Labour Market

Introduction:
Labour Market: A labour market in an economy functions with the demand and supply of labour force.
A labour market is the place where workers and employees interact with each other. In the labour market,
employers compete to hire the best, and the workers compete for the best satisfying job.

The structure of India’s labor market is diverse. India possesses a large labor pool as almost half its
population of 1.2 billion is of working age. In 2020, the estimated youth unemployment rate in India was at
23.75 percent. The youth unemployment rate is the number of unemployed 15-24 year-olds expressed as
a percentage of the youth labour force. Unemployed people are those who report that they are without
work, that they are available for work and that they have taken active steps to find work in the last four
weeks.

Structure of labour in India: The government’s labor laws usually classify employees on the basis of skill
and area of operation. In terms of skill, employees are categorized as unskilled, semi-skilled, skilled, and
highly skilled. In terms of area of operation, employees are categorized as managerial personnel and
workmen. This defines their job roles, wages, disbursal of benefits, and their rights and obligations.
Rural workers constitute over 60% of the workforce.

Organised sector employs 8% of the workforce. One of the trending models in developed countries is the
gig based economy model applicable for all the level of skill sets. This concept in India is not so famous
and the gig workers are treated as contract labour by most of the corporates. Also most of the gig
economy workers in India are blue collar workers.

In this paper we are addressing the difficulties and threats faced by the gig economy workers and the
solutions that can be foreseen for formalizing this sector and developing the gig economy.

Literature Review:
Paper -1:
Entrepreneurship and the Youth Labour Market Problem: A Report for the OECD by David G.
Blanchflower, Professor of Economics, Dartmouth College, USA and NBER and Andrew J. Oswald,
Professor of Economics, University of Warwick, UK.

This paper mainly focuses on one labour market problem, i.e., youth unemployment. The importance of
this paper comes from the fact that today’s youth are tomorrow’s adults who build the nation and the
world. It states that the youth unemployment rates tend to be twice the adult unemployment rate. Also, in
the countries with high unemployment rates, almost one-third of the youth are neither in the student group
nor in the workforce, i.e., they are unemployed and looking for a job. These high rates of unemployment
in the youth can be attributed to two factors- efficiency and equity.

This paper suggests that to overcome this problem, the government has to implement policies which
promote entrepreneurship among the youth. The paper identifies various potential benefits from such an
attempt of promoting entrepreneurship –

● Promoting innovation, thus creating more jobs

● New product innovation might benefit the consumers by creating value
● Young entrepreneurs might have the potential to respond proactively to upcoming opportunities
and trends.
● Greater well being and self-reliance could be achieved through high self-employment levels.
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The paper tends to address questions like

● How do young people perceive entrepreneurship?

● Are they interested yet being prevented from becoming an entrepreneur?
● How do they perceive work and what kind of work are they seeking?
● What major problems do they face while entering the job market?
● Which factors motivate young people to think in an innovative way and pursue entrepreneurship
as a career?

Results of the study:

Contrary to what we expect, it is found out that the wealthiest countries tend to have lower levels of self-
employment. This is because most of the youth in these countries are most likely to be obtaining an
education rather than working. The reverse is also observed, i.e., less developed economies have high
levels of self-employment rates.

Paper 2:

Article- Labour Market Inequalities in India: Dimensions and Policies by S. Mahendra Dev, Indian Journal of
Human Development

This article focuses on the problem of labour market inequality that can be found across sectors, wages
and earnings, quality of work, access to the labour market and finally, between the organized and
unorganized sectors. The author of the article also opines that labour market segmentation is also one of
the major reasons contributing to inequality in the labour market. Considering the recent times,
technology developments are increasing the income disparities by favoring the skilled labour very highly
when compared to the unskilled workforce. The article also mentions that India is the second highest
income inequality country in the world, next only to South Africa.

The article recognizes few important characteristics of the Indian Labour market. Few of them are:

● Domination of Informal Sector

● Absence of elements of social wages
● Problem of “poor” class workers getting low wages
● Discrimination in the labour market
● Migration (both internal-rural to urban, and international)

Considering the sectoral inequalities, it is observed that there are significant differences between
agriculture, industry, and services. 49 percent of workers are engaged in agriculture and allied sectors,
yet it contributes to only 14 percent of Gross Domestic Product. On the other hand, service sector
employs as low as 27 percent of the workforce yet form 58 percent of the GDP. The unequal growth
across sectors is also attributed to the small size of establishments (less than 10 workers) and also the
‘missing middle’.

