- Professor S.R. Hashim (Chairman, IHD)
- Professor T.C.A. Anant (Secretary and Chief Statistician of India, who chaired ICLS 2013)
- Dr P. P. Mitra (Pricipal Labour & Employment Advisor, MOLE)
- Professor Gita Sen (Centre for Public Policy, Indian Institute of Management, Bangalore)
- Honourable guests, and friends:
I have been invited to discuss “the future of work in India and beyond”. I think we can agree that this is a broad and complex topic. Considering the fact that the amount of time available is finite, I would like to proceed in the following way.
First, I will share with you how the ILO sees the current and future challenges in the world of work, at the global level, looking at recent economic and employment developments and income inequality. I will also introduce the ILO’s new initiative on the future of work.
Then I will turn to specific issues relevant to India, focusing on four themes and placing them in this overall global context. The themes are really practical policy questions:
- How to promote employment-intensive growth
- How to boost female labour force participation
- How to facilitate the transition to formal employment and formal firms, and
- How to strengthen labour market laws and institutions.
In the face of weak growth and disappointing employment creation, monetary policy interventions have been extensive and even unprecedented in some cases. Of course, this has also had spill over effects to other economies, with the emerging economies including India benefiting from capital inflows, but now unfortunately suffering from capital outflows as the end of monetary stimulus begins to appear on the horizon. This is the general picture, although with highly uneven performance across countries.
As you know, there had been relatively solid growth in India, and in China until recently. This year, the global economy is facing another challenging phase, as China, which had been one of the few engines of global growth, has seen signs of slowdown.
India experienced its slowdown in 2013 and is now experiencing a phase of stronger growth. In particular, India, as a major energy importer, has benefited from historically low oil prices. India therefore, is one bright spots on the horizon, with the economy expected to grow by around 7.5 per cent this year. Nonetheless, the world economy still remains in the grip of a volatile and uncertain economic situation, and this is bound to impact India, and to affect the choices India makes and the paths that are available to India. And I’ll be coming back to that theme.
The lingering effects of the Great Recession are still acutely felt in the global labour market. If we look at G20 countries, for example, the aggregate unemployment rate across the G20 remained elevated at almost 6 per cent in 2014. Youth unemployment and long-term unemployment remain high in many countries. Labour force participation rates have declined in several G20 countries, due in part to demographic change and to youth staying in school for longer, but also due to discouraged workers who have left the labour market. Overall, employment growth remains well below the pre-crisis levels across the G20, leading to a substantial jobs gap. Unfortunately, this is one area where India is no exception to the trend, and again I’ll return to this in more detail later.
Beyond the quantity of jobs, there are serious concerns about job quality for both existing and new jobs. The incidence of non-standard forms of employment, including contract labour, informal employment and involuntary temporary and involuntary part-time work, continues to rise in many countries. In the advanced economies we have also seen wage stagnation or even wage declines, which reduces aggregate demand domestically in those countries, and spills over to global demand, while contributing to the disturbing rise of inequality.
Indeed, inequality has been described as the defining challenge of our time. When measured by Gini coefficients, income inequality has been increasing in most advanced, emerging and developing countries, with important exceptions in a few Latin American countries where very strong and co-ordinated policy efforts have been effective in combating it.
As you may expect, these trends towards greater inequality have strong roots in the labour market. Again, looking at G20 countries, recent studies by ILO and other international organizations show that widening inequality is closely associated in most countries with the declining share of total GDP that goes to working people through their pay checks. In addition to unemployment and underemployment, the significant slowdown in wage growth in most advanced and some emerging G20 countries is responsible for the decline in the labour share of national income, and this feeds through into overall household inequality and personal income inequality.
Inequality is a social issue, raising questions of fairness and reducing social cohesion. And it is also a political issue, when frustrated publics lose confidence in governments that seem out of touch with their needs or that seem to cater to the wealthy, this can cause political disturbances. But it is also an economic issue. Recent research by the ILO, IMF and other organizations demonstrates that inequality clearly harms overall economic growth. By way of illustration, the OECD recently estimated that rising inequality in Europe had shaved almost 5 per cent off the region’s economic growth in recent years. 5 per cent, that’s a lot. Households that face low or stagnating wages or uncertain temporary or contract jobs do not spend as much, and when households do not spend, businesses do not see reason to invest. As a result, aggregate demand suffers. It has remained depressed at the global level and this in turn has slowed both investment and global trade. Inequality does further harm to economic growth over the medium and long-term, as it leads to more interruptions of growth, as publics become discontented things become unstable, and it leads to less investment in human capital, both by the household and the firm.
