Labour Reforms and Employment in India - Labour Codes, Unemployment, MGNREGA, Gig Economy

Labour Reforms and Employment in India

Labour reforms and employment generation occupy a central place in India's economic policy discourse. With a workforce exceeding 50 crore people, a large informal sector, rapid technological change, and the aspiration to become a $5 trillion economy, India faces the twin challenge of creating sufficient jobs and ensuring decent working conditions. Labour reforms seek to balance the interests of workers and employers, improve ease of doing business, enhance productivity, and promote inclusive growth.

For UPSC aspirants, this topic is important from multiple angles—economic growth, social justice, federalism, industrial relations, demographic dividend, and recent policy reforms such as the Labour Codes. Questions frequently appear in both Prelims and Mains under the Indian Economy and Social Issues sections.

Understanding Labour and Employment in the Indian Context

India's labour market is characterized by:

• A very large informal (unorganised) sector
• High dependence on agriculture for employment
• Low female labour force participation
• Prevalence of self-employment and casual labour
• Skill mismatches and regional disparities

Constitutional Provisions Related to Labour

The Indian Constitution contains several provisions relating to labour welfare and employment:

• Article 39: Directs the State to ensure equal pay for equal work for both men and women
• Article 41: Directs the State to secure right to work, education, and public assistance in cases of unemployment, old age, sickness, and disablement
• Article 42: Directs the State to make provision for just and humane conditions of work and for maternity relief
• Article 43: Directs the State to secure living wages, decent standard of life, and social and cultural opportunities for all workers
• Article 43A: Directs the State to take steps to secure participation of workers in management of industries

Structure of Employment in India

Sector-wise Distribution

Employment in India is broadly distributed across three sectors:

• Agriculture: Employs a large share of the workforce (about 42%) but contributes a smaller share to GDP (about 18%), indicating low productivity.
• Industry: Includes manufacturing, construction, and mining; has not absorbed labour at the pace seen in other emerging economies.
• Services: Fastest-growing sector in terms of GDP contribution, but employment absorption is uneven and often skill-intensive.

Organised vs Unorganised Sector

More than 90% of India's workforce is employed in the unorganised sector. This sector is characterized by:

• Lack of job security
• Absence of written contracts
• No social security benefits
• Low and irregular wages

The organised sector, though smaller, offers better wages, social security, and legal protection.

Need for Labour Reforms in India

Labour reforms became necessary due to several structural and economic challenges:

• Multiplicity of Laws: India had more than 40 central labour laws and numerous state laws, leading to complexity and compliance burden.
• Rigid Labour Regulations: Certain laws discouraged firms from expanding or hiring formal workers.
• Low Formalisation: Excessive regulation pushed enterprises towards informal employment.
• Global Competitiveness: To attract investment and integrate with global value chains, flexible labour markets were needed.
• Worker Protection Gaps: Informal workers lacked social security and minimum working conditions.

Evolution of Labour Laws in India

Colonial Period

Labour legislation during the colonial era primarily aimed at regulating factory work and preventing extreme exploitation. Key laws included:

• Factories Act, 1881
• Trade Unions Act, 1926
• Workmen's Compensation Act, 1923

Post-Independence Phase

After independence, labour laws were framed with a strong welfare orientation, focusing on job security and workers' rights. Important legislations included:

• Industrial Disputes Act, 1947
• Minimum Wages Act, 1948
• Employees' Provident Funds Act, 1952
• Employees' State Insurance Act, 1948
• Contract Labour (Regulation and Abolition) Act, 1970

While these laws protected workers, over time they were criticised for being complex and discouraging formal job creation.

The Four Labour Codes (2019-2020)

1. Code on Wages, 2019

This code subsumes four laws, including the Minimum Wages Act and Payment of Wages Act.

• Introduces a statutory national floor wage
• Extends minimum wage coverage to all workers
• Ensures timely payment of wages
• Provides for equal remuneration

2. Industrial Relations Code, 2020

This code deals with trade unions, industrial disputes, and conditions for layoffs and retrenchment.

• Raises threshold for prior government approval for layoffs from 100 to 300 workers
• Provides framework for fixed-term employment
• Streamlines dispute resolution mechanisms
• Introduces concept of worker re-skilling fund

3. Code on Social Security, 2020

This code aims to extend social security to all workers, including gig and platform workers.

• Covers unorganised, gig, and platform workers
• Provides for universal registration through e-Shram portal
• Integrates multiple social security schemes
• Establishes Social Security Fund

4. Occupational Safety, Health and Working Conditions Code, 2020

This code regulates health, safety, welfare, and working conditions.

