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Contract Labour in Karnataka

In order to effectively compete in a global market the industrial sector demands flexibility. To circumvent rigidities imposed by labour laws, the new form of employment that is being created in the economy is largely contractual. Based on a field survey, this paper looks at the status of contract labour in the state of Karnataka. The study finds that while a number of large firms pay wages above the minimum wage fixed by the state and support an increase in the minimum wage levels, a considerable number of small firms exploit the contract workers in various ways, including through non-payment of minimum wages. The study finds an urgent need to improve the social security network and supervisory mechanism for contract labour in the state.

Contract Labour in Karnataka

Emerging Issues and Options

In order to effectively compete in a global market the industrial sector demands flexibility. Tocircumvent rigidities imposed by labour laws, the new form of employment that is beingcreated in the economy is largely contractual. Based on a field survey, this paper looks at thestatus of contract labour in the state of Karnataka. The study finds that while a number of largefirms pay wages above the minimum wage fixed by the state and support an increase in theminimum wage levels, a considerable number of small firms exploit the contract workers in variousways, including through non-payment of minimum wages. The study finds an urgent need toimprove the social security network and supervisory mechanism for contract labour in the state.

MEENAKSHI RAJEEV

W
ith globalisation, the employment structure in the Indian economy has been undergoing certain changes [Deshpande et al 2004] (Table 1). In order to compete effectively in a globalised market, firms should have flexibility relating to labour, capital, and bureaucratic procedures, as it allows them to adapt to the fast-changing scenario and make necessary changes to stay ahead. It is often argued that stringent labour regulations not only put domestic producers at a disadvantage but also deter foreign direct investment and eventually impact adversely on investment, output and employment. Following these views, over the last two decades, a number of countries have attempted to liberalise their respective labour markets and amend their labour laws so as to make them more investment- and employment-friendly – a process that has weakened job security and collective bargaining [Agarwal 2001]. This in turn has given rise to different types of non-permanent employment structures in the form of casual labour, consultants, subcontractors, contract labour, teleworkers and others, among which contract labour is one of the most prominent kind in the Indian industrial sector today. There may be different kinds of contractual employment in vogue in a firm but the one we are interested in here has to do with the Contract Labour Regulation and Abolition Act, 1970. A contract labourer is defined in the act as one who is hired in connection with the work of an establishment by a principal employer through a contractor. While a contractor tries to produce the given results with the help of contract labour for the organisation, a principal employer is the person responsible for the control of the establishment. A contract worker changes principal employers quite often, as per the arrangements of the contractor. Hence as Kumar (2002) notes, under this form of employment it is not only hard for workers to prove their identity as workers under the labour law, but an employer-employee relationship is not easy to establish. A labour law system is overprotective of some sections of workers (such as in industrial units with 100 and more workers) and grossly underprotective of other sections such as contract or casual labour and workers in small units [Kumar 2002]. As it can be expected that the use of such non-permanent employment will only increase over time (from the annual Survey of Industries data on contract labour one can see that the use of contract labour is on the rise [Rajeev and RoyChowdhuri 2005]), how can one provide better working conditions, social security benefits and other such desirable provisions to this class of labour? In order to come up with any reasonable suggestions in this regard, it is essential to first understand the status of contract labour, its problems and necessities. Unfortunately there is no secondary level data at a macro level. This paper looks at these issues through a primary survey done in the state of Karnataka, concentrating mainly on the industrial city of Bangalore.

Approach to InformationApproach to InformationApproach to InformationApproach to InformationApproach to Information

First the manufacturing sector is divided into four groups:

(a) central public sector units; (b) state public sector units; (c) large manufacturing units (with 100 or more employees or investment of more than Rs 1 crore or a subsidiary unit of a multinational company1); (d) small manufacturing companies (less than 100 employees and/or investment of less than Rs 1 crore).

A list of companies is compiled using labour department records. The sampling design used in this context is multistage. First, a company is selected and then all the contract workers of the unit are interviewed. The number of companies selected from each of these subgroups is in proportion to the number of companies in the group. Though most of the companies selected are from Bangalore, the sample also includes companies from other parts of Karnataka such as Mangalore, Mysore, etc.

