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Labour Regulation and Employment Protection in Europe: Some Reflections for Developing Countries

A review of evidence on employment and wages from selected European Union countries leads one to surmise that in the context of developing countries, we tend to judge the performance of labour regulatory regimes more in terms of their impact on employment creation. Inadvertently though, we seem to foist a false idiom, since a job-creating function is beyond the terms of reference of any protectionist labour regulation. What is important in developing countries is to facilitate a rapid, but endogenous evolution of labour institutions that can protect workers' rights and remain friendly to job-creation. This requires a fresh look at some national level policies and programmes, which are not necessarily in the domain of labour relations.

REVIEW OF LABOUREconomic & Political Weekly EPW may 31, 200865Labour Regulation and Employment Protection in Europe: Some Reflections for Developing CountriesA V JoseIt is worth going over the ground concerning the purpose of labour regulations. These are interventions inthe market, often through the medium of legislative enactments, mainly for protecting the terms and conditions of employ-ment, in particular, duration of employment and benefits including income flows and healthcare during and beyond one’s working life. Quite inevitably, a regulatory regime derives legitimacy and strength from several sources includ-ing: (i) public support for market governance, (ii) nature and coverage of benefits, and (iii) the legal framework, admin-istrative machinery and financial resources for implementing the regulations. There is a rich literature on variations in the content of labour regulations among industrialised countries, legal traditions underlying them, and on the methods of financing regulatory regimes [Servais et al 2007; Davidov and Langille 2006; Deakin 2004; Baldwin 1990; Nickell 1997; Piore and Sabel 1984]. This paper draws some inferences form the experience of European countries in the development of regulatory regimes, which might be of relevance to the developing countries, currently nurturing such regimes. The paper goes through the building blocks of some labour regulations with reference to three countries: France, Sweden and the UK. They belong to different geopolitical regions of Europe, and show a distinct variation in the content of labour regulations, legal traditions and in the methods of administering regulatory institutions. At best, the countries together can be considered as a representative sample of the industrially advanced countries of Europe.Historically, the labour regulatory regimes of industrialised countries have acquired legitimacy through legislative enactments of the state. The legislation places an obligation on the state to respect, protect and fulfil the rights and entitlements of the people who are targeted [Chapman and Russell 2002]. Hepple (2006) has tried to elaborate the natureof these three obligations as follows: The first enjoins the state not to interfere in a right and to confer immunity onpeople whoexercise that right. The second obligates the state to protect a right and to prevent its violation by third parties. Herewe come across instances of the state establishing appropriate institutions and administrative arrangements to safeguard against any possible violation of a right. The third obligation, being the most positive, seeks to fulfil a right by creating the necessary conditions through affirmative action sothat the parties concerned are empowered to realise the right. Whenever the state enacts This paper was prepared for a joint conference of the Institute for Studies in Industrial Development, New Delhi and the International Institute for Labour Studies, held in New Delhi in November 2006. The conference aimed to explore the relationship between labour regulation, growth, investment and employment in Indian industry. The author would like to thank Dharam Ghai, T S Papola, K R Shyam Sundar and the participants of the conference for their comments on an earlier draft. Margaret Fennessy gave useful editorial support. The author alone is responsible for the views expressed in the paper.A V Jose (jose@ilo.org) is with the International Institute of Labour Studies, Geneva.A review of evidence on employment and wages from selected European Union countries leads one to surmise that in the context of developing countries, we tend to judge the performance of labour regulatory regimes more in terms of their impact on employment creation. Inadvertently though, we seem to foist a false idiom, since a job-creating function is beyond the terms of reference of any protectionist labour regulation. What is important in developing countries is to facilitate a rapid, but endogenous evolution of labour institutions that can protect workers’ rights and remain friendly to job-creation. This requires a fresh look at some national level policies and programmes, which are not necessarily in the domain of labour relations.
