Fixed-term contractual employment: A small move in the right direction

Last week the Union government took a baby step in the right direction. It made it easier for industry to hire labour contractually for a fixed, implicitly shorter, term. Such labour can be released at the end of the contract without incurring the usual consequences of firing.

Such a facility has been available to the leather and garments industries since October 2016. It is now extended to all sectors. The finance minister had made this announcement in his last budget speech. The legislation is a quick follow up on the same. Apparently, the facility has not made a big difference to the garments sector so far. But, it is evidently too short a period to judge the scheme. Nevertheless, the apparent failure of the scheme indicates that labour laws are not the only hurdle to investments and employment at the moment.

It is good that industry now has greater flexibility in hiring. It is good that seasonal and other temporary labour will get better working conditions than it has got so far. The new law states that fixed-term labour should get the same benefits as regular employees except that their term will be limited by their contract.

No matter how insignificant, the move will make it easier for entrepreneurs to make new investment as it removes some of the hurdles in hiring. The move is not a big-bang reform but, it is still a move in the right direction.

Data from the Annual Survey of Industries show that the proportion of contractual labour in total employment in industries has increased steadily. As of 2014-15 about a third of the total workers employed in factories were hired through contractors. However, the terms of engagement of contractual labour are much worse than the rest. In 2011-12, the average wages was Rs.348 per day for directly employed workers and it was Rs 246 per day for contractual workers.

The new fixed-term contractual employment scheme stipulates that such workers will get the same benefits as regular workers. This should help remove the discrimination against contractual workers evident in the current scheme.

It is quite likely that industry will maximise hiring of new labour under the new dispensation of fixed-term contractual engagement. This is what it seems to have done with contract labour.

What is important is that labour needs to know that employment cannot be guaranteed and that it needs to make efforts to continuously re-skill to remain relevant in the labour markets. Labour markets need to mature to face the onslaught of technology, to deal with business seasonality and also business cycles. The new policy could be a very small nudge in the direction -- suggesting that we have a formal job but, its tenure is not "permanent".

Managing this change is a challenge. In 2016, the railways changed the preference that apprentices working with it got during recruitment for regular jobs to a 20 per cent quota. Last Monday, about 1,500 apprentices held up rail movement in Bombay demanding permanent jobs as they were already trained by the railways. This is of course, just the latest in the growing pressures we witness of sections of society demanding jobs as an entitlement. Bombay also witnessed a rather outlandish sight of new-era workers like Ola and Uber cabbies striking against falling incomes.

While the move on fixed-term contracts for labour is a welcome move, it is unlikely to make any material difference to the challenge of unemployment in India which is the twin problem of very low labour participation and rising unemployment. The economy demands a lot more to deal with this challenge.

The unemployment rate was 6.6 per cent during the week ended March 25. This marks a gradual stepping down of the rate from 7 per cent two weeks ago to 6.8 per cent last week and now 6.6 per cent. The labour participation rate has risen simultaneously -- from 42.6 per cent to 43.6 and now 43.7 per cent. A combination of these two indicate an increase in employment during these weeks.

Nevertheless, unemployment continues to remain elevated during March compared to its level in February and, recall that February clocked the highest unemployment rate in over a year. The average of weekly unemployment rate during the first four weeks that ended in March was 6.55 per cent. The comparable average during February was 6.53 per cent. This difference isn't much. But, the same cannot be said about labour participation. The labour participation rate seems to be falling in March significantly. The average participation rate during the four weeks ended in March was 43.5 per cent compared to 44.1 per cent in February.


Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.