I am pleased to report that the G20, as the self-described premier forum for international economic cooperation, has finally put inequality onto its agenda this year. It is one of the top priorities of the current Turkish Presidency of the G20 and countries have been invited to adjust their growth strategies – which they created for the first time in the G20 context last year - to address inequality and make growth more inclusive. As an active member of the G20, India now has an opportunity to adjust its growth strategy to address inequality, and I hope it will seize this opportunity.
Beyond the rise of inequality, we have also seen other profound changes in labour markets over recent decades. These arise from technological change, increased migration, ageing societies in some countries and youth bulges in others, and shifting employment patterns. The direction of these changes unfortunately has often been away from inclusive economies and social justice. And these forces that have driven the global economy in this direction will continue to visit changes in the world of work. If we want to change the direction, the adverse direction of their impacts, we have to think about policy interventions.
In light of the these longer term changes, the ILO Director General, as you heard earlier, has proposed to organize a series of what he calls “conversations” on four thematic areas addressing the future of work.
The first is the relationship of work and society. The diversification and polarization of jobs, driven by globalization, technological change, and other forces, challenges the expectations that we have had about employment possibilities, about incomes and about careers.
Second, in this context, we have to reflect on the future sources of work: where will the jobs come from, and what will they be like? Will access to decent jobs increase or decrease? A range of policies, from macroeconomic to labour market policies, and beyond, may need to be revisited in order to promote employment intensive growth and employment and development.
The Third conversation is to look into the ways in which employment will be organized. Will the so-called “standard employment relationship”, a firm contract with unlimited duration, which has been the norm in advanced economies remain “standard”, or will the standard contract actually become quite atypical? In emerging economies, will the pathways from informality to formal jobs widen or narrow?
And finally, the fourth conversation, having examined these questions, we need to discuss how to govern the new reality of work. For that, we need fresh a look at the policy tools that we have and those that we need to develop. This includes both national policies and laws, labour regulations, social protection policies; and it also occurs at international level, through the ILO’s international labour standards, and through the economic co-ordination that occurs through bodies like the G20 and the BRICS.
And in that light, let me just mention that this year, for the first time, the BRICs will hold their first labour and employment Ministerial meeting. They have had a meeting at leader level for several years, and last year they decided that they should now begin meeting at the level of labour and employment ministers, and so this year’s BRICS host, Russia, will convene such a meeting of Ministers in January 2016. And we have been invited by the BRICs to offer inputs and advice to the group and we are really looking forward to that opportunity.
In terms of the ILO’s Future of Work project, we will be launching these discussions with our constituent governments, employers’ and workers’ organizations, academics and others over the next several years. However, let me mention that looking at the future does not mean that our approach should be “futuristic”. We are not technology pessimists. We do not believe that technological innovation will make human life worse or destroy all the jobs. To the contrary, major technological breakthroughs can greatly improve the quality of human life and the productivity that allows living standards to rise for large numbers of people.
And while it is useful to try to project trends and impacts, it is also important to remember that our actions today are already shaping the future, opening pathways or closing off avenues for good futures for growth. We need to put more emphasis on shaping inclusive labour markets today if we want to achieve the future employment patterns and relationships that will be productive. And here I would point out that what happens in India will be an important factor shaping the global future of work, as a result both of the sheer size of its population and the fact that it is a young population, with large numbers in their economically active years for decades to come.
So on that note, let me turn from the global to India. And, I spent that time on the global picture because it does in fact shape, limit, but also open the prospects for India and the paths that India can choose for her economic growth, development and job creation.
I mentioned that I would like to address four themes in the Indian context.
- The first is the fundamental challenge for economies to ensure that growth translates into job creation; more and better jobs for the full population.
- Second is the critical issue of whether women are able to access employment opportunities and engage in paid work outside the home. When women are constrained from undertaking paid work, economic growth will necessarily be lower than its potential.