REVIEW OF LABOURmay 31, 2008 EPW Economic & Political Weekly66societies. They took shape under the aegis of social democratic regimes that came to power in different countries as the allies of a rising middle class of industrial workers, represented through powerful trade unions [Esping-Anderson 1996]. As it came in the aftermath of a lengthy period of urbanisation involving large migratory movements, the protective cover of the social model was naturally extended to more than two-thirds of the population already resident in urban areas. Some relevant figures are furnished in Table 1. By the year 2006, urban resi-dents in France, Sweden and the UK respectively accounted for as much as 77, 84 and 90 per cent of the total population. In 2004, the total employed population in these countries was reported as 27.4m, 4.5m and 29.9m, respectively. Total employ-ment in the 15 original member countries of the EU came to 184 million.2 These figures indicate the likely coverage of regulatory regimes among the countries chosen for review and in Europeas a whole. The regulatory regimes blossomed during the post-war decades. This was the golden age of industrial societies, when the incumbents managed to consolidate their gains arising from an extended period of economic growth and prosperity [Hobsbawm 1994, ch 9-10; Esping-Anderson, 1996, ch 1]. The rapid strides made by industrial eco-nomies precipitated near full employment conditions in many countries. Figures in Table 2 show that economic advancement continued well into the 1960s, when the gross domestic prod-uct per worker at constant prices increased inFrance,Sweden and the UK at annual rates of 4.4, 3.9 and 2.6 per cent, respec-tively. The table also shows that the subsequent decades were marked by a sharp deceleration in productivity levels. This affected the employment situation.The 1960s was also a period of inordinately low unemploy-ment among the industrial economies of Europe. Figures in Table 3 show that from 1960 to 1972 the average rates of unemployment in France, Sweden andUK remained less than 3 per cent. In France and UK the rates remained less than legislation, it voluntarily takes on a responsibility to meet the three obligations.Uniqueness of Europe When we judge the merits of labour market regulation, we should do so in relation to its content and coverage. The relevant questions for consideration are the nature of the entitlements and rights protected and the numbers – absolute as well as relative – of people brought under the protective cover. The industrial societies of Europe, marked by the presence of legal and admin-istrative institutions, which protect a variety of substantive rights – terms, conditions and rewards of work – based on a set ofwell-defined procedural rights are remarkably unique entities [Hepple 2006].1 They have tacitly recognised the fact that equitable outcomes by way of substantive rights would automatically follow, if only the institutions guaranteeing procedural rights are established. Among them, the constitu-tionalisation of a rule of law during the post-war decades has ensuredequitableaccess to procedural rights by all people. It marked a distinct stage in the evolution of workers’ rights and human rights in general.The blending of the two sets of rights – substantive and proce-dural – is a profoundly important achievement of all industrial societies. It is epitomised by the European social model. The essential ingredients of the model are: (i) universal provision of public services including education, health, infrastructure and a clean environment; (ii) assured employment opportunities based on open-ended contracts; (iii) improved terms and conditions of employment along with minimal disparities in wage earnings; and (iv) social protection of workers and their dependence withsafety, healthcare and secure income during and beyond the working lives. All components of the social model are sought to be realised through a judicious mix of fiscal policy instruments. Evolution and Coverage of the Social Model It is important to note that the model we see in operation today has evolved over time through distinct stages corresponding to the levels of economic development. The chain of causation underlying the evolution of a social model – starting with substantive rights and leading to the installation of procedural rights – has important implications for developing societies which are at the threshold of building appropriate institutions for workplace governance. Wilfred Jenks, a former director-general of the InternationalLabourOrganisation (ILO), has described the entire process of transforming workers’ interests into rights as a continuous process that goes hand in hand witheconomic growth. Interests in material advancement have matured into entitlements; they in turn gained legitimacy as rights through legal instruments and sanctions. He noted that “only when the acquired interests of workers gain social recognition in the course of economic development can their usage be legitimised through legal instrument” [Jenks 1968]. The entitlements and rights enshrined in the European social model have gained legitimacy through the maturing of industrial Table 1: Urbanisation and Total Employed Population in Selected Countries Percentage of Urban Total Employed PopulationPopulationCountry 19601980 20062004France 61.9 73.3 76.9 27.42Sweden 72.5 83.1 84.3 4.46UK 78.4 87.9 89.829.88EU-15 184.12Source: World Development Indicators http://devdata.worldbank.org/dataonline/.Table 2: Annual Percentage Change of GDP at Constant Domestic Prices per Person Aged between 15-64Country 1960-70 1970-80 1980-90France 4.4 2.4 1.3Sweden 3.91.81.7UK 2.61.72.2OECD (unweighted) 4.2 2.4 1.8OECD: Organisation for Economic Cooperation and Development. Table 3: Standardised Unemployment Rates in Selected European Countries1 2 3 4 5 6 7 8 9 1011 Countries 1960-64 1965-721973-791980-871988-95 1996-99 1994 1998 2002 2006France 1.5 2.3 4.3 8.9 10.5 11.9 11.7 11.1 8.9 9.4 (8.3)Sweden 1.2 1.6 1.6 2.3 5.1 8.7 9.4 8.2 4.9 7.0 (6.1)UK 2.6 3.1 4.8 10.5 8.8 6.9 9.3 6.1 5.1 5.3 EU-15 10.5 9.3 7.7 7.6 (7.0)OECD estimates refer to unemployment rates as a percentage of civilian labour force. The figures in brackets refer to the year 2007 as obtained from the Eurostat data sources.Source: Columns 2 to 7 from Nickel (2005), Table 1; Columns 8 to 11 are from OECD (2007), Statistical Annex A.
