Monday, September 12, 2016

Tread warily on labour reforms

India's labour unions fired a warning shot across the bow of the government on September 2 by having a mammoth all India strike. They were relaying their concerns about the proposed reforms in labour laws and other issues such as privatisation and FDI.

The way people go on and on about our labour laws one would think that simply by allowing hire and fire we can generate massive employment. The academic literature on the subject is by no means as clear cut as that. India's labour laws are not more restrictive than that of France and you can't say that France has not developed manufacturing over a century.

When you begin to look closely, you find that not hiring labour often has to do with other factors such as tax incentives for capital, which makes it worthwhile for business to substitute labour with capital. In the present context, we have serious issues constraining private investment, such as weak global demand, high interest rates, high leverage in industry, etc. Tweaking labour laws isn't going to help. On the contrary, by provoking a labour backlash, it might make things worse. It would also cost the ruling coalition dearly at the hustings.

More in my article in the Hindu today, Labour's love's lost.


Unknown said...

France youth unemployment is at a massive 22%, not the shining example of labor mobility. I agree though on treading on this carefully..

The Big Picture said...

Well, I am not talking only about the present situation. We are looking at France's record over a very long period- worker protection and generous benefits don't seem to have come in the way of France's prospering.