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Why collective wage bargaining should be scrapped

March 31, 2009 16:14 IST

Many of us may not be aware that, till about 30 years ago, private sector engineering companies in West Bengal would enter into periodic industry-wide wage negotiations with workers. A tripartite body with representatives from the West Bengal government, the apex engineering association and workers' unions was responsible for finalising the wage negotiations which all companies in that region were obliged to honour.

A similar arrangement used to be operational for the jute industry as well.

Those were the days of collective bargaining. There were many advantages for workers in such collective bargaining with employers for higher wages, just as there were many obvious demerits in that system.

The jute industry fell on bad days and these periodic wage negotiations also became irrelevant. Saving jobs became more important than using the collective bargaining route to seek higher wages.

For the engineering industry in West Bengal as well, the periodic wage negotiations became dysfunctional as more and more engineering units shifted their headquarters out of West Bengal. Over the years, the manufacturing plants of these firms also shifted out of the state.

Worse, the few industrial units that retained their headquarters in the state also chose to ignore the practice of holding these industry-wide wage negotiations and opted for bilateral talks to settle such issues, even though workers unions had a different perspective on this matter.

In other words, industry-wide wage negotiations have become a thing of the past. Even though West Bengal has managed to woo many engineering units into the state in the last few years, nobody is talking about the return of those instruments of collective bargaining.

Most engineering companies and even the few remaining jute mills in the state decide on the wages for their workers on the basis of their individual pay-scales, keeping in mind, of course, the minimum wages that they are legally obliged to pay to their workers.

While this change has taken place in the private sector, the lone surviving entity that still follows a somewhat diluted model of industry-wide wage negotiations is the central public sector.

There are no wage negotiations between the workers of the central public sector undertakings and the employers or the government representatives, like they used to be in the case of the engineering or jute industries in West Bengal. But what actually happens is something broadly similar.

The central government, which has a majority shareholding in these companies, sets up a committee that is expected to recommend revised wages for employees in the CPSUs. This committee invites representatives of workers and officers to hold discussions on their views on what the wages ought to be. These recommendations are then evaluated by the central government. And a final decision on the implementation of these recommendations is taken after the Union Cabinet approves them.

Nothing could be more anachronistic and irrational than this practice which the private sector has discarded, but our public sector enterprises continue to follow, paying little attention to the damage this causes to their competitive advantage and to the need for survival in an open economy that otherwise upholds the market principles of free and fair competition.

There are too many contradictions in the continuation of this periodic wage review system for the CPSUs, many of which have ironically been given the 'Navaratna' status that allows them financial freedom in many respects.

On the one hand, the government as the majority shareholder in these public sector companies expects them to compete with the private sector entities, remain efficient and bring adequate financial returns for the exchequer. But on the other hand, it ties the CPSU managements' hands in compensating their employees in accordance to their market value and to create incentives for them to stay on in their job and not get wooed away by their private-sector competitors.

Hiring consultants can only be a partial solution to this problem.

The challenges companies like ONGC or State Bank of India face in retaining its employees are therefore formidable. Add the other uncertainties this creates for public sector managers (for example, the delay that took place in approving a review in their wages yesterday because the Election Commission's permission had to be obtained), and you will realise how industry-wide wage reviews for all CPSUs is a system that should have been discarded long ago.

A K Bhattacharya