REVIEW OF LABOUREconomic & Political Weekly EPW may 31, 2008675 per cent through the 1970s while in Sweden the lower rates continued well into the 1980s too. Subsequent years witnessed significant increases in unemployment and by mid-1990s they peaked to rates which were unforeseen and fraught with adverse social consequences in the whole of Europe. Since then, there has been a gradual decline in the rates of unemployment, notably in our sample group of countries.Itisimportantto note that in a small country like Swedentherates have reverted to the manageable levels that prevailed in the 1980s. Workers in the Development of Institutional SafeguardsWe need to go back to the point raised at the outset concerning the purpose of any legislation. The employment protection legis-lation was primarily intended to safeguard the interests of workers who, though living under conditions of near full employ-ment during the 1960s, were nonetheless vulnerable to the vicis-situdes of markets. The legislative provisions encompassing employment protection, replacement benefits, healthcare, pension benefits, and a compressed wage structure across occupational categories came into effect during the 1960s and in the early 1970s.3 It is important to note that organised labour, one of the most powerful forces of industrial society, contributed to the making of such legislation and to the establishment of different labour market institutions that implemented it. These institutions have had an important role in stabilising and strengthening both the product and labour markets of industrial economies.Together with secure employment opportunities, the new institutions for wage determination, in particular minimum wages ensured a solid and rising wage floor for workers, boosted their purchasing power and thereby raised aggregate demand. Another group of institutions aimed at reducing vulnerability to cyclical fluctuations in the market and other contingencies beyond the control of workers was also created during this period. Numerous insurance-based schemes, privately funded or socially financed, were organised to guard against contingencies such as unemployment, morbidity and disability of workers [Piore and Sabel 1984, ch 4]. In retro-spect, the labour market institutions created during the post-war period are seen as important instruments underlying the development of a partnership between the state and organisedlabour which vastly contributed to ensuring the stability of market economies [Western 1999; Regini 1994; Jose 2002]. There is a rich literature which argues that the protectionist labour market institutions that developed under the tutelage of social democratic regimes in Europe have contributed to raising the knowledge-capital base of enterprises and to enhancing the productivity of workers. Secure income and improved living standards for workers were effectively guaranteed through the protectionist institutions. Perhaps, the most important contribu-tion made by workers’ organisations through partnership with social democratic regimes was that they helped reduce the scaleof contingencies and uncertainties for their members in the world of work.4Some Empirical Evidence With regard to the functioning of labour market institutions, the right question to pose is whether or not they have delivered the goods in terms of protecting the interests of workers entrusted to their care. There is sufficient evidence to argue that they have had a benign effect on workers in industrial economies. In what follows, I submit some empirical support for this contention, based on some indicators of the development of labour markets and implicitly the well-being of workers among the countries chosen for review. The indicators examined are: employment population ratios, age-specific and skill-specific unemployment rates, average duration of jobs, proportion of workers with long-term jobs, presence of atypical forms of employment and long-term changes in the hours of work and real earnings of workers. Table 4 gives the employment population ratios for men and women in the age group 15 to 64 for selected years from 1990 to 2006. In most cases these ratios have been rising, especially for women, which points to the fact that new income-earning opportunities have been opened to ever growing numbers of people. The table also shows that this observation holds good for the 15 member countries of the EU. It is important to note that currently in France and the UK some two-thirds of all women in the working age group are employed, while in Sweden the proportion is more than 70 per cent. Figures in Table 5 give a closer profile of the employment and unemployment situation in the year 2005. The employment population ratios and unemployment rates among men and women in the working age groups, cross-classified by their educa-tional attainments, are given in the table. The three levels of education taken into account – less than upper secondary, upper secondary and tertiary – are reasonable proxies for the skill Table 4: Employment Population Ratios in Selected European CountriesCountries Employment Population Ratio of Employment Population Ratio of Men Aged 15-64 Years Women Aged 15-64 Years 1990199419982002200619901994199820022006France 69.766.1 66.6 68.6 67.5 50.3 50.8 52.4 55.8 57.1Sweden 72.2 73.5 76.4 76.8 70.769.4 73.472.1UK 82.175.378.178.678.4 62.862.164.266.366.8EU-15 70.571.672.973.5 49.451.855.658.5The figures for Sweden and (EU-15) in 1990 have reportedly had some inconsistency in definition.Source: OECD, Employment Outlook, 2002, 2004 and 2007, Statistical Annex Table B.Table 5: Employment Population Ratiosand Unemployment Rates among Men and Women of the Age Group 25-64 by Educational Attainment – 2005Categories/Countries FranceSwedenUKEU-15 Men Women Men Women Men Women Men WomenEmployment population ratios Less than upper 65.9 50.7 73.1 56.7 59.5 45.2 70.1 46.2Upper secondary 80.6 68.6 84.4 77.8 84.7 74.1 82.9 67.9Tertiary education 85.4 78.3 88.0 86.7 89.9 86.0 87.9 81.1Unemployment rates Less than upper 11.4 13.5 7.7 9.9 7.4 5.7 8.4 10.3Upper secondary 6.0 8.9 6.1 5.8 3.2 2.6 5.0 7.1Tertiary education 5.9 6.0 4.9 4.2 2.0 1.7 3.9 4.8Source: OECD 2007, Statistical Annex, Table D.
