Monday 8 January 2018

Protecting Employee Interest: Why trade unions must embrace labour law reforms

Formation of trade unions alone will not solve employee problems; we need overhaul of labour laws, and trade unions must work with the government, employers and employees towards reforming labour laws. This will boost job creation in the formal sector. 

Last month saw the first trade union from the Indian information technology (IT) industry getting registered in Tamil Nadu. This got many worried, lest it open the floodgates with more trade unions coming up, leading to a possibility of unionism or collective bargaining or industrial unrest in an industry that was so far away from such contentious phenomenon. While there is nothing wrong with trade unions as such, most employers and industry bodies view them with suspicion because, unfortunately, trade unions in India have always made ‘job protection’ as their primary agenda. It is important to recognise that, unlike some developed economies, India does not have a ‘jobs problem’—our unemployment rate is 5%—but a ‘wages problem.’ Almost everyone in India who wants a job can get one, just not at the salary they want. It is also important to recognise that higher wages or value that people demand can only be provided by formal sector jobs. Our ‘wages’ problem arises because most of our enterprises are dwarfs (small companies that will stay small), rather than babies (small companies that will grow big). This massive informalisation of our enterprises is an important source of poverty for the average Indian worker because enterprises can only pay the wage premium if they are productive. The real agenda for trade unions in India should, therefore, not be protection of jobs, but enabling job creation in the formal sector.

In this context, we can take many learnings from the German example of labour reforms in the early 21st century. Hartz reforms in 2003 reduced and capped unemployment benefits, with the goal of encouraging people to look for jobs. The unions realised that, post the fall of the Berlin Wall, companies had the option to move their production base to low-wage, former communist countries and they would, sooner or later, move away from high sector-wide or region-wide wages at home, so they decided to adapt to retain jobs for their people. The focus was not on protectionism or subsidy, but getting people quickly into a job by way of both encouraging job creation and upskilling of workers. These reforms, eventually, led to a massive reduction in unemployment rate in Germany—from 11% to 5%—with manufacturing making up almost 25% of the German economy and Germany becoming the third-largest exporting nation in the world. With almost 10 lakh job seekers entering the job market every month, Indian trade unions also need to rethink their approach if they really want to protect the interest of the average Indian worker. They need to enable labour law reforms required for creating more formal sector jobs and support large-scale vocationalisation of higher education to raise the number of apprentices in India from 4 lakh to 1.5 crore (the number we could have if we had the same proportion of our labour force as Germany in apprenticeships). Aside the change in mindset within the unions, the Trade Unions Act, 1926, itself needs modification. The main objective of this Act was to provide for the registration of trade unions and to confer a legal and formal status on registered trade unions. However, in its current context, it does little to benefit either employers or employees, and hampers productivity and economic growth. According to the Act, a registered union needs to have just 10% or 100 workers, whichever is less, engaged in the establishment or industry. Given that most large organisations of scale today have thousands of employees, this low threshold of employees to form a union can lead to the proliferation of many trade unions in larger organisations. This not only requires employers to deal with multiple employee unions, but can also hinder the harmonious relationships or dispute resolution between employers and unions, as each union may have different interests. Further, 25% of the members in a trade union can be outsiders. This implies that the workers who are not directly employed in a particular company or establishment also have to be involved or engaged in discussions with employers in case of a dispute. The concept of outsiders interfering in the matters of an organisation not only leads to lack of transparency in day-to-day functioning, but also tends to encourage criminalisation and politicisation of unions, leading to industrial conflict.

To ensure that this Act delivers on its intended objective of positive empowerment of trade unions, it should be made mandatory that all members and office bearers in a trade union must be employed in the organisation. Further, the requirement to form a union should be increased from 10% or 100 workers to a minimum 20% of the employees, such that it limits the number of trade unions in a single, large corporate entity. This would not only make it easier for employers to have a dialogue with employee representatives or unions, but also prevent marginalisation or fragmentation of employee point of view by ensuring fewer but more effective unions. Over the last few months, the central government has been going slow on many of the other big-ticket reforms—this is largely due to lack of consensus on these reforms with other stakeholders and trade unions. Prominent Indian trade unions and their leaders have unified in their resistance to these much-needed reforms and have been rather unfairly equating labour law reforms with ‘hire and fire.’

Notwithstanding the near death and redundancy of Marxism, particularly in the Indian context, trade unions would do well to remember Karl Marx’s statement on the objectives of a trade union: “The trade unions aim at nothing less than to prevent the reduction of wages below the level that is traditionally maintained in the various branches of industry. That is to say, they wish to prevent the price of labour power from falling below its value.” (Capital V1, 1867, p. 1069). We must note that 90% of our workforce is employed by the informal sector, where the price of labour power falls below its true value. Trade unions need to acknowledge this as the real issue and work with the government, employers and employees towards the critical agenda of labour law reforms that will boost job creation in the formal sector. By stonewalling these reforms, the unions are not only diminishing their own relevance and credibility, but also doing a great disservice to the very employees whose interest they claim to protect.
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