Labour Market in India and reforms

Labour Market , problems and related reforms is an important topic for PI / PIT preparation for TISS.


  • Labour reforms essentially mean taking steps in increasing production, productivity, and employment opportunities in the economy in such a manner that the interests of the workers are not compromised.
  • Essen­tially, it means skill development, retraining, redeployment, updating knowledge base of workers-teachers, promotion of leadership qualities, etc. Labour reforms also include la­bour law reforms.
  • Labour laws are con­cerned with the trade union rights of the work­ers, industrial relations and job security and policies relating to wages, bonus and other in­centive schemes.
  • Labour reforms are of great important as the laws enacted in the labour market aim at regulating the market, protecting employment and ensuring social security of workers.


Problems of Labour Market in India

Image result for labour market in india

  • Indian labour market is characterised by a sharp dichotomy.
    • Organised sector is stringently regulated while the unorganized sector is virtually free from any outside control and regulation with little or no job security.
    • Wages are ‘too high’ in the organised sector and ‘too low’, even below the subsistence level in the unorganised sector. This dualistic set up sug­gests how far the Indian labour market is seg­mented.
  • Poor Social Security:
    • Social security to organised labour force in India is provided through a variety of legisla­tive measures.
    • Work­ers of small unorganised sector as well as in­formal sectors remain outside the purview of these arrangements.
  • Multiplicity of Archaic Labour Laws
    • Labour Laws govern trade unions, industrial re­lations, and job security
    • Labour is a concurrent subject and more than 40 Central laws more than 100 state laws govern the subject.
  • Trade Union Issues:
    • Trade Union Act, 1926 provide that any seven employees could form a union.
    • During the freedom struggle, Indian trade union contributed handsomely. It is now better organized.
    • Frequent Strikes: Industrial Disputes Act, 1947 aims at promoting good relations between employers and workmen, protecting workers against re­trenchment and settling disputes through con­ciliation, arbitration or adjudication. However, industrial relations climate were far from sat­isfactory when trade unions resorted to mili­tancy in the 1960s and early 1970s. Between 1972 and 1981, the average number of work days lost per year per employee in the manu­facturing sector stood at 4.070. This figure went up to 5.736 between 1982 and 1992—a very high figure compared to other countries in the contemporary period.
    • Multiplicity of trade unions hamper dispute resolution.
    • In­ter-union rivalry and political rivalries are con­sidered to be the major impediments to have a sound industrial relation system in India.
    • Indian labour laws are highly protective of labour, and labour markets are relatively inflexible. As usual, these laws are applicable in the organised sector only.
  • Rigid Laws:
    • India’s labour laws for the workers in the organised sector give workers permanent employment, of course, after a probation pe­riod ranging from 6 months to 2 years.
    • Job security in India is so rigid that workers of large private sector employing over 100 work­ers cannot be fired without government’s per­mission.
  • Unskilled labour
    • Lack of enough skilled workers is a common concern raised by the employers in defence of their inability to hire more.
    • They resort to contract employment
    • They adopt hire and fire policy.
  • Gender gap
    • Low female labour force participation
    • 71% of men above 15 years are a part of the workforce as compared to just 22 percent women (Labour Force Survey)
  • Low labour Productivity:
    • Promotions are based on seniority and thus workers get fixed annual wage increments unrelated to work perform­ance.
    • The labour market poli­cies followed in India in the past have led to serious problems due to low labour produc­tivity even in the context of an economy where the firms were shielded from both interna­tional competition (by the very high import tariffs) and domestic competition (by the li­censing policies).
    • This, in turn, created an in­efficient and internationally uncompetitive in­dustrial sector which eventually led to lower wages (for example, Indian wages in the manufacturing sector are only seventh the Singaporean wages), fewer jobs, and higher unemployment.
    • Labour market regulations operating since 1947 have tended to discourage both the growth of employment and productivity. Fur­ther, it has pushed many activities into the unorganised sector. This is evident from the fact that annual growth rate of employment in the unorganised sector was much higher (2.73 p.c.) than the organised sector (1.58 p.c.) during 1981-91.

