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Companies should consider building an unemployment insurance fund during periods of economic boom, which could be utilised to financially support workers up to a limited period after retrenchment, according to the Reserve Bank of India’s Report on Currency and Finance (RCF).
“Labour reform with flexibility to hire and fire workers can allow firms to adjust their workforce according to economic cycles, thereby enabling them to use their resources more efficiently.
“This, however, could come only at the cost of lower welfare/social security of the workers. One option here could be to build an unemployment insurance fund…at the firm level…,” said RCF.
Further, many of the social-security measures apply to firms having a certain minimum number of workers, which creates incentives for firms to not scale up.
“To address this issue, a policy option could be universal access to social security irrespective of firm size, with each firm required to earmark a certain percentage of their profit for the social security schemes for the workers,” per the report.
The RCF noted that the Indian labour market witnessed a sharp deterioration during the first wave of the pandemic, with unemployment rate touching a record high and the labour force participation rate plummeting.
Reverse migration from urban to rural areas during the first wave period also resulted in a sharp increase in demand for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in rural areas.
The report said the impact of the second wave and third wave was relatively muted and employment conditions have improved.
According to the Periodic Labour Force Survey (PLFS) quarterly reports for the urban areas, casual labourers were the worst affected during the first and second waves of the pandemic, though the extent of the impact was lower during the second wave.
Of the total casual labourers working during January-March 2020, only 35.3 per cent remained in the same category during the first lockdown period of April-June 2020; nearly 50 per cent were pushed to unemployment and about 10 per cent moved out of the labour force during this period, said the RBI report.
According to PLFS, around 42 per cent of the population forms the labour force. India has one of the lowest Labour Force Participation Rate (LFPR) among the major economies, partly due to very low female LFPR (22 per cent), especially among poorer states.
The prevalence of high informal employment is a major challenge, with 71 per cent of the total employed labour force being ‘self-employed’. Seventy seven per cent of the self employed enterprises are small enterprises with less than six workers.
Seventy nine per cent of the working population do not have a written job contract in their usual principal activity.
Seventy eight per cent of the working population in India have not received any type of job training (PLFS, 2019-20)
Published on
April 29, 2022
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