The Rise of Contract Labour in India: A Threat to Productivity and Worker Welfare
UPSC Relevance
Prelims: Indian Economy (Formal vs. Informal Sector, Contract Labour, Labour Codes, Government Schemes like Pradhan Mantri Rojgar Protsahan Yojana - PMRPY).
Mains:
GS Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth; Labour reforms.
GS Paper 1: Social empowerment (impact on workers).
Key Highlights from the News
The share of contract laborers in India's formal manufacturing sector has doubled over the past two decades, reaching 40.7% in 2022-23.
The primary reason for this informalization within the formal sector is cost avoidance, not worker skills or operational flexibility.
Contract laborers receive 14.47% lower wages than permanent workers, and the total cost to employers is 24% lower.
The study states that the increased use of contract laborers negatively impacts the labor productivity of establishments in the long run. Establishments that extensively use contract laborers have up to 31% lower productivity.
The use of contract laborers was found to increase productivity only in high-skill, large companies. However, such establishments constitute only 20%.
The new labor codes introduced in 2020 provide companies with greater flexibility in hiring and firing workers. Labor unions fear this will increase informalization.
The article suggests reviving schemes like the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) to incentivize companies to hire permanent workers.
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