LABOUR STANDARDS AND ECONOMIC

DEVELOPMENT – IDENTIFYING THE CONTOURS

OF CONFLICT

(Project submitted as part of continuous assessment in the paper of Labour Law II)

Submitted to: Submitted by:

MR. AMAN GUPTA, B OBBY
(1431)
ASSISTANT PROFESSOR, CHANDAN BHATI
(1432) FACULTY OF LAW. B.A.LL.B
(HONS.) VIII
SEMESTER
.
WINTER SEMESTER
JANUARY- MAY 2020

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 ACKNOWLEDGEMENTS

We would further like to acknowledge the Library Staff at NLU, Jodhpur for their co-operation
and abundant resources which has so far backed every single proposition in this work. The Info-
tech facilities is further something that backed the research requisites of this project and thereby
something that I would like to recognize for the successful completion of this work.

We would also like to show our profuse gratitude to our families for their valuable blessings
and to our friends for their pertinent encouragement, all of which has played an integral role
in the timely completion of this project.

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 TABLE OF CONTENTS

ACKNOWLEDGEMENTS.....................................................................................................2

TABLE OF CONTENTS.........................................................................................................3

I. TESTING THE WATERS....................................................................................................4

I. CORE LABOUR STANDARDS......................................................................................4

A. DEFINITION OF LABOUR STANDARD.............................................................................4

B. CORE LABOUR STANDARDS...........................................................................................5
C. NEED FOR CORE LABOUR STANDARDS.........................................................................5

II. RELATIONSHIP BETWEEN LABOUR STANDARDS AND ECONOMIC

DEVELOPMENT....................................................................................................................6

A. LABOUR STANDARDS FOSTER INTERNATIONAL COMPETITION AND MAY PREVENT A

‘RACE TO THE BOTTOM’........................................................................................................7

B. ECONOMIC DEVELOPMENT ALLOWS IMPOSITION OF LABOUR STANDARDS...............7
C. DISTORTION OF LABOUR MARKET...............................................................................8
D. IMPORTANCE OF CORE LABOUR STANDARDS FOR DEVELOPMENT..............................8
E. ASSOCIATION OF LABOUR WITH TRADE.......................................................................9
F. CORE LABOUR STANDARDS: PRO OR ANTI-DEVELOPMENT?...................................10

III. UNDERSCORING ECONOMIC IMPACT OF THE RULES PUT INTO FORCE

IN INDIA.................................................................................................................................11

A. FREEDOM OF ASSOCIATION AND THE RIGHT TO COLLECTIVE BARGAINING..........11

B. DISCRIMINATION AND EQUAL REMUNERATION.........................................................12
C. CHILD LABOUR............................................................................................................13
D. FORCED LABOUR..........................................................................................................14
E. THE ECONOMIC CASE FOR LABOUR STANDARDS IN INDIA.........................................15

IV. THE ROAD AHEAD: THE LABOUR CODE WAGE BILL-MURKIER?..........15

V. Parting Words.................................................................................................................17

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 I. I. TESTING THE WATERS

The International Labour Organisation1 has played a significant role in promoting

international labour standards.2 India, being a member of the ILO ever since its formation,
has effectively contributed to the codification of such standards. 3 India has similarly been
benefiting from these standards in developing its policy framework based on such social as
well as labour aspects. However, the introduction of such labour standards in the market can
have an economic impact as well, thereby making their assessment important for developing
countries like India.

This project revolves around the major controversies which surround labour standards and
their relationship with the economic development of a country. This project seeks to address
the arguments on whether enforcement of international labour standards is detrimental to
economy and trade. Whether such internationally agreed rules should be applied for the
improvement of the working and living conditions of workers, or whether labour conditions
themselves naturally improve with economic growth, is a source of incessant debate, and is
the consideration of this project.

II. CORE LABOUR STANDARDS

Before delving into the economic impact of implementation of core labour standards, it is
important to have a brief understanding of the definition and the types of labour standards
along with an examination of the need for implementation of labour standards.