Agenda for labour Reforms

  • Consolidation and simplification of numerous States’ and Centre labour laws
  • Streamlining of Minimum Wages in the country and ensuring they reach the beneficiaries.
  • Introduction of fixed term employment, to curb tendency for employing (socially insecure) contract labour.

Steps Taken by Government

  • Four Labour Codes aims at simplification, amalgamation and rationalisation of Central Labour Laws
  • Child labour (prohibition and Regulation) Amendment Act, 2016 provides complete ban on employment of children below 14 years of age.
  • Maternity Benefit Amendment Act, 2017 has increased paid maternity leave from 12 weeks to 26 weeks

 The 2nd National Commission of labour had recommended simplification, amalgamation and rationalisation of Central Labour Laws. The central government is compressing of 44 central labour laws into four ‘codes’ or broad categories — wages, social security, industrial relations and occupational health and safety.

Labour Codes on wages Bill, 2019

  • Need
    • It arises in the absence of statutory National Minimum Wage for different regions, which impedes the economic prospect.
    • It seeks to consolidate laws relating to wages by replacing- Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965 and Equal Remuneration Act, 1976.
  • Key Features
    • The Code will apply to any industry, trade, business, manufacturing or occupation including government establishments.
    • Wages include salary, allowance, or any other component expressed in monetary terms. This will not include bonus payable to employees or any travelling allowance, among others.
    • It differentiates the central and State Jurisdiction in determining the wage related decision for establishment such as Railways Mines and oil fields.
    • A concept of statutory National Minimum Wage for different geographical areas has been introduced. It will ensure that no State Government fixes the minimum wage below the National Minimum Wages for that particular area as notified by the Central Government.
  • Concerns
    • The definition of worker is not clear in the Wage Code Bill.
    • The calculation of the level of minimum wage by an expert committee is at variance with ILO parameters.
    • A ‘national minimum wage’ is a good idea, but its computation is cause for concern. Instead of a single national minimum wage, the bill proposes multiple minimum wage structure at different geographical zones.
    • The economic survey 2018-19 had also mentioned that a national mandatory minimum wage is a requirement.

Labour Code on Industrial relations, 2019

  • Need
    • It aims to create greater labour market flexibility and discipline in labour – to improve upon ease of doing business and also to encourage entrepreneurs to engage in labour-intensive sectors.
    • It would replace three laws i.e. Trade Unions Act, 1926; Industrial Employment (Standing Orders) Act, 1946 and the Industrial Disputes Act, 1947.
  • Key Features
    • It seeks to allow companies to hire workers on fixed-term contract of any duration.
    • The code has retained the threshold on the worker count at 100 for prior government approval before retrenchment, but it has a provision for changing ‘such number of employees’ through notification. This provision has been criticized sharply by the labour groups and trade unions as any notification may change it later.
    • It also provides setting up of a two-member tribunal (in place of one member) wherein important cases will be adjudicated jointly and the rest by a single member, resulting speedier disposal of cases.
    • It has vested powers with the government officers for adjudication of disputes involving penalty as fines.
    • Introduces a feature of ‘recognition of negotiating union’ under which a trade union will be recognized as sole ‘negotiating union’ if it has the support of 75% or more of the workers on the rolls of an establishment.
    • As several trade unions are active in companies, it will be tough for any one group to manage 75% support, hence taking away their negotiating rights. In such a case, a negotiating council will be constituted for negotiation.
    • Underlines that fixed-term employees will get all statutory benefits on a par with the regular employees who are doing work of the same or similar nature.
    • Under the code, termination of service of a worker on completion of tenure in a fixed-term employment will not be considered as retrenchment.
    • Proposes setting up of a “re-skilling fund” for training of retrenched employees. The retrenched employee would be paid 15 days’ wages from the fund within 45 days of retrenchment. 
    • While this means workers can be hired seasonally for six months or a year it also means that all workers will be treated at par with regular workers for benefits.
  • Concerns
    • The Industrial Relations Code of 2019 has evoked strong reactions, as the right to form unions and accord them powers of representation has been severely curtailed.
    • It provided that a minimum of 10% of workers or 100 workers employed in an establishment or industry would be needed – from seven at present – to register a trade union.

