Ensure Labour Laws Don’t Hit Jobs


That fresh payroll additions, as seen from EPFO subscriptions, plunged to 5.73 lakh in May, the worst in about a year, is disappointing. They suggest the second wave of the pandemic may have done the job market some severe damage. The additions to the payroll have trended down, from 8.83 lakh in January to 8.07 lakh in February and to 7.16 lakh in March. Even if this data is prone to inconsistencies, it is a fact that hiring trends at the country’s large listed companies have not been too encouraging.

Employee costs at the BSE 500 companies in FY21 were up just 4.6%, to `2.3 lakh crore—a much smaller quantum than the 9% growth reported in FY20, according to a study by Jefferies. Fresh recruitments, it would appear, have been limited except in sectors such as IT, banks and healthcare; hiring at TCS for instance jumped 9%, while, for Wipro, it was up 7%. To be sure, several large sectors such as hospitality, aviation, media & entertainment, and retail had declines for obvious reasons, but then these segments account for about 1% of the employee-cost base.

While the services sector will, by and large, continue to provide employment opportunities—for both white- and blue-collar workers—hiring in the manufacturing sector is slowing sharply. One analysis by Centre for Economic Data and Analysis (CEDA)—based on the CMIE monthly time-series—showed employment in manufacturing in FY21 was nearly half of what it was five years ago. To be sure, automation is playing some part in the reduction of workforce across factories, but, at the same time, managements are reluctant to add to the headcount, beyond the bare minimum, as it drives up costs. In this context, it is important that the government ensures that the costs for manufacturing units don’t go up unreasonably following the imposition of minimum wages for workers.

The new committee to determine the floor, which met for the first time last month, needs to bear in mind that a very high level would only deter companies from adding to their workforce. The objective is to extend the protection of minimum wages to all workers, and especially target the more vulnerable workers at the bottom of the rung; currently, about 40% of the country’s workforce, essentially those working in sectors such as mining, is eligible for minimum wages. Even as it works to frame the rules for the amended labour laws, the government must be mindful of balancing the interests of workers with the objective of encouraging job creation. For instance, demands that the changed definition of wages—which caps allowances at 50%—be reviewed, should be considered.

The new labour codes have ushered in some good norms, especially where health and safety of workers is concerned, as also social security for gig industry workers. Again, the threshold for an establishment to be able to retrench or lay off workers without government permission has been raised from 100 to 300 workers. Given labour is a concurrent subject, state governments are empowered to further ease the laws and some like Rajasthan have taken the lead. The point is no law should be too onerous on industrial establishments; for instance, they must have the flexibility to hire either on a contractual or fixed term basis as long as the working conditions are good. Pressuring businesses to comply with too many conditions will only make them more reluctant to hire.

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