An Analysis with Special Reference to India, WB Papers

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