REVIEW OF LABOURmay 31, 2008 EPW Economic & Political Weekly68content of workers. As we move up the educational scale, the employment population ratios for both men and women are found to rise by significant margins. For instance, in Sweden and theUK more than 85 per cent of the men and women with tertiary education are in employment. The obverse of this picture is a pronounced decline in the rate of unemployment as we move up the skill categories. The figures point to the fact that progress made in industrial economies by way of extending higher education has drawn more skilled workers into the labour force and effectively reduced the probability of their unemployment.A secure job with minimal threat of displacement is a dream cherished by many in all societies, both developed and developing. Quite natu-rally the number of people engaged in durable jobs is seen as a visible indicator of the strength and stability of labour markets. The arguments in support of this contention are all too well known. Human capital investment in firm-specific skills will come about when there is a good probability of firms re-couping their investment costs through the trained workers staying long term with the same employer. The transac-tion costs involved in hiring and firing of workers are lower when labour mar-kets become stable. Naturally, therefore tenured jobs are expected to contribute positively to profitability and productivity [Auer and Cazes 2003, ch 1]. One question we need to consider is the security and durability of jobs in the countries where regulatory regimes havebeen prevalent. Work done at the ILO points out that within theEU, average job tenure defined as the number of years a person spent working for the same employer has remained at an average of 10 years between 1992 and 2005 and that the duration of jobs has tended to increase in the countries under review. The relevant figures are reported in Table 6.A more important observation is that a large and stable proportion of work-ers have had longer-term jobs. The table shows that between 1992 and 2002, the share of workers with more than 10 years of tenure has increased from 42.9 to 44.2 per cent in France, 39.9 to 40.4 per cent in Sweden and 31.5 to 32.1 per cent in theUK. Between 2002 and 2005, there wasamarginal decline except in France.People’s perceptions of own employment status are clearly brought out by the reported rates of unemployment. There is a high probability of skilled workers – both men and women – operating in a sellers’ market, and thereby, making voluntary choices to accept full-time or part-time employment. In this regard, there is a case for viewing the huge influx of part-time workers into the labour markets of industrial economies fromasupplysideoptic. Many of us, conditioned to accept theuniversalityofthe post-war construct of employment in indus-trial societies – full-time and life-time jobs – are inclined to see the as-cent of atypical forms of employment, especially part-time jobs, with concern and scepticism. The figures assembled in Table 7 giving part-time employment, genderwiseasashare of total employment, and the share of women in total part-time employment are prima facie indica-tive of disturbing developments in la-bour markets. They suggest that among the three countries under review and in the EU as a whole, there has been a gradual increase in the share of part-time employment and that its incidence has always been higher among women by a factor of four to five over the aver-age for men. We also observe that the trend increase in part-time employment is more conspicuous among men than among women. This is related to another observation that over the years women have accounted for more than three-quarters of the total volume of part-time employment. The data also suggest that there is a gradual decline in their share of part-time employment, which comes out in Sweden, the UK and in theEU as a whole.Do these developments portend to a qualitative deterioration of labour market conditions? Perhaps, it is too early to arrive at such a prognosis. Clearly the data point to the need for a structured analysis of the supply price of labour and the time dispo-sition of people who newly enter the markets, particularly women workers. In this regard, we will conclude this appraisal of empirical evidence by taking a look at Table 8, which suggests that there are some positive developments underway among the countries under review.Firstly, the total annual hours per worker since 1973 show a consistent decline in the countries under review. This phenomenon is a continuation of a long historical trend observed in all industrial economies [Bosch et al 1994]. Long hours have always been the most visible signs of drudgery and exploita-tion in the world of work. Quite possibly the gradual reduction ofworkingtime points to a situation where workers are gaining greater control over their time and leisure. Even if we make allowance for the extent to which this downward trend Table 8: Average Annual Hours of Work per Person in Employment 1973198319901994199820022006France 1 856 1 759 1 657 1 675 1 603 1 536 1 564Sweden 1 530 1 532 1 549 1 621 1 629 1 580 1 583UK 1 815 1 717 1 767 1 740 1 731 1 696 1 669Source: OECD 2004 and 2007 Annex Tables F.Rate of increase in real compensation per employee in the business sector Average for Period 1994-20042006France 0.9 2.4 (2.1)Sweden 2.4 0.4(2.0)UK 2.01.3(2.2)EU-15 0.7 0.3 (1.1)Source: OECD 