Implications of Labour Laws in the Indian Economy on Employment Generation and Economic Growth

Abstract

Today, it is statistically evident and, to a large extent, factually verified, that India’s growth trajectory has followed the path of jobless growth. Data provided by the NSSO indicates a falling trend in employment from 2.8% in 2004-05 to a mere 0.5% in 2011-12. Given the sector wise distribution of the labor force, where the share of primary sector is 48.9%, the secondary sector is 23.4% and tertiary sector at 26.8%, 90% of this labor force comes under the informal sector. Past trends point to the fact that despite rigid labor laws in our country, regimes of employment have adapted and converted their ways towards incorporating more and more workers in the informal as opposed to the formal sector, even within the organized sector. In light of this understanding, this paper aims at assessing the rigid labor laws in the Indian economy and their impact on employment opportunities across the country in various sectors. The paper concludes that the prevailing labor laws have prevented the economy from specializing in labor intensive products in which the country has a comparative advantage and thus made the growth process less inclusive. The paper further discusses and attempts to refute the arguments and examples given by sceptics of rigid labour laws. The paper concludes with recommendations of reform strategies that can be advocated to improve and relax certain rigid laws such as Industrial Disputes Act 1947, Factories Act, 1948 and Trade Unions Act 1926.

Keywords: Labor Laws, Labor Market Rigidities, Unemployment, Informalization, IDA