As often experienced by economists working in this field [Deshpande et al 2004], the collection of data regarding contract labour is found to be extremely difficult due to the lack of cooperation from firms. Managements of firms are often secretive about the number of contract workers used and the benefits provided to them. Though we first planned to divide the population into several strata incorporating different features of contract labour, e g, type of job they are engaged in, etc, the problems faced in the pilot survey compelled us to use only a simple sampling technique. A structured questionnaire was used to interview the employees and the sample size is 200.

Table 1: Distribution of Workers (Usual Status) by CategoryTable 1: Distribution of Workers (Usual Status) by CategoryTable 1: Distribution of Workers (Usual Status) by CategoryTable 1: Distribution of Workers (Usual Status) by CategoryTable 1: Distribution of Workers (Usual Status) by Category
of Employmentof Employmentof Employmentof Employmentof Employment

(Per cent)

Year Self-employed Regular Salaried Casual
1977-78 1987-88 1993-94 1999-2000 59.9 56.0 54.8 52.9 13.9 14.4 13.2 13.9 27.2 29.6 32.0 33.2

Note: This table has been compiled using various NSSO surveys on employment and unemployment.

Source: Deshpande et al 2004.

Economic and Political Weekly May 27, 2006

Figure 1: Percentage of Contract Workers ClassifiedFigure 1: Percentage of Contract Workers ClassifiedFigure 1: Percentage of Contract Workers ClassifiedFigure 1: Percentage of Contract Workers ClassifiedFigure 1: Percentage of Contract Workers Classified
according to Place of Originaccording to Place of Originaccording to Place of Originaccording to Place of Originaccording to Place of Origin

13.9 85.6 Bangalore Non Bangalore Source: Compiled from field survey. 0 10 20 30 40 50 Series1 29.4 49.7 13.4 3.2 3.2 1.1 900-1501-2001-2501-3001-4000

Wage Classes in Rs

Figure 3: Jobs Employees Would Like To DoFigure 3: Jobs Employees Would Like To DoFigure 3: Jobs Employees Would Like To DoFigure 3: Jobs Employees Would Like To DoFigure 3: Jobs Employees Would Like To Do
Given Their Present SkillGiven Their Present SkillGiven Their Present SkillGiven Their Present SkillGiven Their Present Skill

0 20 40 60 80 100 Job Options Percentage of Employees Series 2 8 11 79 better job agriculture similar job any job ( 2

Source: Compiled from field survey.

General FeaturesGeneral FeaturesGeneral FeaturesGeneral FeaturesGeneral Features

Amongst the selected enterprises, about 20 per cent were found to be not using any contract labour. As reported by the respondents, the use of contract labour varies widely across different enterprises, starting from about 6 per cent to as high as 80 per cent. These workers are often engaged in different types of jobs, of which security guards, housekeepers and helpers are the most common categories. In our sample we observe around 11 per cent (Table 2) of workers engaged in technical jobs that usually involve actual production-related work (perennial in nature). In this context, the controversial issue of using contract labour for core activities arises, which often induces firms to be secretive about this usage. In fact, we have found in Bangalore that there are contract agencies specialised in supplying contract labour for such production-related work (e g, electrician, fitter and so on).

The supply side picture reveals that there was an influx of contract labourers in cities in Karnakata (mainly to the city of Bangalore), after the consecutive drought seasons experienced by the state (Figure 1). These workers are mainly from north Karnataka, which is one of the driest regions in the country. Uncertain weather conditions leading in turn to fluctuating agricultural production, compel migrants to accept meagre but sure incomes as contract workers in cities.

Figure 1 shows that 85 per cent of these labourers have migrated to Bangalore from other parts of Karnataka, mainly from the parts where water resources are scarce. There are also labourers from other states, such as in the north-east, that migrate to Karnataka in search of employment opportunities and end up as contract workers.

Opportunities and BenefitsOpportunities and BenefitsOpportunities and BenefitsOpportunities and BenefitsOpportunities and Benefits

While the industry sector is benefited considerably by the use of contract labour, do the workers get their dues? If we consider wage a yardstick, they earn much less (about 50 per cent on an average) than the regular employees engaged in similar jobs. While the act makes payment of the minimum wage mandatory on a regular basis, there are many instances of violation of this law, especially by small private firms. During our survey we found that there are workers earning less than Rs 1,000 per month,

Figure 2: Percentage of Employees at Different Wage LevelsFigure 2: Percentage of Employees at Different Wage LevelsFigure 2: Percentage of Employees at Different Wage LevelsFigure 2: Percentage of Employees at Different Wage LevelsFigure 2: Percentage of Employees at Different Wage Levels

Source: Compiled from field survey.