2007, Table 1.4. Figures in brackets are estimates for the year 2007. Table 6: Average Job Tenure in Years and the Percentage Share of Workers with More than Ten Years of Tenure Average Tenure (Years) Percentage Share of Workers with 10 Years and OverCountry 1992 20022005 1992 2002 2005France 10.4 11.311.7 42.9 44.2 45.9Sweden NA 10.510.6 39.9 40.4 39.4UK 8.1 8.1 8.2 31.5 32.1 30.4EU-14* 10.5 10.610.7 41.4 41.5 40.2* Excluding Austria. The 2005 data refer to EU-15. Sources: Auer, Berg and Coulibaly (2004), Tables 1 and 2; Auer (2007). Table 7: Part-time Employment (as a % of total employment)Country 199019941998 20022006France Male 4.4 5.3 5.8 5.2 5.1 Female 21.724.5 25.0 24.1 22.9Sweden Male 5.3 7.1 5.6 7.5 8.4 Female24.524.922.020.619.0UK Male 5.3 7.0 8.2 9.1 9.9 Female39.541.241.240.038.8EU-15 Male 4.2 5.0 5.8 6.1 7.1 Female27.028.329.830.031.7Women’s share in part-time employment (%)France 79.878.679.079.579.4Sweden 81.176.873.771.867.3UK 85.182.7 79.679.277.6EU-15 80.9 80.178.878.9 78.1Source: OECD, Employment Outlook, 2002, 2004 and 2007, Statistical Annex. Table E.
REVIEW OF LABOUREconomic & Political Weekly EPW may 31, 200869could have been influenced by a rising share of part-time work, we cannot underrate its importance as an indicator of qualitativeimprovements in the living standards of workers in industrial economies.A second set of indicators in the same table, reported from OECD sources, shows positive increases in real earnings during the 1990s right up to the year 2007. In Table 2, we noted that the decades after 1970 saw worker productivity levels decelerating in Europe in comparison to the earlier decades. Such deceleration did not, however, result in any serious adverse impact on real earnings. The figures bring out that during the period 1994-2004, real earnings per employee in the business sector increased at a rate of 0.7 per cent in France, 2.4 per cent in Sweden and 2 per cent in theUK. These rates increased moderately in 2006, but by higher magnitudes in 2007.In retrospect, our review of evidence on employment and wages in selected countries was meant to put forward a simple submission: on the whole, employment protection and other elements of a labour regulatory regime among the industrial economies of Europe have done a credible job by way of protect-ing and safeguarding the interests of workers under their care. This point bears repetition, because many analysts, especially those trying to draw lessons relevant to developing countries, are inclined to judge their performance by using a radically different criterion. The most frequently asked question is whether or not labour regulations have helped to create more employment. It also resonates in another question raised by many countries as to whether or not the regulations can be held responsible for the high rates of unemployment during the 1980s and the 1990s. Indeed, we are posing a false question, since a job-creating function is beyond the terms of reference of any protectionist labour regulation.Earlier in Table 3 we noted that standardised unemployment rates among European countries started accelerating from the mid-1970s and that these rates peaked around the mid-1990s. Since 1994 there has been a perceptible deceleration of the rates, notably in Sweden and the UK. There is a surfeit of literature analysing the factors underlying the spatial and inter-temporal variations in unemployment among countries of Europe. Shyam Sundar (2006) has a good review of this literature. Some studies, notably by Nickell et al (2005), Galtier and Gautié (2003) Auer and Cazes (2003) come out with insightful observations. What one reads from these studies is that the trends in employment and unemployment can be explained more by structural factors linked to the growth or decline of GDP and worker productivity levels. The burden of the song is that it is not easy to generate any robust evidence linking unemployment to the presence of institu-tions that are aimed at protecting employment, wages and the living standards of workers. An important observation from the European experience is that future rates of growth ofGDP and of worker productivity would be the most prominent explanatory variables underlying the growth of employment. This in turn depends on how Europe would position itself in maintaining the momentum of growth in an era of rapid globalisation. The evidence in this paper suggests that by and large the industrial economies are placed at vantage points and endowed with sufficient resources, political determination and policy responses to take them to higher levels of productivity and employment. Active labour markets policies are embedded in the policy responses, which are useful for shaping the employment outcomes of many countries. Role of Active Labour Market PoliciesThe role of promoting and creating jobs has always been handled through active labour market policies. These policies formed an integral part of regulatory regimes with the proviso that the compo-nents could be adjusted in order to respond to the exigencies of contemporary labour markets. Some specific components that have beensubjectedtoperiodic alterations are: unemployment benefits including replacement incomes and duration of payments, compressed wage structure, payroll taxes and direct taxes in support of welfare packages, and programmes for the promo-tion of skills, job search and worker mobility. Adjustments were made at the margin ostensibly for the