- The third issue is a big challenge faced not only by India but by many middle-income countries, which is to make the transition to formalization of the economy and labour market. In that light, new forms of informal employment have been emerging, even in the formal sector, particularly as a consequence of the demand for greater flexibility and pressures from globalization. And the emergence of contract labour in India is one of many examples.
- The fourth and final point is, in light of rapidly changing global and Indian economic context and forms of work, labour market institutions, including laws and regulations, need fresh thinking in order to address current and emerging employment challenges while providing basic fairness and security to workers and balancing the interests or workers and employers. This is the unavoidable responsibility of governments.
First, promoting job-rich growth. Experience shows that economic growth alone is not sufficient for the creation of sufficient decent and productive employment. And now we have the situation that many large economies experience growth so slow that even previous rates of employment intensity of growth are not sufficient, so in many of the advanced economies, for example, the employment intensity of growth has not changed. The so called ‘employment elasticity’ of growth has not changed, if anything it has slightly increased. But the problem is that growth itself is so slow that it is not producing the jobs that are needed.
What is the situation in India?
India experienced a period of strong economic growth in the 2000s, for an extended period of time. But the situation in the labour market was puzzling. Data from this period suggested that employment growth was minimal – consequently, some commentators described this as a period of “jobless growth”. This “puzzle” is also reflected in ILO’s recent analysis. When we estimate the employment elasticity, a common measure of how employment growth responds to GDP growth, our results show that employment elasticity in India was relatively stable at around 0.3 between 1991 and 2007, a long period of time. That is, 1 per cent of overall economic growth produced 0.3 per cent of employment growth. More recently, and persisting through the labour statistics, the elasticity has been only about 0.15 per cent, compared to 0.30, about half of the previous level.
However, when we focus in at a disaggregated level, we find that employment in India did grow, both during the earlier period and more recently, but it grew mostly for men and mostly in urban areas – at the same time, women in rural areas withdrew from the workforce. This pattern explains a significant part of the weak overall employment elasticity of growth. Moreover, it is also true that most of the new jobs created in India were informal—either in the unorganized sector or even in the formal sector—as a result of the rise of contract labour.
This pattern emerged as India has been undergoing structural transformation, by which we mean the shift of labour and overall economic activity in a developing economy out of agriculture and into manufacturing and service sectors. This has important implication for jobs. In the successful developing countries in East Asia in the second half of the 20th Century, and earlier in the West during the industrial revolution, that shift was accompanied by rapid job creation in manufacturing, jobs that were more productive and could pay higher wages. More recently, however, in India and in a number of other middle-income countries, the growth of manufacturing has not mimicked that path, giving rise to the notion of “premature deindustrialization”, discussed in the Indian context by your Chief Economic Adviser, Arvind Subramanian, in recent work. This pattern has also been observed in Brazil, which witnessed its peak in manufacturing in the 1980s, although it is still a developing and emerging economy. Manufacturing globally has become more capital and skill intensive, and this is true even in India where labour is abundant.
How does India compare to other large emerging economies in terms of the employment creation as a result of growth? Taken as a group, the crisis of 2007-8 resulted in a reduction in the employment intensity of growth in emerging G20 economies, as whole. Even now, the employment intensity of growth has failed to recover to pre-crisis levels (currently for the group an elasticity of 0.19, slightly above India of 0.15, compared with 0.23 in the pre-crisis period). With economic growth itself also decelerating in most emerging G20 economies, the employment picture is bound to be disappointing, less growth and less employment intensity of growth. For G20 emerging economies as a whole, growth areas in GDP have been driven more by gains in labour productivity than by increased employment. In labour abundant countries this is not an optimal pattern.
This leads to the question: what can drive growth and job creation in the future? What can be done to promote job-rich growth in India that absorbs the countries abundant labour and take advantage of its demographic dividend?
We believe this requires policy interventions. Policy interventions that address both the demand and supply sides of the labour market. On the demand side, the main way to increase demand for labour is by increasing overall demand.
And here we need to start at the household level, where higher incomes, more reliable and stable incomes, can lead to higher consumption. Steadily increasing consumption attracts investment, where investors seen an opportunity to make money in goods and services. And this pattern of higher consumption and higher investment can help to move an economy onto a self-reinforcing and sustainable growth path.