A. Definition of Labour Standard

The phrase ‘labour standard’ can have two connotations, first, which relates to the actual
labour conditions relating to employment as well as the welfare of the workers, and second,
which is normative or prescriptive, and describes what should be the terms and conditions of
work.4 It is this second connotation which is being referred to throughout this project.
However, the focus will be restricted to certain core international labour standards.
1
Hereinafter ILO.
2
See Steve Charnovitz, The International Labour Organization in its Second Century, 4 MAX PLANCK UNYB
147 (2000), available at http://www.mpil.de/shared/data/pdf/pdfmpunyb/charnovitz_4.pdf (Last accessed on
January 23, 2020).
3
C. S. Venkata Ratnam, India and International Labour Standards, 35 (4) INDIAN JOURNAL OF INDUSTRIAL
RELATIONS 461 (April 2000), available at http://www.jstor.org/stable/27767680
(Last accessed on January 23, 2020).
4
Philip Alston, ‘Core Labour Standards’ and the Transformation of the International Labour Rights Regime,
15(3) EUROPEAN JOURNAL OF INTERNATIONAL LAW 457(2004).
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B. Core Labour Standards
The core labour standards encompass the basic rights of freedom of association and collective
bargaining, freedom from forced and compulsory labour, freedom from child labour, and
freedom from discrimination in employment and occupation. Such labour standards are
encompassed at both the national and international levels, where they are laid down in two
forms, ILO Conventions, rendering obligations for ratifying states and ILO
Recommendations, providing model guidelines. These core labour standards are required to
be mandatorily accepted by the ILO members by virtue of their membership in the ILO and
acceptance of the ILO Constitution. Further, these core standards are encompassed in a
variety of other international instruments as well, including the ICCPR, ICESCR, CEDAW
and CRC.

C. Need for Core Labour Standards

Three major functions are served by the core labour standards – participation, protection, and
promotion. With respect to participation, the core standards, through freedom of association
and collective bargaining, provide a platform for tripartite consultation at the national level,
as well as cooperation at the level of the implementation. The next important function of the
core labour standards is to protect workers from maltreatment and abuse of bargaining power
by employers or the state, as well as from destructive competition by other workers.

Simply by creating a universal standard through minimum wages, or a ceiling on the use of
labour, these standards can prevent under-payment, over-use and exploitation, thus preventing
downward destructive competition in the labour market. On the other hand, such standards
can promote constructive competition amongst employers, by facilitating cooperation
requirements, examining grievances, dispute settlement and better policy formulation. The
functions of the core labour standards hence reinforce one another, thereby benefitting
countries which implement these standards by facilitating dialogue and bringing forth better
social results.

III. RELATIONSHIP BETWEEN LABOUR STANDARDS AND

ECONOMIC DEVELOPMENT

For a long time, a contentious issue has been whether international standards would help or
harm the working population. Such conflicting views will be sought to be reconciled in the
process of this project. The economic case for these labour standards will be sought to be
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expounded. The fine balance between market inequality vis-à-vis international competition
will be outlined.

A. Labour standards foster international competition and may prevent a ‘race to the
bottom’
Unregulated international competition could depress labour conditions and create hardships
for workers.5 The only remedy to prevent unfair competition and grant workers the rights
necessary to improve their conditions,6 is to impose international minimum labour standards.
Such imposition creates ‘fair’ competition. Another associated argument comes in the form
of prevention of a ‘race to the bottom’ whereby workers of developing countries, in the
absence of international minimum standards, can undercut the competitive wage rates
worldwide which may result in a degrading economies everywhere. 7 Uniform labour
standards thus negate the rift between developed and developing countries as both are
brought to the same pedestal, and there can be no question of social dumping. However, the
flip-side of this argument is that this often leads to the ‘free rider problem’ as even a worker
who does not require such rights can benefit or increase his position from such minimal
labour standards.

