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Reforming labour market in states ReVisiting the futility thesis. By Achin Chakraborty A brief summary of the reading This article presents a critical view of the labour market reforms in India and evaluates them against the backdrop of trends in the labour force participation and formal informal employment in organised unorganised sectors. The authors have critically assessed the literature on labour market flexibility in the advanced economies and have tried to understand whether the reforms which aimed at making the labour market more flexible will succeed in Indian market And will raise the economic rate of growth, will result in gainful employment which has often been advocated by the proponents of labour market reform. Key observations: A number of states have made amendments in the provisions of the industrial dispute act 1947 and other act relevant to labour reforms. But by and large those amendments have had very little impact on the general perception of the industry and businesses that labour laws in India are rather stringent. The domestic as well as the foreign investors and entrepreneurs believe that the labour laws in India provide a high degree of protection to labour. This leads to the companies that form is less the flexibility to adjust to changing economic circumstances in the post reform era. In this paper and attempt has been made to elaborate on the “Futility argument“to establish that it would be wrong to claim that labour reforms alone would achieve what the advocates of reform expect them to achieve given the realities of Indian labour market. We start by discussing the issues in the labour market reforms against the backdrop of recent trends in the labour force participation and and formal/informal employment in organised/and organised sectors in India. Observations in the labour market 1. Indian growth story has so far been one of jobless growth. Despite a marked acceleration in growth of GDP in the post liberalization period employment has been falling in the last three decades. Case in point see table. Average employment annual growth rate Year 2.4%

1970

2.4%

1980

Decline

1990

Spectacular jump to 2.8%

Between 2000 to 2004-5

However, the most recent rounds of data provided by NSSO show that there has been a sharp deceleration in the growth rate of employment in the recent years.

2. Not only has the employment growth but the structure of employment has also changed. Case in point, the share of primary sector in total employment has fallen below 50% for the first time. At the same time, the share of secondary and tertiary sectors in total employment increased to 24.3% and 26.8% respectively 2012 from 18% and 23.4% in 2005. What has been a dominating factor has been self-employment with a 52.2% share in total employment. 3. Following the definition of “usual status” India’s total labour force in 2012 is estimated to have been 484 million. This portion is only 40% of the total population. 4. The overall low labour force participation reflects the disproportionately low labour force participation rate among women. 5. Given the above overall trends in employment and labour force participation rate the most outstanding feature of these 484 million workforces is that 90% of this four 84 million belongs to the category of informal workforce. The below table has been taken from the economic survey of 20 14-15. It shows that the share of organised sector in the total workforce increased from 13 to 17% between 2004–5 and 20 11–12 which looks like a significant improvement but it is important to keep in mind the distinction between formal and informal. 2004-05 0rganised unorganis ed formal 52 0.3 Informal 48 99.7 Total 13 87 Source: economic survey 2014-15

Total 7.3 92.7 100

Organise d 45.4 54.6 17.3

2011-12 unorganis Total ed 0.4 8.1 99.6 91.9 82.7 100

Table Shows the distribution of formal and informal workers in organised and unorganised sectors. Important to note here that in 2004–05 and 20 11–12 the formal employment in the organised sector has reduced considerably. The informal employment in the organised sector has gone up. This means that even in the organised sector The preference is for informal employment. It can be clearly seen as well that the informal employment in the unorganised sector is almost hundred percent. This implies that in the unorganised sector mostly there is no job security, social security benefits, safe working environment guarantee These trends in the formal and informal employment raise the question of how rigid India’s labour market is. Conclusion

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Labour markets are being subject to changes intended to enhance flexibility and lower the labour costs. Social security measures are perceived as inimical to competitive advantage and growth. The inevitable result of all this has been widening gaps in income and well-being.

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It needs to be emphasized that job security is not the only means by which income security can be achieved. But in the absence of any security blanket, it would at least partially compensate for income loss due to job loss, and workers have no other option but cling to the demand for job security....