On Friday, Shruti Rajagopalan, a Senior Research Fellow at the Mercatus Center at George Mason University lauded states for 'dismantling' labour regulations amid the novel coronavirus outbreak in India.
Calling it a "step in the right direction", Rajagopalan, who incidentally is an Associate Professor of Economics at the State University of New York, Purchase College, said this should have been done much earlier.
"First, UP and MP have started suspending labour regulation. This should have been done decades ago, even without Covid. These laws, while well intentioned, have had terrible unintended consequence of creating a monstrous unorganized sector," she wrote on Twitter.
Rajagopalan said that labour regulations in the country "regulates every aspect of the employer-employee relationship and requires permissions for everything".
Rajagopalan contended that India's regulations were making labour more costly.
"So either firms switch to capital, or don't hire labour and instead 'contract out' using middlemen to supply workers without formal contracts. This is not just to avoid paying above market wages but also to avoid compliance costs," she said.
She adds that while there may be people lamenting the loss of labour protection , it was necessary to understand that 90% of India's labour force "never had that protection in the first place".
"The restrictions either prevented hiring, or created contractor/dalal system," she writes. These norms, Rajagopalan says, only served unionized labour, a small fraction of Indians in the formal sector, labour inspectors, middlemen, and 'champagne socialists'.
"The cost of keeping this small contingent in business has left 90% in the informal sector, totally unregulated, and with no protection," she alleges.
Rajagopalan contended that ideally there should be a minimum of labour regulations, primarily pertaining to health and safety norms, as well as "some default standard fixed term contracts".
"But in the absence of sensible regulation, no regulation is better than the current labour permit raj that hurts labour interests," she wrote.
Coming to the novel coronavirus outbreak, she added that the pandemic made it necessary for organisations and employees to be adaptable and have more flexibility. "The Industrial Employment (Standing Orders) Act, 1946, requires employers to apply for government permission for reassigning a worker from one task to another," she tweeted.
"Market wages have bottomed out, unemployment is at 25% with a drop in LFP by 10%. In these circumstances, insisting on minimum wage, especially Indian MW which is way higher than market wage even in non-covid times, is the best way to kill the economy," Rajagopalan said.
Against this backdrop, she says that the poor prefer to "have some work', even as 'champagne socialists' insist that "no jobs at prevailing minimum wage is better than some jobs at a lower market wage". This, Rajagopalan says hurts labour interests.
"It's better to remove MW and restart hiring so the poor can work," she wrote.