Macroeconomic policies should support demand and growth, and labour market and social policies that increase wages, increase disposable income, provide a social security floor for households should be pursued in tandem with these macroeconomic policies, each reinforcing the other. And I want to mention that anti-poverty policies such as NREGA provide important support for demand by raising and stabilizing household incomes, and should therefore be credited for their macroeconomic benefits as well as their pro-poor effects, and I was very happy yesterday to take part in an event, sponsored by the Ministry of Rural Development, in which some important projects, both NREGA and the rural roads project, PMGSY, are being combined to be mutually reinforcing.
The key to success in strengthening the link between growth and employment is the design and effective implementation of coherent policy packages that address a range of factors simultaneously and in mutually compatible and reinforcing way. For instance, fiscal policies and infrastructure investment can be designed to maximize employment creation. We have good examples of where this has been done successfully. Some of the policy tools fall within the areas of responsibility of labour and employment ministries, while others fall under the responsibility of other ministries. Coordinated thinking, coordinated planning and interventions are required.
Boosting female participation in paid work
Turning to the supply side of the labour market, let me also turn to the question of female participation and paid work. As I mentioned earlier, part of the “growth-job puzzle” in India is the declining trend in female participation, notably in rural areas. Overall, in any country female labour force participation can be an important driver of growth and in fact the G20 last year agreed on a specific target to reduce the gap between male and female labour force participation as a way to boost global growth. The McKinsey Global Institute has just released a report which finds that if there were parity between men and women in labour markets, as much as $28 trillion, or 26 per cent, could be added to global annual GDP by 2025. 26 per cent to global GDP. And the most important point that I can take from that report in this context is that India would enjoy the biggest potential gain from parity in labour force participation: complete parity would imply a massive 60 per cent increase in GDP by 2025!
The participation of women in the labour force in reality, not in our hopes and aspirations, varies considerably across economies, far more than in the case of male participation. India unfortunately, statistically belongs to a set of countries in this region and across the Middle East and North Africa where less than one-third of women of working-age participate in the labour market; in contrast with East Asia, where the proportion reaches two-thirds, twice as high. This variation is driven by a variety of economic and social factors including economic growth, educational attainment, fertility rates and social norms.
It was most puzzling therefore to see the falling engagement of women in the Indian labour force during a period of stronger economic growth and somewhat rising household incomes in the 2000s. The female labour force participation rates in India declined from about 34 per cent in 1999-2000 to just over 27 per cent in 2011-12. From 2009-10 period, women’s participation finally began to increase in urban areas, while it continued to decline in rural areas, as women withdrew from agriculture but faced a lack of alternative employment opportunities, such as in the manufacturing sector.
Based on ILO research, the trends in India appear to be driven by a combination of factors: improved educational enrolment and increased household incomes, which are clearly positive trends, but also the lack of job creation in those places and sectors which women could access.
Whether more women can be engaged in paid work represents one of the fundamental question marks over the future growth and development trajectory of India. This is an unexploited resource that India cannot afford to waste.
In fact Indian Prime Minister Modi addressed this issue directly in his speech to the UN General Assembly last week, saying that Indian “development is intrinsically linked to empowerment of women.”
As I mentioned, the G20 adopted an ambitious goal of reducing the gender gap in male-female participation rates by 25 per cent by 2025, and the G20 countries are now in the process of implementing relevant policy measures and must report on progress. The G20 has also emphasized that this is not just about quantity of employment but also about improving the quality of women’s jobs.
So, there is now a strong global consensus that women’s labour force participation and access to decent work are not only so-called “women’s issues”, having to do with social measures, but should be a growth concern for senior policy makers.
Notwithstanding women continue to face barriers, barriers that can be removed, to enter labour markets. And these barriers include working conditions that are not tolerable that are so unattractive that they don’t draw women in, low wages, actual discrimination and also the challenge of balancing the competing burdens of work and family responsibilities. In addition, women are heavily represented in the informal economy where they have the least legal protections.
Considering these trends and emerging global goals, policymakers in India should take a comprehensive approach by improving women’s access to and quality of education; relevance of training programmes and skills development to women’s particular capabilities but also to the barriers that are holding them back; improved access to child care and elder care, improved maternity protection for the balancing of work and life responsibilities; and provision of safe and accessible transport. All of these have to happen in a macroeconomic context that promotes pattern of growth that create job opportunities for them. A coordinated policy framework should be constructed that addresses both “gender-specific” constraints that face women in particular and also the overall pattern of economic growth.