B. Economic Development allows imposition of labour standards

Labour standards play a major role in promoting stable upward growth. However, arguments
have been put forth that international action to impose such standards will have no relevance,
and might even be damaging, as it may hamper economic competition. Further, the
conditions of work and life depend on the real income of each country, and allowing for
variation by imposition of labour standards would hamper output production and slow down
growth mainly in developing countries.8 Thus, labour conditions cannot be ‘artificially’ lifted
beyond what economic growth permits. 9 One argument is that improvement in the terms of
employment and working conditions would be endogenously determined by the pace of
5
Werner Sengenberger, International labour standards in the globalized economy: obstacles and opportunities
for achieving progress in GLOBALIZATION AND THE FUTURE OF LABOUR LAW (John D.R. Craig and S. Micheal
Lynk eds, 2006).
6
For instance, the suppression of trade unions, employment discrimination or poor safety and health standards
do not qualify as legitimate policies in international competition.
7
Thomas I. Palley, The economic case for International Labour Standards, 28 CAMBRIDGE JOURNAL OF
ECONOMICS 21 (2004), available at
http://www.thomaspalley.com/docs/articles/economic_development/international_labor_standards.pdf
(Last accessed on January 23, 2020).
8
International Organizations for Employers, The Evolving debate on Trade and Labour Standards, IOE
Information Paper (March 2006), available at http://www.wto.org/english/forums_e/ngo_e/posp63_ioe_e.pdf
(Last accessed on January 23, 2020).
9
Id.
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economic growth, and cannot be settled by international agreement. However, as previously
noted, the other side of the argument says that labour standards go a long way in prevention
of a race to the bottom as well as social dumping, thus preventing unfair competitive
advantage.

C. Distortion of Labour Market

Implementation of International Labour Standards is an externality and as every other such
externality, it brings about a distortion of the market mechanism, and prevents it from
delivering optimal outcomes. Even on assumption that there exists a perfect competition,
imposition of labour standards may shift the equilibrium and hence bring forth
unemployment in the market. The purely market-determined income distribution is hence
lost, and the new income distribution has to be based on the labour standards as well as the
income.

IV. UNDERSCORING ECONOMIC IMPACT OF THE RULES

PUT INTO FORCE IN INDIA

Being one of the founder members of the ILO, as well as one of the 10 countries of chief
industrial importance, India holds a non-elective seat in the governing body of the ILO. India
has ratified 43 of the 182 conventions by the ILO, Though India has ratified only four out of
the eight core labour conventions, the Constitution of India and labour legislation uphold all
the fundamental principles envisaged in the core labour standards.

A. Freedom of Association and the Right to Collective Bargaining

Though India has neither ratified ILO Convention No. 87 10 nor ILO Convention No. 9811, the
right to freedom of association is guaranteed in the Constitution under Article 19. The Trade
Union Act of 1926 furthers this standard by allowing trade unions and associations to be
legally registered in all sectors. In spite of such recognition, the expected balance between
needs of workers and employers in India has not yet been reached.12
10
International Labour Organization, Freedom of Association and Protection of the Right to Organise
Convention, 1948, entered into force on July 4, 1950, available at http://www.ilo.org/ilolex/cgi-lex/convde.pl?
C087
(Last accessed on January 24, 2020).
11
International Labour Organization, Right to Organise and Collective Bargaining Convention, 1949, entered
into force on July 18, 1951, available at http://www.ilo.org/ilolex/cgi-lex/convde.pl?C098
(Last accessed on January 24, 2020).
12
International Confederation of Free Trade Unions, Internationally recognized Core Labour Standards in
India, Report for the WTO General Council Review of Trade Policies of India, available at
http://www.icftu.org/www/pdf/corelabourstandardsindia.pdf
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In reality, however, though there is a right to such formation, legal protection is only offered
to a minute fraction of the total number of workers, that too in the formal sector. Collective
bargaining does not exist outside the formal sector. Further, even in the formal sector, public
sector workers are denied the right to join unions and can only form associations to represent
staff. Further, the Essential Services Maintenance Act lets the Government13 ban strikes in
essential industries and recommends conciliation or arbitration as alternatives. What services
count as essential, however, differs from state to state. Further, rules pertaining to government
employees state that no government servant can resort to any form of strike, which the
Government justifies as one of its major reasons for not ratifying the ILO Conventions.14