Figure 4: Provident Fund BenefitsFigure 4: Provident Fund BenefitsFigure 4: Provident Fund BenefitsFigure 4: Provident Fund BenefitsFigure 4: Provident Fund Benefits

Able to retrieve dues 35 per cent

Lost dues

65 per cent

which clearly does not satisfy the minimum wage criterion. Figure 2 depicts the detailed scenario, where we observe that the majority of employees earn below Rs 2,000. Only 1 per cent of the employees earn Rs 4,000 or above (as an efficiency wage), while almost all regular employees earn over Rs 6,000. In the case of contract labour we observe (in a separate study of business process outsourcing firms) that higher wages have not only attracted better quality labour but also brought down the attrition rate. There are even instances of technical graduates working as security guards in those firms. Thus, the opposite has also been witnessed where large private firms pay well above the stipulated minimum wages as efficiency wages. The efficiency wage hypothesis discussed in economic theory asserts that if work effort depends positively on the wage level, a profit-maximising firm would find it profitable to pay more than the market clearing level [Solow 1979; Shapiro and Stiglitz 1984; Akerloff, 1982].

Do wage discrepancies between a contract worker and a regular employee create a feeling of discrimination? Though most of the contract employees report that they need to work harder than regular employees and that they can be hired and fired easily, the feeling of discrimination does not appear to be strong (Table 3). They accept the situation as their plight and do not dream of complaining. About a quarter of the employees who feel discriminated against (mainly the educated ones) complain about more work,

Table 2: Workers Classified according to Job TypeTable 2: Workers Classified according to Job TypeTable 2: Workers Classified according to Job TypeTable 2: Workers Classified according to Job TypeTable 2: Workers Classified according to Job Type

Type of Job Percentage

Gardening 0.55 Canteen 2.75 Security 8.79 Technical 10.99 Loading, unloading/packaging 12.64 Housekeeping 19.78 Helper 39.01 Others* 5.49

Note: * Others include tailoring, painting, etc. Source: Field survey.

Table 3: Employees Who Feel Discriminated AgainstTable 3: Employees Who Feel Discriminated AgainstTable 3: Employees Who Feel Discriminated AgainstTable 3: Employees Who Feel Discriminated AgainstTable 3: Employees Who Feel Discriminated Against

Does S/he Feel Discriminated? Percentage

Yes 24.7 No 75.3

Source: Field survey.

Economic and Political Weekly May 27, 2006 not having canteen facilities, lack of medical facilities in the event of an accident at the workplace and so on. Another source of discontent stems from the fact that in spite of working less, regular employees get a bonus and other incentives of which contract workers are often deprived. Interestingly, however, the feeling of discrimination is much stronger in public enterprises, which also speaks about the work culture of regular employees in public enterprises. But do these workers have any option other than digesting such feelings quietly?

Future Job Options and PreferencesFuture Job Options and PreferencesFuture Job Options and PreferencesFuture Job Options and PreferencesFuture Job Options and Preferences

It is interesting to note that over time and with repeated search, only 2 per cent of employees expect better jobs. On the other hand, 8 per cent employees still wish to go back to their villages and return to agriculture if the drought situation improves. Ironically, as high as 79 per cent of contract workers (including the technical and graduate degree holders) are ready to do any work in the absence of the present job (Figure 3).

Such feelings stem from the fact that contract workers receive minimal training while working and thus skill formation is almost negligible. Pessimism of this kind clearly shows the pathetic situation that prevails in the Indian job market and the lack of support during the period of unemployment.

Social Security BenefitsSocial Security BenefitsSocial Security BenefitsSocial Security BenefitsSocial Security Benefits

Developed countries that pursue the market economy model also provide extended social security for workers to take care of periods of unemployment or sickness. With informalisation of the labour force, in addition to ensuring a reasonable wage level, it is necessary to bring in a balance between the two concerns relating to industrial development, viz, flexibility in production and social security for labour. Though contract workers enjoy provident fund (PF) benefits on paper, it is often a burden to them rather than an aid. It is a burden in the sense that every month some fixed amount is deducted from their meagre salary for provident fund contribution. However, these workers often change the contractor they work for and a new provident fund account then gets opened. Unfortunately once a worker leaves a contractor, he/she never gets any cooperation from the contractor in retrieving the money paid. Many contract agencies also close down and then retrieving the PF due becomes very difficult for the employee. It is also the duty of the principal employer to verify the PF details, which is however, not often done. Furthermore, in order to recover the PF amount, a contract worker has to have a bank account into which the sum due should be deposited by a cheque. Contract workers often cannot maintain accounts because of minimum deposit requirements by banks. This makes recovering their PF dues even more difficult. Figure 4 depicts the scenario where 65 per cent of the employees lost their earlier provident fund benefits due to one of the above reasons. In addition, it has been observed that there are a number of unregistered contract agencies that deduct PF contributions from the workers but never deposit the same in the provident fund office.

