Labour Laws Perform a Redistributive Function. Diluting Them Has Serious Consequences.

In a world that is already grappling with crippling inequalities, weak labour market institutions will only further cause economic divisions.

The three labour codes passed in the Lok Sabha last Tuesday are the latest in a long line of labour law reforms that have been enacted recently and will almost certainly be followed by more in the future. All these ‘reforms’ have one objective in mind – to dismantle labour rights and protections of the past, to make the labour market more ‘efficient’, or more accurately, flexible.

While this has predictably provoked criticism from trade unions and activists, supporters of the reform argue that India’s labour laws are remnants of an archaic past – ineffective for workers and unnecessarily burdensome on the employer – and therefore, are best dismantled. But for us to meaningfully engage with the debate on labour reforms, we ought to first ask – what do labour laws actually do, or what are they meant to do? What role do they play in an economy?

The first, and perhaps obvious, function of labour law is to protect workers from wage fluctuations, sub-standard or dangerous working conditions, and precarious and insecure employment. But why is this protection needed? Because without them workers and employers would enjoy unbridled ‘freedom of contract’ as simply buyers and sellers of labour. This by itself is not undesirable, provided parties are equally placed. But freedom of contract between two greatly unequal parties would mean that the stronger party could indiscriminately impose their will on the weaker one.

In a perfectly ‘free’ and ‘flexible’ labour market, one without any labour protections, discriminatory employment, subsistence wages, underage labour etc. could all be justified and protected as simply ‘market forces at play’ and a Dickensian dystopia would soon unravel. By putting limitations on the freedom of employers to negotiate unconscionable employment contracts, labour laws such as the Industrial Employment (Standing Orders) Act, 1946, to some extent, correct the inequality between workers and employers in a free market. In other words, they redistribute legal power between individual workers and employers.

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Second, labour laws redistribute wealth. Employment is more than just paying people for productive work. It is through (living) wages and other benefits such as dearness allowance, gratuity, bonus, provident fund, pensions etc. that workers share in the wealth that they help generate. Without these obligations imposed by law, employers would just retain a larger portion of the pie, transferring only the bare minimum as wages to workers. And this sharing of wealth not only goes to the workers individually but to their families and to workers as a class.

This is why, for instance, minimum wages are calculated on the basis of one (typically male) member earning for a family of four and includes expenses on commodities like food, clothing, rent and education. Gender politics aside, what labour welfare legislations and legal protection against flexible ‘hire and fire’ policies does, is that it allows for the creation of a stable industrial working class where children and families of workers can urbanise, gain economic mobility and build social capital.

In this regard, if one looks at the Code on Social Security, 2020 that seeks to consolidate existing social security and welfare legislations, it leaves out large parts of the workforce from its purview including migrant workers, does not even specify a date for its enforcement and imposes only paltry penalties for non-compliance. Ultimately, this will leave workers vulnerable without adequate safety nets.

Third, labour laws help redistribute economic and political power. Laws against arbitrary termination of employment, collective bargaining, freedom of association and industrial actions, enable, to some extent, workers to accumulate bargaining power vis-à-vis their employers. This is what gives them the ability to enforce laws, negotiate better employment terms and participate in the management of firms. Without this, all other protections are superfluous. And this is why even within labour laws, industrial relation laws have been the main focus of reforms. The Industrial Relations Code Bill 2020 also, among other things, restricts workers from going on strike without providing at least a 60-day notice and allows companies with up to 300 workers (increasing the earlier threshold of 100 workers) to fire their workers without prior government approval.

Labour laws, therefore, do a lot more than protect individual workers. They perform a critical redistributive role – they redistribute wealth and more importantly, bargaining power in an economy. In advanced industrialised countries of Europe for instance, during post-war Keynesian decades, organised labour through secure standard employment and collective action gained electoral representation and was significantly able to shift the economic and political power balance in its favour.

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This is why diluting labour rights and protections, an important tenet of neoliberal policies, has been accompanied by increasing economic inequality everywhere, both in rich and poor countries. None other than the International Monetary Fund finds that weak labour market institutions such as lower union density and fall in wages has intensified inequality. As David Harvey argues, economic ‘efficiency’ in neoliberalism is nothing but capital’s retaliation against labour, facilitated by the state.

Of course, none of this means that labour laws in India as they currently stand do their redistributive job perfectly or that they are not due for an update, given the economic, political and technological changes that have occurred since their enactment. However, current ‘reforms’ do not redesign labour rights but rather chip away at whatever little labour protections remain. This is not a scientific or ideologically neutral economic policy but fundamentally an act of redistribution, of economic, political and legal power, in favour of capital.

In a world that is already grappling with crippling inequalities, weak labour market institutions will only further cause economic divisions and create a footloose precarious workforce that will wield little or no power against capital, either as individual workers or unions.

It is true that currently only less than 10% of the workforce is formal and informalisation has always been the overwhelming reality in India, even before neoliberal reforms. However, this does not necessarily mean that the impact of these changes is limited to the formal workforce. One of the key differences between formal and informal employment is regarding the applicability of labour laws. By progressively dismantling labour rights of the formal sector, the state is effectively dissolving the formal into the informal. In other words, it is institutionalising informality.

This means firstly, it absolves itself from the obligation of creating formal jobs, further precipitating the problem of jobless growth. And secondly, precarious work, one without labour security or protections, will continue to be the new normal. To put it differently, the problem with the continuous dilution of labour laws is only partly the fact that it makes working conditions of a section of the workforce worse. More importantly, what it does is that it forecloses the possibility of demanding better working conditions and instead, solidifies the existing status quo, leaving little hope for a better future.

Rashmi Venkatesan is an Assistant Professor of Law at the National Law School of India University, Bangalore.