purpose of making labour markets more adaptive and responsive to the exigencies of the times. Quite possibly they have contributed to making the markets more flexible and often more employment-intensive. This should not be construed as an endorsement of the ideolo-gically inspired position of many colleagues in the social sciences that projects labour flexibility as the ultimate panacea for all problems surfacing in the markets. On the contrary, a corpus of research carried out at the ILO and the OECD suggests that in general the components of active labour market policies have cumulatively brought about qualitative improvements to the well-being of workers. Complementarity and not conflict has been the dominant trait of various market interventions. As industrial societies matured into higher stages of development, active labour market policies have morphed into new interven-tions geared to strengthening the position of workers. Moreover, the new institutional safeguards, while retaining the provisions for employment protection, have placed greater emphasis on enhancing the content of severance pay, contribu-tory schemes for unemployment insurance, facilities for retrain-ing and skill upgrading, healthcare and pensions. These inter-ventions have effected a gradual shift away from rigid job protec-tion strategies, traditionally the core concern of labour regula-tions, towards applying what is known as a broad-based programme for “labour market protection”. The OECD studies have observed a notable relaxation of employment protection laws in many countries of Europe during the 1990s, as a fallout of improvement in the prospects for job growth further to the expansion of the EU [OECD 2006, p 95]. New Emphasis on Labour Market ProtectionEurope is placed in a better position to offer labour market protec-tion, which is conceptually a different kind of protection to all its incumbents. It builds on the assumption that workers can contin-uously refurbish their skills through life-long learning and in the process acquire the wherewithal for operating in a sellers’ market by combining their income security, employment flexibility and mobility within labour markets. It is premised on the pervasive presence of a state in the public policy space organising the
REVIEW OF LABOURmay 31, 2008 EPW Economic & Political Weekly70material resource required to carry out its crucial responsibilities for the governance of labour markets.5 It requires constant improvisation with new institutions to safeguard a range of inter-ests emerging in the world of work.There is a rich literature both in theILO and the OECD which captures the dimensions of a gradual shift in emphasis towards labour market protection and the implications of sustaining this trend in terms of the roles and responsibilities of the state and its partners [Standing 1999; Galtier and Gautié2003]. Recent reports of theOECD on employment outlook [OECD 2004, 2006 and 2007] make it abundantly clearthat the countries of Europe have been allocating a larger share of public expenditure for active labour market policies and fine-tuning their policy instruments, which have hadtangible results by way of generating new jobs. More importantly, there is a good deal of optimism in those countries on the prospects for a continuous increase of quality and rewards ofnewjobs. So far in this discussion I have drawn a distinction between the protectionist and promotional roles of labour regulations and tried to argue that the regulatory regimes of Europe have done a commendable job in dealing with these two roles, and quite conspicuously so with the former one. This distinction bears repetition, since it has implications for the labour market policies of developing countries. Here we try to address the question: what is the primary role of labour legislation in developing countries? A glance at the employment situation in India might give some answers. Pro-worker ApproachThe protectionist role of labour legislation has for long been emphasised in the Indian context by many analysts of the labour market. As independent India embarked on an ambitious programme of economic modernisation, there were compelling reasons for the union government to assume the main responsi-bility for generating employment and for ensuring its quality. Employment in the organised sector, i e, registered industrial establishments under the surveillance of the state, was perceived as the most effective means of gaining access to full-time jobs in the emerging industrial society. Over time the state became the principal employer in the organised sector, accounting for as much as 70 per cent of the total employment in that sector as it peaked in the year 1997 [Papola 2007]. At its peak the organi-sed sector accounted for less than 10 per cent of the total employment in India.Quintessentially, the main thrust of parliamentary enactments in the early decades of import substituting industrialisation was to safeguard the durability of jobs in the organised sector. Among other things, the amendments to Industrial Disputes Act in 1976 and 1982, made it obligatory for industrial establishments COUNCIL FOR SOCIAL DEVELOPMENTSouthern Regional CentreHyderabad – 500 030The Council’s Centre at Hyderabad is looking for a distinguished social scientist to head a Professorial Chair in the IMPART Centre of the Council instituted by the Reserve Bank of India in honour of late Dr. C.D. Deshmukh. The aspiring candidate