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Govt must ensure quality jobs and reform labour laws

December 26, 2017 13:19 IST
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Sticky labour laws and a difficult business environment have led to employers shifting their new hiring in favour of contract labour where social security is much lesser, says Mahesh Vyas.

Illustration: Uttam Ghosh/

The unemployment rate has risen from remarkably low levels of 3-4 per cent during April-August 2017 to 5 per cent or higher in recent months.


Nevertheless, it continues to remain lower than its level a year ago. The November 2017 unemployment rate at 4.6 per cent was lower than the 6.6 per cent rate in November 2016.

During the week ended December 17, the unemployment rate was 5.5 per cent. This was higher than it was in the preceding two weeks.

At this rate, December could end with an unemployment rate of about 5 per cent. This would be lower than the 6.4 per cent unemployment rate seen in December 2016.

Labour participation, however, continues to be lower than it was a year ago.

This had risen during October 2017 to 44.6 per cent but, it fell back to 43.7 per cent in November.

Data for the first fortnight of December suggest that labour participation may fall further this December.

Lower labour participation rate implies lower employment. It follows that the total number of employed in November 2017 were lower than those employed in October 2017. And further, the number of employed in December could be even lower.

This could bring back the spectre of seasonality. How much of the fall in November was seasonal and how much was it lack of jobs?

The provisional estimates for November 2017 suggest that employment was 2.1 per cent higher in the month compared to the employment in the month of demonetisation, November 2016. This is subject to revisions scheduled to take place in January 2018.

Newspaper reports suggest that the government is seized of the problem of employment and is taking various steps to measure the problem and also mitigate it.

The Economic Times reported on December 15 that the Union Budget would reveal a National Jobs Policy.

“The multi-pronged employment policy will include incentives for employers to create more jobs, reforms to attract enterprises and help for medium- and small-scale industries, which are major job providers.”

The emphasis seems to be on quality jobs and jobs in the formal sector.

The quality of jobs is a critical part about the employment challenge. In the absence of social security, households accept any employment if no quality jobs are available. This leads to low wages and no severance pay.

No other media has reported on such a National Jobs Policy. So, we need to wait to see if The Economic Times report has merit and if so what the contours of such policy would be.

On December 14, Business Standard reported that the Union government has initiated a survey to count jobs under the Micro Units Development and Refinance Agency (Mudra) scheme.

The survey is being conducted by the Labour Bureau. The Mudra scheme offers unsecured loans of up to Rs 1 million to small enterprises with the objective of providing self-employment. In 2016-17, around 40 million loans were disbursed.

The Business Standard report seems to suggest that data for the survey would be provided by banks.

Since the average size of the loans is as small as Rs 44,000 it is apparent that the only jobs that the scheme can create is for the recipient of the loan. Rs 44,000 is less than half the median household income of Indians.

The Labour Bureau has a track record of estimating employment and unemployment and it would be useful to see the details of this survey when they are released, particularly since the initial feeling regarding the scheme’s ability to provide jobs is rather sceptical.

Besides, it is apparent that Mudra cannot provide quality jobs with ticket size being capped at Rs 1 million.

While public discussions on jobs have increased, discussions on labour reforms have not been taken up with equal vigour.

This has reduced the problem of jobs into a political slugfest. A National Jobs Policy minus the labour reforms discussed earlier would be incomplete.

However, the stress on the jobs front also reduces the political space available to make policy decisions that could imply relative ease in hiring and firing labour.

This could keep labour markets as inefficient as they are now.

Business Standard reported on December 8 that the government has put on hold proposals to introduce policy changes that could have allowed factories with up to 300 workers to lay off labour or shut operations without its permission.

Currently, only factories with up to 100 workers have such leeway.

Sticky labour laws and a difficult business environment have led to employers shifting their new hiring in favour of contract labour where social security is much lesser.

We need to raise quality jobs, the social security offered, and at the same time we need to improve labour laws to ensure that markets allocate labour efficiently.

The author is managing director and CEO, Centre for Monitoring Indian Economy Pvt Ltd

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