Labor Market Flexibility & Trajectories of Development: Lessons from Brazil, India & China

By Verma, Anil; Moreira Gomes, Ana Virginia | Indian Journal of Industrial Relations, July 2014 | Go to article overview

Labor Market Flexibility & Trajectories of Development: Lessons from Brazil, India & China


Verma, Anil, Moreira Gomes, Ana Virginia, Indian Journal of Industrial Relations


Introduction

The debate around labor reforms in India became prominent once again with the election of a majority BJP government in May 2014. This change in government came when despite much debate in the past, the previous Congress-led governments had failed to undertake any significant reform. Great expectations now await the new government for reforms in labor policy. It is in this context that we examine the labor and employment system in India with particular attention to the issue of labor flexibility.

Recent research in India has richly documented the dysfunctions of the Indian industrial relations system to establish the case for substantive reforms in a number of areas(Shyam Sundar, 2012; 2011; Sharma 2006; Sodhi, 2011). However, when one considers potential solutions there is an alarming lack of consensus on possible directions for reform. It is arguably one of the reasons why previous governments found themselves stymied into inaction. The analysis in this paper explores possible avenues for reform around which parties to the employment system could converge. It can be useful to look for relevant lessons from both inside and outside India in a search for better ideas. It is in this spirit, that we compare the labor and employment systems in India, China and Brazil. These insights can be useful in breaking the gridlock around labor reforms, which in turn, could contribute to sustained economic development.

Why compare India with China and Brazil? Despite significant differences, these three countries face many similar challenges. They are striving to reduce poverty, improve education and health, and to become full employment economies. All three are among the biggest countries in the world in terms of population, landmass and total GNP. Together with Russia they became known as BRIC, a moniker for investors looking to profit from high growth emerging economies.

China and Brazil also share many of India's challenges in making their labor and employment systems more skilled, productive and flexible. For example, in moving its 450+ million workforce from the public sector to the private sector, China faced a challenge unprecedented in history in scale and scope. Labor regulations needed to be changed dramatically. This transformation of the labor market is far from being perfect or complete but a substantive set of regulations was put in place to facilitate this large-scale re-allocation of labor. Brazil, already a middle-income country, faces the challenge of moving its labor and employment system to the next higher level from its current plateau. Most skilled labor is in short supply despite a large labor pool that is largely unskilled or semi-skilled. Labor regulation is designed to protect workers and jobs but its large informal economy leaves many workers unprotected. So, improving the skills of its workforce and reducing informality in the labor market are significant challenges.

In the next section we provide a brief comparative sketch of the main characteristics of the three countries. This is followed by an overview of the Indian case for labor reforms. Lastly, we review the lessons that policymakers in India can draw from the experiences of China and Brazil for developing a consensus around much needed labor reforms.

BIC: A Comparative Overview

India and China are the only countries in the world with a population in excess of one billion each. Although Brazil is much smaller with a population approaching 200 million, it is the dominant economy in its neighborhood much in the way that India dominates South Asia and, China, the global economy. There are other similarities. Although China has been able to sustain its high growth rate over a much longer period, both India and Brazil are also considered to be emerging economies that boosted their historically anemic growth rates to new highs in the most recent decade. High rates of growth have generated more jobs, reduced poverty and raised the aspirations for a better life. …

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