Facilitating the transition to formal employmentThat leads me to my third issue which is the challenge of informality. In India in 2011-12, over 92 per cent of Indian workers were informal, which we can break down into 82.7 per cent of workers in the unorganized sector and 9.3 per cent of workers who were in the organized sector but informal in the sense that they lacked access to social security and many other labour market protections. The aggregate figure, therefore, combines two trends: a slight but welcome fall in the share of workers in the unorganized sector, but a rise in the share of informal workers in the organized sector.
Indeed, the increase in total informal employment in recent years is largely due to the growing use of contract labour and outsourcing of production: the share of contract labour in organized manufacturing reached 34 per cent in 2010-11, up from about 14 per cent in 1995-96. The use of contract labour is not limited to the private sector but is also growing in the public sector.
And even in the currently vibrant economy of India, this informalisation, both in the informal sector and the formal sector, is leading to growing inequality. The rising tide in India has not lifted all boats.
What can be done? The issue is complex and indeed a challenge to progress is the lack of coherent and integrated policy frameworks to address the complexity of informality. Now, thanks to recent efforts, a useful framework is available to guide policy development. A few months ago, the ILO’s governing International Labour Conference - in which India is an active participant, both at the level of government and trade unions and employers’ organizations - adopted a new Recommendation, and when I say Recommendation, in ILO terminology that is a formal instrument that has been negotiated by 185 governments, employers and workers organizations. This new Recommendation is called the “Transition from the Informal to the Formal Economy”, and it provides guiding principles on successful experience where countries have reduced informality. It offers an integrated policy framework that addresses the problem through economic and tax policies, labour market laws and regulation, equality and anti-discrimination measures, skill development, financial and business services, social protection and income security (including wages and minimum wages), social dialogue and so on. It is based on practical, successful experience and it was negotiated by both the public and private sectors in 185 countries. So it represents a consensus between public and private sectors on how to formalize jobs and businesses, if the political will exists.
And I am happy to report that the Indian government played a strong and positive role in its development. And we are hoping that India will step forward at our Governing Body meeting next month to become one of 10 champions who will pilot this recommendation and demonstrate how effective it can be.
Strengthening labour market institutionsTurning to the last point of the particular challenges in India; labour market laws, regulations and institutions. Needless to say, all of the policy measures that I’ve talked about in terms of employment intensity of growth, in terms of increasing demand, in terms of increasing female labour force participation, in terms of formalization, require strong and effective and well-orientated labour market laws, regulations, policies and institutions.
Around the world, many debates on employment and job creation have centred on the perceived impact of labour market regulation, including laws that govern the employment and dismissal of workers, as somehow being constraints to employment creation. In this context, the debate over labour market regulation has too often been simplistic, as a dichotomy between regulation and deregulation. This assumes that there is only two alternatives; heavy governmental intervention in the labour market or little protection and a polarization of outcomes in the labour market. I’m happy to report that based on research by a number of institutions, including the ILO and notably, the World Bank, and by academics, the world is now recognised that, no, it is not a question of regulate or deregulate, it’s a question of better regulation, appropriate to country-specific, modern labour market realities. This move away from the simplistic deregulation approach shows that well-designed labour law regimes can have a positive impact on growth itself, on employment creation, at the same time that it improves the incomes and security of workers and their households while lightening the administrative burdens on the firms that employ them.
Appropriate legal reform can be good for business, because it can reduce uncertainty and, complexity and it can be good for workers because it creates a robust, comprehensive floor of rights and social protection. It can encourage the parties – the employers and the workers - to negotiate with each other and it can enable government to modernise and target their compliance, oversight and enforcement activities. In light of the evidence that better regulation can work and does work many institutions have recently shifted their positions. Even the World Bank has dropped the employment regulation measure from its “Doing Business” index, because it recognised that it was not based on good knowledge, on empirical evidence, and so labour market regulation no longer appears in the “Doing Business” index, which has other problems, but at least that distortion has been removed. And in fact the ILO recently collaborated with the Bank to produce an internal guidance manual for World Bank staff that presents the case for modern regulation that balances the needs and interests of workers with those of firms and the overall economy.