B. Discrimination and Equal Remuneration

India has ratified both ILO Convention No. 100, 15 and ILO Convention No. 111.16 India has
not seen a rapid growth in participation of women in employment. It has been estimated that
80% of working women are found in the informal sector, working in a variety of industries
and home based occupations. This low involvement of women clearly shows the level of
discrimination in the labour market and the sufficient lack of opportunities. With regard to
equal remuneration, in spite of the existence of the Equal Remuneration Act 1976, equal
wages are not paid to men and women for the same work, and India comes last amongst the
BRIC countries in terms of gender parity. Further, women usually work in seasonal or casual
occupations as piece-rate workers and are not usually covered by social security legislations.
It has been noted that majority of women in India still work as agricultural cultivators and
labourers. Even in urban areas, nearly 80% women work informally, and thus have no
recourse to national labour legislation. In the corporate sector too, women are paid nearly a
third of what men are paid.17 Also, though the centre has imposed poverty alleviation

(Last accessed on January 25, 2020). Hereinafter ICFTU Report.

13
Hereinafter ESMA.
14
See T.K. Rajalakshmi, Bypassing Rights, 28(8) FRONTLINE, April 2011, available at
http://www.frontlineonnet.com/fl2808/stories/20110422280803800.htm (Last accessed on January 25, 2020).
See also ICFTU Report, supra note 56. Also see Surendra Nath, Labour Policy and Economic Reforms in India
in BIBEK DEBROY & P. D. KAUSHIK, REFORMING THE LABOUR MARKET 187 (2005).
15
International Labour Organization, Equal Remuneration Convention, 1951, entered into force May 23, 1953,
available at http://www.ilo.org/ilolex/cgi-lex/convde.pl?C100
(Last accessed on January 25, 2020).
16
International Labour Organization, Discrimination (Employment and Occupation) Convention, 1958, entered
into force June 16, 1960, available at http://www.ilo.org/ilolex/cgi-lex/convde.pl?C111
(Last accessed on January 25, 2020).
17
Rema Nagrajan, Unequal pay for equal work dogs working women in India: Study, TIMES OF INDIA, March 9,
2011, available at http://articles.timesofindia.indiatimes.com/2011-03-09/india/28671960_1_gender-parity-
equal-remuneration-act-wage-discrimination
(Last accessed on January 26, 2020).
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schemes, such as the Integrated Rural Development Programme and the Employment
Assurance Scheme, such schemes have hardly been extended to women. It is also noted that
the Indian society has a much large gender-based discrimination and violence towards
women. This clearly goes on to show that in spite of introduction of methods to impose core
labour standards, such has not been reflected in the Indian scene.

C. The economic case for labour standards in India

An economic analysis of pro-worker amendments of the Industrial Disputes Act by the Indian
States clearly shows lowered output, employment, investment and productivity by such
states, especially in formal manufacturing.18 Further, links have also been found between
regulation in a pro-worker direction and urban poverty. This evidently suggests pro-worker
related amendments do indeed have an adverse effect on the economy.

However, the essential distinction, which has been sought to be outlined from the above
instances of enforcement of core labour standards in India, is that such standards are the
minimum basic requirements for preservation of human dignity and workers rights. The
enforcement of these standards does not reflect an adverse effect on economy. Instead they
can propel the economy in a far more progressive manner.

V. THE ROAD AHEAD: THE LABOUR CODE WAGE BILL-

MURKIER?

Labour reforms have long been pending in India. A large chunk of the labour community is
casual and not protected by laws and regulations. On the other hand, some sections of the
industry and neo-liberal thinkers have argued for greater flexibility in labour markets and
easier hire and fire policies for increased competitiveness, push in manufacturing, and greater
output. The Modi government’s thrust on Make in India and the ease of doing business
directly feeds into this narrative. Yet, NDA’s new Labour Code Wage bill may not be the best
answer to boost economic productivity. In fact, in a country where labour health, safety, and
welfare remain low priorities, industrial accidents are high, medical insurance and social