It is also observed that the extent of inequality also depends on the regional factors. According to the
Employment Situation Index (ESI) computed by Institute for Human Development (IHD), Himachal
Pradesh has the best employment outlook while Bihar had the least.
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The article lists a set of nine factors which are contributing to the wage inequality in India – it includes
Education, Occupation, Work type, rural/urban disparities, region, age etc. It compares India and Brazil
against these factors.

The article proposes that appropriate macro policies should be implemented to tackle the problem of
unemployment. This includes trade, monetary and fiscal policies. In case of monetary policies like
reducing interest rates, it is important to be careful of the adverse effects it might cause by promoting
capital intensive industries and thereby, indirectly resulting in more unemployment. The fiscal policy
instruments such as taxes, expenditures and subsidies have to be modified accordingly to promote
employment.

The article also advocates the importance of Social Protection policies so that more people from the
backward regions and castes are encouraged to come forward and work with more security and dignity.
Also, at the root of the problem, the inequality of opportunity should be reduced to in turn reduce the
inequality in outcome.

Paper - 3:

COVID -19 and the State of India’s Labour Market by Radhicka Kapoor, ICRIER Policy Series No. 18,
June 2020

This is one of the most recent papers which talks about the shocks of COVID-19 on the labour market.
The paper points out the difference between the workforce engaged in regular wage salaried jobs vs
those in regular salaried jobs, the latter having a written job contract for a period greater than 3 years and
available amenities of social security. The numbers related to these two categories are intriguing- the
former accounting to 24 percent of the total workforce and the later being a mere 2.2 percent. It also talks
about the unemployment rates which stood at an alarming 23 percent in April-May 2020.

The most important problem pointed out in the paper is that the workforce in different sectors is affected
to a different extent by COVID-19. Apart from agriculture, sectors like manufacturing, construction and
trade, hotels, and restaurants etc., were very highly affected. The question here is not simply of the
vulnerability of the employment of such a workforce, but also about their survival, as most of these
workers’ wages even during the normal times are so low that they will not have any savings to cope up in
the months of their unemployment.

The paper then focuses on the policies required to bring the situational shock under control. It stresses on
proving immediate relief to the poor by providing a source of direct income. Under the Pradhan Mantri
Garib Kalyan Yojana which gives a certain amount to selected groups of people like senior citizens,
widows, women and Divyang. But there might be some implementation problems out of which the main
one is the exclusion error, i.e., more than half of the deserving population are not included in the plan.
The bank transfers of the direct income amount are also an issue, particularly during the COVID times.

Apart from this, the author opines that the government needs to support the enterprises, so that they
won’t lay off employees and employ a job preservation scheme. Temporary reallocation of workers from
the most affected sectors to the sectors which rose to high demand like online groceries, hospitals,
pharmacies etc., will help in reducing the impact of the problem. However, the workforce should be given
appropriate training for the new jobs, which might not be easy sometimes.
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Impact of GiG business in Indian Economy:-

GIG Economy:
It can be considered as a work engagement where there is a service seeker with a specific demand or
task, whom we can consider as a consumer and a service provider known as gig worker, who can
perform the specific task.

➢ In India there are about 3 million gig workers, but the majority of them belong to white collar
category. Generally gig workers are considered to be temporary staff hired on contract basis
especially for unskilled or semiskilled jobs supplied by manpower agencies and seen as a
cheaper alternative. Believing this myth, most of the workers are underpaid and are earning less
than the minimum wages.
➢ Gig economy has opportunity in almost all the industries. A survey conducted by Aon-Nasscom
Survey in December 2020 implies that the proportion of gig jobs in pharmaceuticals, fast moving
consumer goods, banking, financial services and insurance, manufacturing, services, technology
and business process outsourcing, and ed tech had gone up from about 50% to 76%.
➢ It is expected that India’s gig economy will grow at a compounded annual growth rate of 17 per
cent to touch $455 billion in the next three years.
➢ The major problem faced by the Gig economy in India is it is an unorganised sector and taking it
as an advantage corporates are exploiting the gig workforce at less wages.

