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Symposium 2010

Proposal - Reforming Labour Law

The Challenge

Informality of employment is a way of life throughout the developing world. In poor Sub-Saharan African countries, the informal sector employs the vast majority of the nonagricultural labour force ...

Informality of employment is a way of life throughout the developing world. In poor Sub-Saharan African countries, the informal sector employs the vast majority of the nonagricultural labour force. Informal jobs continue to account for a high share of employment in the middle-income Latin American countries, The global economic crisis is likely to cause a further surge of informal employment because of job losses in the formal sector.

The labour market in most developing countries is dualistic and segmented. Formal and informal markets coexist. Transactions continue to be non monetized. Information is not complete and is costly. Mobility is restricted. In addition to this problem of a vast majority in the unorganized sector, the work force also is remarkably heterogeneous. Laws that protect only the organized sector do not protect the unorganized or the informal sector. Added to this is the problem of the plurality, which results often in conflicting interests and goals. Caste or race factors and regional factors enter into the picture and worker interests get relegated. For example, in India, the labor dispute settlement system is ineffective. Neither conciliation, compulsory adjudication nor arbitration longer provide employees a fair and expeditious method of labor dispute settlement. The resolution of a labor dispute takes about 20 years. Part of the delay is attributable to excessive uncertainty and ambiguity about key legal concepts. This contributes to uncertainty about the rights and obligations of employers and employees and to delays in the dispute settlement process.

Harmonisation and unification of labour laws are thus clearly necessary. It is also important to reduce state intervention. One does not necessarily have in mind reduced state intervention in social security type legislation, or perhaps even in wage-related legislation. By reduced state intervention, what is meant is reduced intervention in the area of industrial relations. In India, there are more than 45 Labour laws in operation today. Ideally, there should have been a single code. Measures to improve labour rights, enhancing social protection, investing in knowledge and skills of workers or providing micro-entrepreneurs with access to credit and other support services are all critical thrust areas. The challenge is to tie them up while removing the legal and institutional obstacles that otherwise make this difficult. Reforming labour law is clearly a big move towards making the informal job market flexible in developing countries.

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