should have an excellent academic career with a Doctorate in any branch of Social Sciences with a minimum of 12 years of Post-Doctoral experience in research/teaching, of which at least 5 years should be at the Reader’s level. The applicant should have good publications either in the form of independent books or publications in the reputed Academic Journals. He/she must be proficient in designing and carrying out research programmes, organize training courses and workshops on various developmental programmes independently, and familiar with computer softwares. The preferred age group will be 45-55. The pay scale offered is 16,400-450-20,900-500-22,400 plus allowances as per the Centre’s rules. Deserving candidates may be given higher pay scale. Only short-listed candidates will be called for interview. The Selection Committee may alsofill up the post by invitation in deserving case.The selected candidate will be on probation for a period of one year or more. After confirmation, the candidate will be appointed for a period of three years at the initial stage, which may be further renewed for longer period on the basis of his / her performance. Interested candidates may send in their applications with full details with two references and copies of at least two of their best published articles by 25th of June 2008 to the following address :The Regional Director, Council for Social Development, Southern Regional Centre, 5-6-151, Rajendranagar, HYDERABAD – 500 030.
REVIEW OF LABOUREconomic & Political Weekly EPW may 31, 200871employing 100 or more workers to secure government’s permis-sion for effecting layoff, retrenchment or closure. As pointed out by Anant et al (2006) “the provisions for job security in India’s labour code have been de facto substitutes for a system of unemployment insurance insofar as the organised sector workers are concerned”.As the economy failed to generate any significant growth in terms of income and employment during the 1980s, which in turn triggered off far-reaching changes in the content of national economic policies and industrialisation strategies, many analysts showed up claiming that the pro-worker orien-tation of labour legislation was mainly responsible for the poor performance of manufacturing industries. It was argued that the rigidity of regulations that restricted firing in the organised sector could have discouraged new hiring too. In effect the analysts made a case for an alternative approach toassessingthelegitimacy of labour regulation, based on how friendly it would be to employment creation. Aditya Bhattacharjea (2006) has an excellent review of the relevant literature along with a well-argued rebuttal of the claims by its protagonists. In retrospect, the regulatory regime that evolved in India was handicapped in meeting the twin objectives of protecting and promoting employment at the same time. This should not have been posed as an unusual situation for an overwhelmingly agrarian society, far remote from the threshold of extensive urbanisation and near full employment conditions. Given the conspicuous absence of those preconditions that had set the stage for effective labour regulations in industrial societies, the protec-tionist role of regulations was circumscribed even in the organi-sed sector industries. It is not easy to judge whether such regula-tions have had any positive impact on the growth of employment. However, if we take a look at some evidence of the preceding decades, two observations stand out. Firstly, during the 1980s, in spite of the presence of “pro-labour legislation” there was a technologically induced restructuring of organised sector manufacturing industries, in particular high-wage capital intensive industries, leading to a higher growth of productivity and real wages, and concomitantly, to lower growth of employment in those indus-tries [Jose 1992; Papola 1994]. During the 1980s and 1990s, Goldar and Banga (2005) have noted a significant positive correlation between the rates of growth of labour productivity and real wages, implying that at least a part of the productivity gains was passed on to workers through a rise in real wages. The obverse of such comparatively high levels of productivity and wages was that employment in the organised sector remained relatively low, never exceeding 10 per cent of the total. In 1999-2000, the total volume of employment in the organised sector was estimated around 35 million; it margin-ally declined to34.9 million by 2004-05. The total volume of non-agricultural employment in the organised sector was estimated at 32 million during the latter years [NCEUS 2007, Tables 1 and A1.2].Secondly, the near stagnation of employment in the organised sector did not imply that it was “job-less growth” taking place in the Indian economy. From 1990 onwards, when the economy grew faster at close to 8 per cent per annum, much of the growth in non-agricultural employment shifted to outside the organised sector. Comparative rates of growth of employment derived from various rounds of the National Sample Survey of India show that between 1993-94 and 2004-05 non-agricultural employment increased at 3.5 per cent per annum [Himanshu 2007, Table 8]. In the secondary sector it increased at 3.7 per cent and in the tertiary sector at 3.5 per cent. The study also brings out that during the period 1999-2000 to 2004-05 annual growth rates accelerated to 4.6 and 4.7 per cent, respectively withinsecondary and tertiary