In the case of India, it is clear that the existing legal framework is outdated and fragmented. Some sectors and sectors of the economy are heavily regulated, while others lack even the most basic protections.
There is, therefore, considerable scope for a reform process in this country, which could create a modern comprehensive regulatory framework comparable to those that are being constructed in some other G20 and BRICS jurisdictions.
One goal of this reform might be to shift the legal approach to put a bit more emphasis, or maybe even much more emphasis, on employers and workers representatives having a greater role in both setting wages, hours and working conditions and ensuring compliance, through processes such as collective bargaining and workplace health and safety committees. I know that collective bargaining currently covers a very small segment of the Indian workforce, but it doesn’t have to be that way. In countries like China the share of workers covered by collective bargaining has been increasing dramatically and it was already high in some countries like Brazil and Russia. The prevalence of collective agreements is much lower in India than in the other BRICS, so this suggests that there is room for improvement.
The promotion of greater involvement for workers’ and employers’ organizations entails a changed, but not diminished, role for the state. Thus, some countries’ recent reforms to labour regulation have included the establishment of quick and effective dispute resolution systems; the formation of professional and strategically orientated labour inspectorates who can ensure compliance while also providing capacity building to firms and workers; improvements to workplace health and safety systems; and provisions to help informal workers come under social insurance schemes and gradually come to benefit from other protections of labour laws. These tested approaches in other countries can help India think about how to modernize and make labour regulation more efficient while still ensuring job quality and reasonable job security. India can benefit from looking at the most innovative and effective labour law reforms elsewhere, and ILO is ready to help in any way requested, based on our comparative global experience.
The way forward
So, in closing, ladies and gentlemen, these topics highlight both the progress and the challenges facing India and the Indian labour market. One positive feature of recent years is the willingness of the Indian government to experiment with new approaches and implement very innovative policies. And again, I wold single out NREGA is such a scheme, as one that is known around the globe for its innovation and its effectiveness in raising rural incomes. Similarly, efforts to expand social security to the unorganized sector are commendable and should continue and increase. Also, the effort to expand bank accounts to all workers and households and to put payroll and social insurance transactions on line are building blocks for further progress. And here I would refer to the comments by Mr P. P, Mitra, about the importance of transparency. There is unequal information in the labour market and that distorts the relationship between workers and employers. The more information that you can make accessible online, broadly and individual to the affected workers can only help balance bargaining power, but also to help ensure compliance. And as I said, these elements that are being put online by the Government, now and in the future, are building blocks that can be used for future innovations.
With all the uncertainties around the future of work and the future of India, creative approaches and bold decisions will indeed be needed.
So, what are the important takeaways for a forward-looking agenda? Three quick points.
- First, structural transformation of India, out of agriculture and into manufacturing and services, has to be better harnessed to promote employment-intensive growth. This requires new types of industrial policies that seek to promote sectors that can absorb workers in the places where they live, not only relying on migration, but also dispersing manufacturing and services.
- A second challenge is to ensure that progress will benefit more women, more marginalized groups, and more people in rural areas. Inclusiveness is increasingly recognized as the foundation for both faster growth and growth of better quality and sustainability.
- Third and finally, coherence between policies and the collaboration of different policymakers and ministries is required to find solutions to these multi-faceted challenges. And it should be done in constant dialogue with the private actors in the economy, particularly employers and workers organizations.
We encourage India to continue finding creative, made-in-India policies, a play on ‘make-in-India, but these creative polices such as NREGA, rural roads programmes, etc., were made in India policies that have inspired the world. So India should continue being creative, being confident and bold, continue its important presence on the global stage as well. This is something only to be welcomed in the BRICS, in the G20 and in the UN. And to learn from the innovative approaches of others as additional means to promote sustained and inclusive growth and jobs. And here I would say there are some very good lessons from China, which has been rapidly increasing wages, particularly minimum wages at double-digits rates for over 15 years, has been increasing the availability and mandatory nature of employment contracts, increasing collective bargaining. That’s one example. There are others we can provide, additional ides that can be thought about in the Indian context.
Thank you, and I look forward to hearing your comments and views.