• Applies to establishments with 10 or more workers
• Allows women to work in all sectors including night shifts with safeguards
• Emphasises technology-enabled inspections
• Mandates annual health check-ups for employees in hazardous industries

Unemployment in India: Types and Measurement

Types of Unemployment

• Structural Unemployment: Due to mismatch between skills of workers and requirements of jobs
• Cyclical Unemployment: Due to economic downturns and reduced demand
• Frictional Unemployment: Temporary unemployment during job transitions
• Disguised Unemployment: Where more workers are employed than actually needed (common in agriculture)
• Seasonal Unemployment: Due to seasonal nature of certain occupations

Periodic Labour Force Survey (PLFS)

The PLFS, conducted by NSO, is the primary source of employment and unemployment data in India. It provides:

• Quarterly bulletins for urban areas
• Annual reports for both rural and urban areas
• Labour Force Participation Rate (LFPR)
• Worker Population Ratio (WPR)
• Unemployment Rate (UR)

Employment Generation Schemes

MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act)

MGNREGA provides legal guarantee of 100 days of wage employment per year to rural households whose adult members volunteer to do unskilled manual work.

PM Rozgar Protsahan Yojana (PMRPY)

This scheme incentivized employers to create new jobs by paying the employer's contribution (12% of wages) to EPFO for new employees.

Skill India Mission

Launched in 2015, it aims to train over 40 crore people in different skills by 2022 through initiatives like PMKVY (Pradhan Mantri Kaushal Vikas Yojana).

e-Shram Portal

National database of unorganised workers to enable targeted delivery of social security schemes.

Gig and Platform Economy

The gig economy refers to a labour market characterized by short-term contracts and freelance work. Platform workers include delivery agents, cab drivers, and other workers dependent on digital platforms.

• Rapid growth driven by digital transformation
• Flexibility for workers but lack of social security
• Code on Social Security 2020 recognizes gig workers for the first time
• Need for portable benefits and accident insurance

Challenges in Labour Reforms

• Delayed implementation of Labour Codes
• Concerns of trade unions over job security
• Administrative capacity at state level
• Awareness among workers and employers
• Balancing flexibility with protection
• Jobless growth phenomenon
• Skill mismatch between education and industry needs
• Low female labour force participation rate

Way Forward

A successful labour reform strategy should focus on:

• Phased and consultative implementation of Labour Codes
• Strengthening social security for informal workers
• Skill development aligned with market needs
• Promoting female workforce participation
• Leveraging technology for compliance and monitoring
• Focus on labour-intensive manufacturing sectors
• Encouraging formalization through incentives

Practice MCQs

1. Which of the following is the primary objective of labour reforms in India?

   • A. Eliminating trade unions
   • B. Increasing labour rigidity
   • C. Balancing worker protection with flexibility
   • D. Reducing wages

   Answer: C

   Explanation: Labour reforms aim to protect workers while providing flexibility to employers to encourage formal job creation.

2. The Code on Social Security, 2020 is significant because it:

   • A. Applies only to government employees
   • B. Covers only organised sector workers
   • C. Extends social security to gig and platform workers
   • D. Abolishes provident fund

   Answer: C

   Explanation: The Code expands social security coverage to unorganised, gig, and platform workers for the first time.

3. Labour is placed under which list of the Indian Constitution?

   • A. Union List
   • B. State List
   • C. Concurrent List
   • D. Residuary List

   Answer: C

   Explanation: Labour is a Concurrent List subject, allowing both Centre and States to legislate on labour matters.

4. The Industrial Relations Code, 2020 raised the threshold for prior government approval for retrenchment to:

   • A. 50 workers
   • B. 100 workers
   • C. 300 workers
   • D. 500 workers

   Answer: C

   Explanation: The threshold was increased from 100 to 300 workers to provide more flexibility to industries.

5. Which Article of the Constitution prohibits child labour in hazardous occupations?

   • A. Article 21
   • B. Article 23
   • C. Article 24
   • D. Article 25

   Answer: C

   Explanation: Article 24 prohibits employment of children below 14 years in factories, mines, or hazardous employment.

6. The e-Shram portal is related to:

   • A. Export promotion
   • B. Registration of unorganised workers
   • C. GST compliance
   • D. FDI monitoring

   Answer: B

   Explanation: e-Shram is a national database for registration of unorganised workers to enable targeted delivery of social security benefits.

7. Which of the following is NOT subsumed under the four Labour Codes?

   • A. Minimum Wages Act
   • B. Industrial Disputes Act
   • C. Right to Information Act
   • D. Employees' Provident Funds Act

   Answer: C

   Explanation: RTI Act is not a labour law and hence not subsumed under Labour Codes. The other three are subsumed under various codes.

8. MGNREGA guarantees employment for:

   • A. 50 days per year
   • B. 100 days per year
   • C. 150 days per year
   • D. 200 days per year

   Answer: B

   Explanation: MGNREGA provides legal guarantee of 100 days of wage employment per year to rural households.