18
Timothy Besley & Robin Burgess, Can Labour Regulation hinder Economic Performance? Evidence From
India, 119(1) THE QUARTERLY JOURNAL OF ECONOMICS 91 (2004) available at
http://qje.oxfordjournals.org/content/119/1/91.abstract
(Last accessed on January 26, 2020).
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security is weak, and minimum wage guidelines are routinely violated, the Labour Code and
proposed changes will do more harm than good.19

The Labour Code on Wages may restrict the power to fix minimum wages to just the state
governments and may lead to a race to the bottom among states. The changes in the Payment
of Wages Act replaces power given to labour commissioners with new “authorities”, however
this may weaken inspection norms and remove ability of law to deter offenders. The proposed
amendment to Industrial Disputes Act will allow companies employing up to 300 workers to
fire or hire employees without seeking any government permission (earlier limit was 100
workers), leaving only a tiny percentage of large companies under the government when it
comes to retrenchment. Creating a labour union will become more difficult as 30 per cent of
workers will be required to sign for its creation (earlier only 10 per cent). The amendments to
Factories Act (which is a social legislation aimed at ensuring occupational safety, health and
welfare of workers at the workplace) propose raising the numbers of workers to 20 for firms
with power supply (earlier 10) and 40 with no power supply (earlier 20). However the most
significant change is in Contract Labour Act, important because contract labour forms almost
half the workers and they are often poor migrants. Changes to this Act will exempt companies
employing less than 50 workers form the ambit of the Act (from the earlier limit of 20).

In response to various protests by labourers, the government has constituted an Inter-

Ministerial Committee and tried to assure labour that reforms will be based on consultations.
With workers and trade unions now assured of greater political support from the Opposition,
INTUC conference can mark the beginning of greater attention to labour conditions in India
and a rethink over the proposed changes in laws. Without assured minimum wage, contract,
health and pension benefits, overtime allowance, and safety and sanitation at work place,
economic progress cannot be achieved. Moreover, negotiations between the government and
trade unions and opposition parties should take care not to gloss over the specific concerns of
vulnerable sections especially women and migrants. Child labour laws, too, need to be
enforced with greater strictness. Finally, since labour concerns are not limited to factory
workers, the plight of the agricultural workers, domestic workers and plantation workers must
form vital part of discussions.

VI. PARTING WORDS

19
Anamitra Roychowdhary, Recent Changes in Labour Laws and their Implications for the Working Class
(January 26, 2020) available at: http://sanhati.com/excerpted/12592/#sthash.9qfGLdRc.dpuf.

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In light of the above discussed controversy, the enforcement of core labour standards
definitely has an effect on economic development. Whether such relationship is symbiotic is
the source of the above discussion. The analysis shows us that core labour standards are the
basic principles governing the right to work. Not only do these standards have a positive
impact on international competition by preventing a race to the bottom and social dumping,
but they also foster economic growth by bringing good standards and constructive
competition amongst employers. Similarly economic development, along with a rise in real
income, allows a country to impose such labour conditions and heighten labour standards in
work. Thus, there clearly exists a symbiotic relationship between labour standards and
economic development, which is further reflected in the arguments favouring imposition of
the social clause in trade agreements. However, despite the contribution that core labour
standards can make to economic development, such standards are simply not being observed
in certain countries, India being among them, in order to increase exports and foreign direct
investment.

In view of serious defaults in India with respect to child labour, forced labour, continuing
gender discrimination and curbing of freedom of association, efficient steps are needed to be
taken to bring India at par with the commitments of the ILO and the core labour standards.
The shielded excuse that imposition of core labour standards may stall forward growth is not
well-founded, taking into consideration the above debate. Further, if all developing countries
undertake the same, it might be detrimental for them in a classic case of prisoner’s dilemma.
In fact, the most efficient outcome will be to implement the core standards, rather than to risk
the possibility of a market flooded with sub-standard goods made from labour forces that do
not meet the minimum criteria. Development is co-existent with implementation of core
labour standards and they indeed share a symbiotic relationship, thus implying that even
over-populated developing countries like India should enforce such standards for better
economic as well as social development.

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