21st October – The coming disruption in India’s job market

India has already passed the Code on Wages, 2019, which amalgamates four separate laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 — into a single law which codifies the powers of the Centre, which can make wage-related decisions for specified industries such as railways, mines and oil fields, etc, while States can set wage levels for other industries. The Code also proposes a uniform floor wage across the country, below which industry/state-specific minimum wages cannot fall.

Details –

  • A draft Code on Social Security (currently in its third iteration) proposes to merge as many as eight laws covering social security benefits of workers in different industries with a uniform law.
  • But what has set India Inc — particularly India’s new, but booming technology-driven start-ups — buzzing is a proposal which will effectively convert India’s millions of gig workers into “employees” and force gig-worker-based companies like Swiggy and Zomato and Ola and Uber to recognise the millions of their “independent contractors” as workers and extend social security benefits like PF and ESI to them.

Impact –

  • The ramifications extend far beyond just a handful of tech unicorns like Zomato and Ola. Staffing solutions provider Teamlease estimates that as much as 56 per cent of all new jobs will be created in “sharing/gig economy”.
  • For such gig workers, such jobs are mostly seen as a stopgap before landing a more secure (read permanent) job. If the new Social Security Code goes through, it will erase many of the differences they see between their current jobs and a “permanent” one — social security (PF) cover, some form of medicare, maybe termination and retiral benefits.
  • It will radically disrupt the business models of such companies, which currently claim that they are simple technology platforms enabling independent contractors to deliver services to customers. They will now have to factor in the costs of providing for such social security, which may well end up putting the brakes on their headlong growth.

Brazil’s case –

  • Brazil is a good fit. It is a large emerging economy, much like India, and has large numbers of young (and poorly skilled) job seekers (again, much like India).
  • Just like us, they had some of the world’s toughest, most cumbersome labour laws, long seen as impediments to unlocking the full potential of the economy.
  • All that changed in 2017, when Brazil passed Law No. 13,467/2017 to amend the Brazilian Labour Code (Consolidação das Leis do Trabalho – CLT).
  • It aims to lead to the creation of new jobs and reduce unemployment rates (currently over 11 per cent), by axing restrictive rules and recognising the changed nature of work and employer-employee relationships.
  • It allows for the gig economy and the contractual and temporary nature of present-day employment.
  • It accounts for terminations, which will no longer need to be ratified by unions or the Ministry of Labour.
  • The new Law also establishes the possibility of termination by mutual consent and sets strict conditions for demanding things like equal pay, or benefits and allowances.

A positive trend –

  • Despite initial — and strong — objections from unions, the reform appears to be working for workers as well. Social security cover has been improved and even temporary workers get benefits like (pro-rated) leave, bonus etc.
  • Make no mistake, the Indian jobs market is set for significant disruption and turmoil. But unless India makes some difficult choices now, the future is only going to get more difficult.

SourceThe Hindu Business Line

QUESTIONThe Labour Code 2019 seeks to formalise the informal workforce to achieve Indian state’s social welfare objectives. Discuss.

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