Taking on myths about labour

The great advantage of received wisdom is that it permits you to avoid complex details. Thus, in India, most of those who want labour law reform""chiefly the IMF-World Bank oriented economists and their followers""tend not to have read the relevant sections of the Industrial Disputes Act.

One of the things wrong with it, they say, is that it doesn't allow firms to lay off workers (untrue) except at a very high cost (again untrue). It also doesn't allow capital to exit, they say (also untrue). Likewise, in the case of the Contract Labour Act also they argue that it imposes intolerable burdens on employers (partly true).

Nor does anyone pause to see if the problem lies with the law or with the way in which it is implemented by the labour courts.

This book, although not destined to be a classic, should prove to be eye-opener. It (unintentionally) shows how, when people acquire the right to vote, labour markets become "inflexible" and how, perhaps as a result, informal labour markets proliferate and what happens in them. Whether it is Vietnam or Indonesia or Korea or India , except in degree, the same things happen. A chapter on that workers' paradise, China, would have been helpful but is missing.

There are nine chapters in all, covering India, Vietnam, Indonesia, Sri Lanka, Australia, and Japan. The issues covered are wages, severance, benefits, gender discrimination, the growth of the informal sector, pensions and social security. That doesn't leave much out, which is perhaps why the essays are so sketchy sometimes.

But the nuggets of information serve the highly useful purpose of demolishing some of the myths that have been carefully fostered in India about labour markets in East Asia.

For example:

There is no hire and fire anywhere;

The severance pay is meaningful and not a pittance, except in government-owned firms in Sri Lanka, where government-owned firms don't come within the jurisdiction of the Labour Commissioner""which means an employee of a government firm can be sacked without fuss;

In Vietnam, foreign firms are obliged to pay minimum wages at a rate double that of domestic firms. Vietnam also has three different types of labour contracts""long, medium and short or seasonal;

South Korea has a law that prevents discrimination against "irregular" workers (what we call contract labour);

In the Philippines also the informal sector enjoys a very high degree of protection;

Wherever unions are permitted, they become instruments of electoral politics.

There are other little bits and pieces of information as well to be found in these essays. But the above list is surely sufficient to show that India is not unique in the way it protects labour.

That Indian labour, as result of this protection and negligence, tends not only to be undisciplined and less productive is a different issue but one which is confined largely to the government and the public sector, largely because the HR function is practically non-existent there.

In any case, the real issue is no longer whether a firm can sack and what cost to itself. The real issue is whether labour can look forward to life-time employment at full wages throughout and what trade-off to have between the two while social security is put into place. Sadly, no one is addressing that issue.

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Labour Market
Regulation and Deregulation in Asia

Edited by Caroline Brassard and Sarathi Acharya
Academic Foundation (Published in association with the Lee Kuan Yew School of Public Policy, Singapore
Price: Rs 595; Pages: 229