sectors, compared to earlier average rates of 2.9 and 2.3 per cent during 1993-94 to 1999-2000. Many analysts are inclined to view any growth of employment outside the organised sector with scepticism. In their reckoning, jobs created without the supervision of the state are liable to be of poor quality with untenable terms and conditions of employ-ment. This does not have to be the case, if there is a trend of increased real earnings and improved working conditions in the unorganised sector. There is, however, some evidence pointing to an improvement on the wages front [Himanshu 2007, Table 10]. Between 1993-94 and 1999-2000, real wages of non-agricultural male casual workers increased at an annual rate of 3.7 per cent and those of female workers at 5.1 per cent. There was, however, a deceleration of real wage growth during the subsequent period 1999-2000 to 2004-05 when the annual rates came down to 0.7 and 1.5 per cent, respectively. The above-mentioned study notes that there has been a close correspondence between the movement of agricultural and non-agricultural wages and that during the period from 1999-2000 to 2004-06 real agricultural wages increased by more than 3 per cent per annum in most of the poorer states of India. Such improvement in wages could be viewed along with a discernible decline in the incidence of poverty, noted in India during the period from 1992-93 onwards. Based on the National Sample Survey data Dev and Ravi (2007) have estimated that the percentage share of the poor in India declined from 36.0 in 1993-94 to 28.3 in 2004-05, and that during the same period the total number of people categorised as “very poor” declined from 140 million to 115 million. Looking AheadOur detour into the Indian situation was not meant to put a gloss on the growth of employment taking place in the unorgan-ised sector, but to draw attention to the policy challenges in developing countries undergoing similar changes in their labour markets. The pertinent question is how they would sustain the momentum of employment growth together with a rise in real earnings and improvement of working conditions outside the organised sector. To this end, one feasible option is to enhance the opportunity cost of all potential suppliers of labour to the organised and unorganised sectors. The state has a vital role to play on this front mainly through the medium of social spending.In any developing society the size of public expenditure on
REVIEW OF LABOURmay 31, 2008 EPW Economic & Political Weekly72some basic needs – education, healthcare, sanitation, shelter and civic amenities – if targeted at people at the lower end of income distribution, can effectively contribute to raising their “reserve price” in the labour market. Such spending can help set a stable floor below which wages would not be pushed down on account of excess labour supply in the market. More importantly, a socially engineered minimum wage can serve as a safeguard against distress-induced outmigrations from the countryside. The floor wage, when raised through social spending, can help lower the barriers facing new entrants of markets and also help them reach a threshold, where they can acquire the skills in demand and move on to more remunerative jobs. Redistributive transfers anchored on social spending have hada long pedigree in many industrial societies. They were instrumental in building a firm material foundation that guaran-teed an access to basic education, healthcare and reasonable living standards for all citizens. This foundation has come through a protracted process of social spending, spread over a century of industrial advancement [Lindbeck 2002]. The moral of the story is that if the developing countries want to develop a social model that can take care of the substantive and procedural rights of all in the world of work, they need to focus on the build-ing blocks of a social floor that ensures acceptable wages and working conditions for all. Fortunately, there is an informed public debate currently taking place in many developing societies, notably India, on the inevitability of a political mandate for increased social spending, showing tangible results by way of higher budgetary transfers for the basic needs of all citizens. Notes 1 Hepple (2006) also draws a distinction between substantive and procedural rights. Substantive rights are those which determine the actual conditions of labour, such as minimum wages, maximum working time and the right to equal treatment. Procedural rights are those which shape the procedures by which substantive rights are determined such as the right to organ-ise, bargain collectively, and the right to equal opportunities. 2 The 15 countries are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and UK.3 Nickell et al (2005) point out that in some countries the basic legislation was not intro-duced until the 1970s. It may also be noted that in 1964, the International Labour Conference adopted a landmark Convention of the ILO (The Employment Policy Convention) enjoining all member states to pursue an active policy designed to promote full, productive and freely chosen employment. 4 Surveys carried out among trade union members in Norway provide interesting information on their changing perception of what constituted a threat to their living standards. In 1992 as many as 39 per cent of the workers said that they were afraid of becoming unemployed. 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