With the great nationwide lockdown continuing, and states with more hotspots likely to push ahead for a longer lockdown strategy, the economic costs of India’s fight against Covid-19 has been worst felt in the emerging unemployment landscape. With little availability of periodic workforce employment and labor participation data, if one had to rely on CMIE’s estimates, the number of unemployed-or those actively looking for jobs during the week of April 26th was around 76 million (unemployment rate of 21.1%). In earlier weeks, this count was close to 100 million.

What is far more troubling to see is how an unemployment rate of 21.1% is now accompanied by a further falling labor force participation rate, dropping from 42.6% (in week of March 22nd) to 35.4% in the week of April 26. This means, more than 7.2% of the working age population (around 72 million) has either quit the workforce, or has lost their jobs during this lockdown period alone.

Apart from the seriousness of the unemployment challenge, or the unavailability of periodic, more frequent public (government) data on unemployment across sectors, another critical issue affecting the workforce is a deeper, more entrenched contractualisation of the employment landscape—a concern that has preceded (across sectors) in the pre-coronavirus scenario too.

In layman terms, contractualisation of labor, more popularly, known as the “endo” (“end of contract”) arrangement has seen workers been employed across sectors (including in case of public-sector jobs like railways, local sanitation and healthcare work) on short-term ad hoc contracts while being deprived of social security benefits, higher wages, and a general security of tenure. Unlike regular (more permanent) employees, contractual workers often tend to be signed on temporarily on almost a 5-5-5 arrangement i.e. in three-cycles of five-month contracts that are subject to being renewed after every five-months.

A classic case in point is the ad hoc-contractualisation of the teaching workforce, as seen in the higher education landscape across India (and most part of the developed world too). There are an estimated 4,500 ad hoc instructors in Delhi University alone. Private universities have almost instituted a culture of ad-hocism in the design and formulation of worker (teacher) contracts and this spreads across to all services.

The culture of ad-hocism as part of a contractual workforce has also seen the emergence of a “no-work, no-pay” attitude-an issue that got much greater attention when the pandemic was spreading in parts of the U.S. and European nations. Most workers, especially in areas of retail, education, accommodation and tourism (to cite a few), had no provisions for paid-sick leaves due to the limited nature of their contract. A company that engages in a greater contractualisation often has a higher turnover rate of personnel too, which creates a disruptive operational environment, leading to higher costs of training and higher incidence in costs of errors.

From a contractual employee’s perspective, apart from being denied basic social benefits, a high degree of anxiety and psychological cost added in constantly looking for a new job or retain the existing contract often makes such workers more vulnerable and less able to contribute (or engage in their vocation) with greater productivity and commitment. Many would rather work more superficially or in an instrumental way to simply ensure that their contract gets renewed or extended.

The contractualisation process in a firms’ operation and management functionings has therefore made millions of workers extremely vulnerable and dependent on the whim and mercy of respective employers. In a time of crisis, such as now, many of those who have either lost their jobs, or now are applying for new jobs (while entering the workforce) will be subject to far greater exploitation-enjoying lesser bargaining power to be employed more permanently or at a reasonable wage-structure.

But how has contractualisation become so rampant and widespread across sectors and nations like India today?

One probable reason, as discussed by Suresh Naidu in his work on labor markets, is concerned with the decline in private (and public) sector union density.

For example, in the United States, the private sector union density has fallen below 7%, and new research evidence suggests that high union density played a vital role in ensuring a fairer employment relationship between employers and prospective employees, while compressing the income distributional inequities and lowering intergenerational income persistence. In simple words, de-unionisation has aided the rapid neo-liberal contractualisation of the workforce, which might have allowed firms to maximise profitability through cuts and savings on labour costs, but has inadvertently affected the employment landscape and made it far more exploitative for the average worker.

The context of the United States is critical here because the most robust and frequently available employment data, across sectors, remains available for one to study the consequential relationship between de-unionisation and rapid contractualisation (or ad-hocism); one can also see this as a by-product of the neo-liberal consensus that countries like India adopted in their reform strategies since the early 1990s. A pro-market reform strategy often saw itself leading to an anti-worker existential reality across sectors (like construction, manufacturing, services), making them more vulnerable.

Why do unions matter? As Naidu argues, what unions do makes a lot of sense, especially in labour market models with monopsony and a market structure with a few sellers (like cartels). Monopsony generally implies that unions can allow to a) raise the wage within limits without necessarily costing jobs, and b) replace the individual labor-supply curve facing the firm with a much more efficient-bilateral bargain (between employers-employees). The presence of unions allow for the power-dynamic in labour markets to remain more competitive at an intra-firm level between the principal (employer) and the agent (employees).

More broadly, monopsony also means that labour market interventions become the site of economic redistribution, in addition to (or instead of) the tax code, and so politically organised workers become an important constituency for redistribution via the labour market. Beyond power over the wage, the default rule in the employment relationship is that employers have the right to command workers on the shop floor. This results in plenty of inefficiently allocated control rights, as there are many workplace decisions where workers have superior information about their cost of doing things.

A union-driven contract can reallocate these decision rights toward the efficient division, and the evidence provided in Ash, Macleod, and Naidu (2018) suggests that this reduces labour conflict (measured by strikes). Union contracts are therefore seen as efficiency-enhancing workplace constitutions.

India’s unemployment challenge and a rampant scenario of contractualisation of workforce requires a deeper discussion, both for a progressive economic and social policy and practice. The pandemic-induced lockdown may have rendered millions jobless and the plight of migrant workers (especially women) has made those ‘invisible’ in employment data to become more ‘visible’ today. The current crisis presents an opportunity to look at the seriousness of structural concerns present in our existing labour-market which due to contractualisation has become deeply fragmented, and insensitive to concerns of workers (as against employers).

Few policy measures, like offering more socially-protected worker contracts (say, safeguarding health, unemployment insurances as benefits); implementing premium wage-rates (say, double for contractual hires as against others); extending the probation period to more than a year (to do away from the 5-5-5 uncertain system on short-term contracts); ensuring greater legal representation and awareness to concerns of workers, and incentivising the presence of unions for minority workers (across social categories of: gender, class, race etc.) are all critical steps that can help provide a more progressive social and economic future for workers.

Private sector union density must increase in medium-to-large scale organisations to make the design of contracts more protective and fair to safeguard worker-interests while enhancing the long-term credibility of the employee-employer partnership for a firm to accrue longer productivity gains.

Views are personal.

Deepanshu Mohan is associate professor and director, Centre for New Economics Studies, O.P. Jindal Global University.

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