Labour Code on Social Security & Welfare, 2017

  • Need
    • Almost 90% of the current workers are not covered under any social security.
    • The current thresholds for wage and number of workers employed for a labour law to be applicable creates tenacious incentives for the employers to avoid joining the system which results in exclusions and distortions in the labour market.

Key Features

  • Definition of employee and categorization of workers covers all kinds of employment including part-time workers, casual workers, fixed term workers, piece rate/ commission rated workers, informal workers, home-based workers, domestic workers and seasonal workers.
  • A proper percentage-based structure for contribution, vis-à-vis socio economic category and minimum notified wage, has been put in place under the Code.
  • It introduces new approaches to ensure a transparent and fair financial set up, such as,
    • Time bound preparation of Accounts within six months of the end of the financial year;
    • Provision for social audit of social security schemes by State Boards after every five years;
    • Accounts of Intermediate Agencies to be subject to CAG Audit on the same lines as that of Social Security Organizations.
  • Wage Ceiling and Income Threshold: The term ‘wage ceiling’ is for the purpose of determining a maximum limit on contribution payable; whereas the term ‘income threshold’ is for the purpose of enabling the government to provide for two different kind of schemes (for same purpose) for two different class of workers.
  • Contribution Augmentation Funds would be established through which governments could contribute to the social security in respect of workers who are unable to pay contribution.
  • National Stabilization Fund will be used for harmonizing the Scheme Funds across the country and will be managed by the Central Boards.

Labour Code on Occupational Safety, Health & Working Conditions, 2018

  • Need
    • The proposed code is the first single legislation prescribing standards for working conditions, health and safety of workers and it will apply on factories with at least 10 workers.
    • It will amalgamate 13 labour laws including the Factories Act, 1948; the Mines Act, 1952; the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996; the Contract Labour (Regulation and Abolition) Act, 1970 etc.
  • Key Features
    • Centre has been empowered to prescribe standards on occupational safety and health
    • Annual health check to be made mandatory in factories and its charge will be borne by the employers
    • Appointment letters for all workers (including those employed before this code), underlying their rights to statutory benefits
    • At least 50% of penalty levied on employers could go towards providing some relief to families of workers who die or are seriously injured while working
    • National Occupational Safety and Health Advisory Board at national level and similar bodies at state level, have been proposed to recommend standards on related matters.
    • Appointment of facilitators with prescribed jurisdiction for inspection, survey, measurement, examination or inquiry has been proposed
    • Mandatory license for every contractor who provides or intends to provide contract labour. Also, license is needed for industrial premises as well.
    • Concerns
    • “The Occupational Safety, Health and Working Conditions Code, 2019” is also being protested by trade unions for allegedly diluting workers’ safety provisions instead of strengthening them.
    • All the central trade unions have expressed their displeasure and have demanded thorough consultation and recasting of the Code. They want it to be reviewed by the department-related Standing Committee of Parliament in consultation with them.

Way Forward

  • Reforms should be made with consensus amongst workers and their unions, and employers and their associations. Trust between workers and employers should be increased.
  • A national policy for domestic workers needs to be brought in at the earliest to recognise their rights and promote better working conditions.
  • Apprenticeship should be promoted. The government should form National Apprenticeship Corp. by merging the Regional Directorate of Skill Development and the Entrepreneurship and Board of Apprenticeship Training to achieve the objective of training the 10 million apprentices and finding jobs through an exclusive job portal.

In Brief

Leave a Comment

× WhatsApp Us (24x7) for queries