Unify the labour market

Time to end divisions between permanent and contract workers

It has been quite clear that the group of Indians most immediately hurt by the effects of the nationwide lockdown have been migrant workers. Those who lived pay cheque to pay cheque or often on daily wage found themselves without support after the declaration of the lockdown, and sought refuge by returning to their native places. While, in the short term, this reflects the need to ensure better communication of the lockdown as well as expansion of welfare facilities in urban areas, in the medium to longer term, it has major implications for the labour market more generally. It is clear that the government broadly understands this linkage, given that it has been reported that it is considering pushing through proposed labour codes through Ordinances, given the emergency situation.

However, the nature of the changes to be made to the labour market must be clearly understood. The potential source of migrant worker instability is the segmentation of the labour market, including in the formal sector, into permanent and temporary — where the former are given excessive security and the latter none at all. This division has lasted long past the time when it has become understood that it helps neither employer, nor employee, nor the broader economy. On this occasion, the fact of a segmented labour market might have accelerated a public health crisis as well. Unifying the labour market, greater flexibility, as well as more widely shared security, are a must. An artificial “caste system” has been set up by labour regulations between permanent, casual, and contract labour. In some cases, individuals doing the same work on the same assembly line are paid vastly differently — permanent and unionised workers may be paid three times as much as temporary contract labour. The collapsing of these categories is essential, so that casual and especially contract labour are provided with some security in times of crisis — whether firm- or sector-specific or, as in this particular case, global.

Together with the expansion of benefits to cover all workers, the labour market should have greater flexibility so that employment itself is expanded. Once lay-offs — with proper compensation — are rendered legal across the country, then there is far less incentive to employ casual or contract workers. Certainly, mass firing should be dis-incentivised within reason. A fair way to do this is by stipulating a minimum financial compensation for those workers who are laid off, as is best practice throughout the world. Clearly, there should be no government intervention in what will have to be a commercial decision, driven by business requirements. Given India’s dependence on seasonal labour, a special section of the code should address their needs — perhaps they can be paid more per hour than other workers, if they are excluded from other benefits. What is clear, however, is that India can no longer depend on individual state governments making changes to labour law. A national problem, counter-productive labour law, needs a national solution. Migrant workers, contract workers, and the like need the protection that a proper labour law regime can provide and employers need the security of knowing that their labour market is flexible within reason. This will also incentivise firms to hire more labour in the medium to long run.