India’s Huge Informal Labor Sector

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 211-213:

The poor in India are a vast reserve army of cheap labour. Organized labour in the ‘formal’ sector of the economy is a comparatively small part of the total labour force. In 2003 the public and private sectors together employed 27 million workers. The private sector is the smaller one with 8.4 million but a greater share of the ‘manufacturing’ category with 4.7 million as against only 1.5 million in the public sector. According to the theory of W. Arthur Lewis, in a ‘dual economy’ (traditional and modern) there is a reserve army of labour in the traditional sector which supplies the modem one with a steady flow of new recruits. But the Indian economy is not a dual one: it consists of two parallel economies. Since the reform of 1991, employment in the formal sector has practically stagnated; there has been only a slight shift from the public to the private sector, the first losing and the latter gaining 1 million employees. These figures would confirm the frequent comments on the phenomenon of jobless growth. But, of course, this refers only to the formal sector; the actual growth takes place in the informal sector. In fact, from 1978 to 2000, the share of the informal sector in the total labour force increased slightly from 91.3 to 92.4 million, although one would have expected a decrease of informal labour in a period of steadily increasing economic growth. The wage differential between the two sectors is enormous. For employees in the public sector, official statistics show an average daily per capita rate of Rs 681. According to the National Sample Survey mentioned earlier, the daily wages for male casual labourers in urban areas are Rs 75 and in rural areas Rs 56; the rates for female labourers are Rs 44 and 36 respectively. The figure for the public sector would, of course, include the high salaries of the Class I officials, but they are a small minority when compared to the legions of humble Class IV officials who do manual work or errands for the higher-ups. Nevertheless, even these humble people are head and shoulders above the casual labourers in the informal sector. Moreover, their jobs are secure and permanent, unlike the ‘informal’ jobs, which are subject to the rule of ‘hire and fire’.

Subjection to the rule of ‘hire and fire’ has increased with the growing casualization of informal labour. New forms of contracting labour have developed which permit the employer to shift the onus of hiring and firing casual labour to agents who are told how many workers are needed at any given time. Casualization has particularly affected women workers who were previously not very active in the labour market but have joined it in recent years in increasing numbers. Concerned social scientists have coined the term ‘feminization of poverty’ in order to characterize this phenomenon.

The ‘informal’ proletarians are not protected by any trade unions, which for good reasons concentrate on the organized sector of the economy. Very few of the recognized trade unions can depend on regular fees paid by their members. Accordingly, union leaders must look for other sources of income. They usually squeeze the employers by threatening to stir up trouble. There is no collective bargaining in India: wages are set by officially appointed tribunals and there are also tribunals which try the cases of individual workers who have been made redundant or have not been paid the wages due to them. Therefore most labour leaders are lawyers who spend their time pleading before those tribunals. The informal proletariat has no contact with such tribunals or lawyers.

The usual staff of a workshop in the informal sector consists of the boss and fewer than ten workers. In small firms which operate as subcontractors for manufacturers, the boss may even be an engineering graduate. Capital investment in such workshops is minimal so very often they band together and help each other out. One has a lathe, the other a drilling machine, etc.; if the piece of work requires both, it is carried from one shop to the other. The ignorant observer may think that this cluster of workshops is a slum, but on closer inspection he will be surprised to see the quality and variety of their products. Bigger firms rely on such subcontractors for two reasons: first of all, they can keep the number of workers and the investment in machines limited; and, secondly, if there is a slack in demand they can cut the orders farmed out to the subcontractors. This explains the phenomenon of jobless growth in the organized sector. The huge number of subcontractors who have the reserve army of labour on their doorstep shield the organized sector against risks but can also respond very quickly to increased demand. There is, however, a growing gap between labour productivity in the organized and in the informal sectors. In 1983 labour in the organized sector was about six times more productive than that in the informal one; by 1999 the differential had increased to nine times. This would also account for the wage differentials between the two sectors.

The wages paid by subcontractors, particularly if they work for manufacturers producing cars or machine tools, have to be higher than the wages of casual labourers mentioned above, but they would still be much lower than those in the organized sector. The qualifications of the informal proletariat working for subcontractors range from those of skilled workers to that of untrained people. The skilled workers in workshops would be the ‘creamy layer’ of the informal proletariat and they would be above the poverty line. But the great majority of the reserve army of informal labour are quite poor, something that would be particularly true of the many landless labourers who are at the beck and call of the landowning peasantry. Earlier systems of permanent attachment of such labour to the households of their employers have long since disintegrated because the employer can always find casual labour and does not need to retain labourers in the off-season. Even at times when the harvest or other seasonal operations suddenly require additional labour, there are nowadays migrant labourers who make themselves available for seasonal employment. Workers from Tamil Nadu will show up in the Punjab or elsewhere at a distance of 1,500 kilometres from their home. Here, too, the informal proletariat shows its usefulness as a reserve army of labour. About 43 per cent of India’s rural population are landless. If one deducts from this about 8 per cent for traders, carters, and so on there would still be 35 per cent of labourers who depend on their daily wages.

Of course, ‘casualization’ is hardly limited to India or to informal sectors of large economies. One report last year estimated that 70% of the faculty in American universities now depend on part-time or limited-term contracts. So, to twist the clause that begins this passage: An oversupply of postgraduate degrees provides a vast reserve army of cheap labour for universities.

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Filed under economics, India, industry, labor

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