Thus the provision of contractual employment seems at least to help a segment of the population that is temporarily in distress due to causes beyond their control. In the absence of a contract agency as an intermediary, the only option would have been to employ oneself as a casual labourer, whose condition a separate survey such as ours [Rajeev 2005] shows as even more pathetic than that of the contract labourer. The state of Karnataka has also witnessed distressed farmers resorting to suicide. Thus, strengthening the agriculture sector becomes essential. In addition, as contract employment has become the norm of the day, several other measures are necessary to support this labour class.

ConclusionConclusionConclusionConclusionConclusion

It has been the general feeling of a large number of firms that contract labour is indeed paid very low wages. Many enterprises revealed during our field survey that they are ready to enhance the wage level of contract workers provided minimum wage norms are revised accordingly. However, rather than fixing an uniform minimum wage rate for all firms, wage rates for contract labour should be linked to the wages paid by the firm to direct worker.2 This would not only reduce wage disparity between regular and contract workers, but also lessen the feeling of discrimination amongst contract workers. Furthermore, given the current status of provident fund benefits, building an effective social security net which can enhance the bargaining power of labour is essential.

In a planned economy with a large public sector, government plays an important role as producer. However, in a market economy, government’s responsibility as a regulator becomes foremost. In the case of contract labour, it has been observed that a collusive agreement between the contractor and principal employer or the labour inspector leads to various corrupt practices. Being on the long side of the market, labour has often been victimised. Careful steps need to be taken to curb corruption to ensure that labouring class gets its due.3 To ensure this, first and foremost it is necessary to educate labour about their rights and responsibilities. Contract labour should be able to voice their complaints to an independent authority, which in turn should take it up with the labour inspector. Unless such measures are taken, the benefits of liberalisation will accrue only to a particular section of society.

m

Email: meenakshi@isec.ac.in

NotesNotesNotesNotesNotes

[This paper is based on a project funded by the Sir Ratan Tata Trust at theInstitute for Social and Economic Change, Bangalore, and I am grateful forthis support. I would also like to thank R S Deshpande and K V Raju formany useful suggestions.]

1 Through our pilot survey we observed that a subsidiary of a largemultinational company, irrespective of employment size or investment, has similar wage and benefit policies as the parent company.

2 Which category of direct workers to be considered would vary from firm to firm. 3 Rajeev, 2005, discusses various measures one may take to curb such practices.

ReferencesReferencesReferencesReferencesReferences

Agarwal, Rasmi (2001): ‘Labour Laws and Contemporary Issues’, ManpowerJournal, Vol XXXVII, 4, pp 39-47. Akerloff, G A (1982): ‘Labour Contracts as Partial Gift Exchange’, QuarterlyJournal of Economics, 97, pp 543-69. Deshpande, L et al (2004): ‘Liberalisation and Labour, Labour Flexibility in Indian Manufacturing’, Institute for Human Development, New Delhi. Kumar, Arun (2002): ‘Labour Law Reforms in India: Some Issues forConsideration’, Manpower Journal, Vol XXXVII, 4, pp 39-47. Rajeev, Meenakshi (2005): ‘Contract Labour: Status, Problems and Options’, unpublished.

Rajeev, Meenakshi and Supriya RoyChowdhuri (2005): Contractual Employment in Selected Manufacturing Enterprises in Karnataka, Project Report No SRTT/4, Institute for Social and Economic Change, Bangalore, India.

Shapiro, C and J Stiglitz (1984): ‘Equilibrium Unemployment as a Worker Discipline Device’, American Economic Review, 74, pp 433-44. Solow, R M (1979): ‘Another Possible Source of Wage Stickiness’, Journal

of Macroeconomics, 1, pp 79-82.

Economic and Political Weekly May 27, 2006

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