Gig Business workers (zero-hour contract ) not legally entitled to:

➢ protection from unfair dismissal
➢ the statutory minimum notice of intention to terminate employment,
➢ redundancy pay
➢ the right to request flexible working
➢ unpaid time off to care for dependants
➢ protection in the event of a buyout or change of employer.
➢ Most Indian employment laws expressly prohibit dual employment, i.e. individuals cannot carry
out two jobs if the total working hours exceed 8-9 hours a day based on location. Many gig
workers work with multiple apps at the same time to supplement their income, which may
become harder or illegal to do if they attain employment status with app operators

Threat:

➢ The Business Risk which normally handled by the corporation is shifted to the Gig workers. When
there is a decline in demand the burden that the corporates are entitled to take is shifted to the
gig economy.
➢ During recession or economic slow down most of the corporates tend to lay off full time
employees and hire more gig workers for cost cutting on contract basis or when they are scaling
up their businesses they hire a lot of unskilled and semiskilled labour in setting up of new units.
Later after the contract period is over, most of the gig workers are left unemployed.
➢ The sector is unorganised and unregulated majorly. There is no proper representation of gig
workers with structures like unions in the workforce.
➢ Majority of the times, women are tend to be discriminated in terms of wages and also child labour
issues are more as the payments are done through untapped channels, mostly by cash.
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➢ There are very few companies working on gig models in India and if left unattended may lead to
loss of an opportunity to the foriegn investors taking away the contribution that the gig economy
can make to India’s GDP.

Solutions :
 Government can create an IT-based online platform to streamline the process of hiring in a Gig
business. Each Employer and Gig worker can be verified and a Database of all the process-
related information can be maintained. With a large number of companies turning into gig
workers, processes like government approval, verification, invoicing, payment, expense
management, etc. can be carried out through this platform. It will be more affordable and helps to
organize the sector.
 There should be Structural Reforms by Consulting with All Stakeholders(including the job seekers
and current workers) in the policymaking process, not just Insider(Trade union & lobbyist )
o Formalizing by Broadening Scope employee benefits
o Reform to ensure minimum wage-earning and standard working hours
o Outdated labor law regime focus on employees and independent contractors needs to be
updated with respect to the GIG economy
o Setting up New Labour unions for the unrepresented and under-represented jobs
 Government should encourage more MSME owners and Entrepreneurs than Corporate GIG
businesses that will create more job opportunities with better employee benefits.
 Necessary Steps should be taken to Bridge the gap between Industry requirement and the
current skill set of the workforce By Regular upskilling and reskilling of the labor market through
government initiatives.

Conclusion :
In this paper we discussed the impact of the gig economy on labor markets in India. We saw that the Gig
economy has a high degree of autonomy and workers are paid on the basis of task completion and
there’s a short-term relationship between worker and client. While there are some pros of the gig or
freelance economy like workers get to choose where , when and what they will work on , companies earn
more money and get more agile; it comes with disadvantages like less social protection and perks for
workers and no health insurance and retirement plans. The threats of a GIG economy on workers can be
resolved by government intervention to prevent exploitation at the hands of employers by entitling the
workers more benefits and job security. This will significantly reduce the wage discrimination and under
remuneration of GIG workers. To overcome the fluctuating wages due mismatch in demand-supply,
workers can upgrade their skills

Sources :

1. https://www.livemint.com/money/personal-finance/what-is-gender-pay-gap-and-why-is-it-so-wide-
in-india-11575356633900.html
2. https://www.business-standard.com/article/current-affairs/covid-impact-women-workforce-
disappearing-most-affected-in-urban-india-120121500259_1.html
3. https://www.livemint.com/opinion/online-views/employers-planning-to-go-the-gig-economy-way-
should-think-again-11614095043678.html
4. https://hbr.org/2020/07/gig-workers-are-here-to-stay-its-time-to-give-them-benefits
5. https://government.economictimes.indiatimes.com/news/economy/opinion-indias-gig-economy-
needs-affirmative-policy-push/73121847
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6. https://www.thehindubusinessline.com/opinion/indias-gig-workforce-is-on-the-
ascent/article33300755.ece
7. https://www.thehindu.com/news/national/karnataka/many-workers-in-gig-economy-earn-less-
than-minimum-wage/article33179955.ece

References for Literature Review:

1.http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.564.9402&rep=rep1&type=pdf
2. https://journals.sagepub.com/doi/pdf/10.1177/0973703018791386
3. https://icrier.org/pdf/Policy_Series_18.pdf