Trade unions, politics & reform in India.

AuthorMahmood, Zaad
PositionStatistical data

This paper assesses the role of trade unions in economic reforms in India. The study looks at labor market reforms as the area of negotiation and conflict to determine the role of trade unions in reforms. The paper argues that the importance of trade union as an interest group impeding reform is overstated. In fact all available evidence points to the failure of trade unions to protect the interests of organized sector leading to emaciated labor. What is conceived as union strength is actually partisan political dynamics operating through the unions. It is not the independent strength of trade union but the location in wider politics that determines its relevance in reform process.


Trade unions have often been highlighted as the crucial socio-political agents impeding economic reforms (Horton, Kanbur & Mazumdar, 1994; Rueda, 2007). Trade unions use their collective status to scuttle or extract compensation for reforms that have implications for industrial production and employment relations (Horton, Kanbur & Mazumdar, 1994). Such assertions, however, have not been supported by conclusive empirical evidence. Instances have been recorded where firm level unions have supported wage gains at the cost of employment, while in the case of corporatist arrangements labor unions have had to accept austerity for broader macro-economic gains (Anderson, 2001). In many countries reforms have accompanied significant reorganization of labor market marked by rise in precarious employment, losses in real wages, rising levels of unemployment, and decreasing labor rights despite opposition of trade unions (Tardanico & Menjiivar, 1997). The literature highlights the altered political-economic context, technological transformations and emaciation of traditional labor movement as responsible for such a transformation (Shyam Sundar, 2005).

This paper attempts to investigate the role of trade unions in India in the politics associated with economic reforms. The paper looks at labor market reforms as the particular area of negotiation and conflict to determine the role of trade union movement. The paper argues that the importance of trade unions as an interest group impeding reform is overstated. Union mobilization and collective action does not offer a credible explanation for variation in labor market reform. In fact, all available evidences point to failure of trade unions to protect the interests of organized sector leading to emaciated labor. What is conceived as union strength is actually partisan political dynamics operating through the unions. The relation between government and trade union and inter-union rivalry among party affiliated unions provide a consistent and credible explanation for labor market reform variation in India. It is not the independent strength of trade union but the location in wider politics that determines its relevance in reform process.

Economic Reforms & Labor

Contemporary economic reforms broadly signify shifts towards greater decision-making power to markets. According to globalization discourse, liberal trade and deregulation of the factor market is beneficial for economic growth and welfare, as it ensures optimum resource allocation (Bhagwati, 2004). Davidson and Matusz (2000) argue that the structure of the factor market has significant bearing on the way resources are allocated and as such the cost and benefits of trade reform will vary according to labor market flexibility. Further as labor is both a factor of production and a consumer, a flexible market is beneficial for effective allocation, efficient wage rate and lower prices in a competitive market. However, critics point out that regulations are safeguards against the failures of an impersonal market (Chandrasekhar & Ghosh, 2000). Emphasizing the virtues of social control they argue that labor institutions are safeguards ensuring equity, providing impetus for qualitative improvement and industrial research (Wilkinson, 1992). Further considerably protected and well-paid labor force expands demand in the market and, thus, increases growth.

Empirical evidence on the impact of globalization on labor market has been at best mixed, if not detrimental (ILO, 2009). In most economies liberalization has corresponded with shifts in employment practices and work conditions as bulk of the employment opportunities are flexible (irregular and casual) as a means of achieving cost efficiency (Sato, Murayama, 2008). The competitive pressure for attracting investments and greater policy space to business further enhances the pressure for flexibility. In short the developments consequent upon globalization have largely been adverse for established privileges of labor. The exact outcome of globalization on specific labor is, however, contingent upon structural-institutional-political context such as nature of domestic economy, regulations of state and bargaining capacity of labor.

Trade Unions, Labor Market & Flexibility

Trade unions (TU) pursue interests such as protecting and increasing wages, work conditions and social benefits for workers. Intuitively unions will oppose labor market liberalization that undermines established privileges and attempts to scuttle or extract compensation for reforms (Garrett, 1998; Horton, Kanbur & Mazumdar, 1994). Experience across the world suggests that trade unions, by and large, oppose efforts of liberalization of the labor market. The capacity of trade unions to influence the outcome of labor market and labor policy is significantly determined by the complex interplay of economic, institutional and political factors in which both labor and capital are embedded. The structural features of economy, prevalent political dynamics and institutional framework determine the extent and nature of labor market (Alvarez, Garrett & Lange, 1991). Socio-economic outcomes like wages, employment conditions are structured by regulations and institutions of government (Rodrik, 2007). Political factors such as the strength of labor movement or the composition and preference of social groups have also featured as determining labor market outcomes (Garrett, 1998; Frieden & Rogowski, 1996).

Liberalization & Trade Unions in India

After liberalization, the rate of economic growth increased significantly but the labor market witnessed a steady slowdown in the rate of employment generation in India. Employment generation declined from around 2 % in 1961-1980 to around 1% in 1990-2000 (Sharma, 2006). Most employment growth recorded during the period was in the informal sector and organized sector employment witnessed an absolute decline. Mainstream economists and policy makers identified institutional constraints in encouraging formal sector job creation. Besley and Burgess (2004) pointed out that severe labor regulation was the cause behind the existence of dual labor market and unemployment. Although some regulatory changes were undertaken in the reform period such as Trade Union Act 1926 or Factories Act 1948 critics consider them piecemeal and highlight the role of trade unions in impeding regulatory reform. The role of trade unions have also been highlighted in preventing liberalization of the economy particularly disinvestment of the public sector (Papola, 1994). It is argued that the absolute number and entrenched presence of trade unions within formal sector has prevented successful implementation of industrial and labor reforms (Varshney, 1999). However the image of entrenched trade unionism preventing labor reforms does not corroborate the macro developments in the labor market. The presence of trade unions and regulations applies to only a small fragment of the total working populations as less than 10 per cent of the labor force is organized or has regular employment (Tendulkar, 2004). Observers have pointed out that developments post liberalization clearly signal emaciation of the organized sector. One indication of the declining fortunes of trade unions is the declining wage share and increasing currency of contractual labor.


Evident from fig. 1 is the secular decline in wage share in organized manufacturing. In terms of employment the decline in formal jobs has been associated with proliferation of contractual jobs. The share of contractual worker has increased in the formal sector from around 15 percent in 1995 to 35 percent in 2011. These developments suggest that labor is unable to protect existing privileges and have seen their bargaining power weaken in the aftermath of economic liberalization. Thus, trade union movement in India presents us with contradictory pictures of strength and weakness where structural-institutional dynamics provide enormous power to organized labor, which however is...

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