Trade union demand on minimum wages absurd
India’s elite trade unions, who represent just around 4-5% of the country’s 450 million workforce, don’t seem to get the big picture—at a time when employment growth has all but ground to a halt, all central trade unions have started a two-day strike. Apart from the monetary losses the strike will cause—R10,000-15,000 crore per day—what the unions are asking for is completely divorced from what the workforce needs. There are the evocative but unsolvable issues like asking the government to control inflation, and the usual chestnuts like stopping disinvestment in profitable PSUs—keep in mind BSNL and MTNL were profitable PSUs some years ago, but just bleed the exchequer today. While these can be ignored as mere posturing, how do you explain the demand to around-double the minimum wage to R10,000 a month? Or to have more social security for unorganised sector workers—the latter two, presumably, will get unorganised workers to flock to trade unions.
The unions, it is important to keep in mind, have been quite active over the past year and there were around 100 large strikes during January to October 2012 as compared to 38 in the same period in 2011. Unions have gained courage from the fact that, for instance, after the murderous strike at Maruti Suzuki, the management decided to start using more regular workers in place of contract ones. But keep in mind that this strike also saw the laying off of 540 workers—all permanent ones, by the way. While the outcome of an ongoing strike at Hero’s plant in the same area is not known, at an all-India level, employers are doing two things as wages sky-rocket—between FY06 and FY09, rural wages (industrial wages grew faster) were growing at between 4-8% per annum in nominal terms, but this rose to 15-20% between FY10 and FY12. Employers have reacted by, first, moving out of troubled wage areas (Maruti is expanding in Gujarat and not Haryana) and, two, by using less labour-intensive work processes. At an all-India level, employment elasticity has plummeted. From 0.44 between 1999-2000 and 2004-05, this fell to as low as 0.01 between 2004-05 and 2009-10. As a result, while GDP grew 1.6 times between 1999-2000 and 2004-05 and employment from 396.8 million to 457.5 million, this slowed dramatically later. Between 2004-05 and 2009-10, GDP grew 2 times while employment barely grew, from 457.5 million to just 460.2 million.
It is this that trade unions, and the political parties that are backing them, need to resolve. Raising minimum wages sounds very good, but if this means lower employment growth, who is this helping? As for the issue of social security for the unorganised sector, the New Pension Scheme (NPS) allows for precisely this. While NPS offers pensions based on what the investments made by employer-employee contributions earn, perhaps the unions want the kind of assured returns the EPFO offers? Let’s keep in mind that the EPFO has a R50,000 crore hole while catering to the pension needs of just 4-5% of the country’s workforce—if such a scheme is extended to the entire workforce, it will bankrupt the country. While ordinary workers will, once again, be the losers, the labour aristocracy will remain unscathed.