Does fixed-term hiring really spur job growth?

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New Delhi | Published: September 24, 2018 1:40:38 AM

Lower employment tenure and fluctuating employees attract less or no human capital investment, which can have adverse outcomes, such as accidents as well as poor re-employability.

Does fixed-term hiring really spur job growth?

The National Democratic Alliance (NDA) came into power in 2014 promising, among other things, 2 crore jobs a year. There have been debates on the empirical realities concerning employment generation, if not outright criticisms. Employers have consistently argued that restrictive labour laws is one of the primary reasons for poor growth of jobs. So, employers demand flexible labour laws and justify the same in the name of employment generation and economic growth. The central government and several state governments (irrespective of party/parties in power) have bought the aforementioned flexibility reform argument hook, line and sinker. Allowing the employers to hire employees on a fixed-term basis is one of the significant flexibility measures that the central government has taken, which has been a cause of tremendous industrial unrest.

The Bharatiya Mazdoor Sangh (BMS) is against reforms in general and fixed-term employment (FTE) in particular. There is also a debate over the claims of pro-government academics that 22.1 million jobs, on net, were generated between 2013 and 2017, which outshines the 11 million jobs created during the United Progressive Alliance (UPA) regime during 2004-05 to 2011-12. While the debate on the extent of employment growth focuses merely on numbers, trade unions have been concerned with the “quality” of jobs as well.

The central government had earlier notified FTE for the apparel manufacturing sector (in October 2016), and in December 2017 FTE was extended to the leather and footwear sectors. Later, on March 16, 2018, the ministry of labour and employment notified extension of FTE to all the industries.

The important clauses governing FTE are as follows: Employers are forbidden from converting the existing permanent posts into FTE. Hours of work, wages, allowances and other benefits shall not be less than those of permanent workers, and all statutory benefits available to permanent workers will be extended to FTE workers on a pro rata basis, notwithstanding the fact that these workers may not fulfil the eligibility period of employment. However, the employer need not serve termination notice or provide retrenchment compensation as the contracted tenure of employment expires. Temporary workers, probationers or badli (substitute) workers can be terminated at will. The government considers FTE option as a “win-win” for both workers and employers—a win for workers because FTE is superior to contract labour employment as wages and benefits are on a par with those of permanent workers; and a win for employers because they get the much-demanded flexible labour without the aid of middlemen. The government, eventually, is the winner as it can boast of growth in jobs.

Employers are surely not happy with FTE for several reasons. FTE is costlier than contract labour as parity of wage and benefits, etc, raises the cost to company. Employers resort to contract labour mainly because they can then transfer monitoring costs and headaches associated with it, such as disciplinary action and costs of management of social security compliances, to the contractors. In the case of FTE, these have to be managed by employers themselves. When employers have been enjoying de jure flexibility, why de facto flexibility, which is costly? So, FTE clearly is not an attractive option.

Trade unions are agitated due to several reasons. FTE has been introduced through an executive order and not through Parliament, which means that the Parliamentary process has been sidelined. Further, having ratified the Tripartite Consultation (International Labour Standards) Convention, 1976, the government is duty-bound to consult trade unions before effecting labour law reforms, but it did not do so, hence it is violating the said International Labour Organisation (ILO) Convention. More importantly, they contend that FTE legalises the “concept” of flexible labour. Lower employment tenure and fluctuating employees attract less or no human capital investment, which can have adverse outcomes, such as accidents, poor re-employability, etc. They apprehend that the option of FTE is more likely to encourage cost-conscious employers to resort to it more often, and hence the share of permanent workers will steeply decline in the future.

The more serious issue with FTE in India is that lawmakers did not apply their mind while drafting regulations concerning FTE. FTE regulations generally stipulate three aspects, viz. material and objective reasons for resorting to FTE, maximum number of successive FTEs, and cumulative duration of successive FTEs.

Objective and material conditions for the FTE option include replacement of workers on long leave (for example, maternity leave) or not available (due to litigating against their dismissals), seasonal activity of business, exceptional rise in business, etc. Many countries stipulate minimum and maximum periods of FTE, cap the number of successive renewals, and determine the cumulative duration of successive FTEs. China has even tougher regulation on FTEs. If any employee works for one year without a written contract, such a worker will be deemed to be enjoying open-ended contract. In India, in 2011-12, as many as 79% of non-agricultural wage workers had no written contract, which is an anomaly that has not so far raised concerns on the part of the policy-makers. Further, after two successive renewals subject to certain conditions, the employee concerned will enjoy open-ended contract. Some even prescribe the proportion of FTEs in total employment (for example, Norway limits it to 15% or one employee in enterprises employing less than 14 people). The FTE regulations in India do not carry any of these safeguards for workers. Apart from other contentions of trade unions, this is a bad law.

It has to be remembered that the previous NDA government had introduced FTE in 2003, and owing to trade union protests it was removed by the UPA government in 2007. What will happen this time?

By- KR Shyam Sundar, Professor, HRM Area, XLRI-Xavier School of Management, Jamshedpur

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