Labour and Manufacturing Laws

Need for labour laws

 Productivity of labour and labourers is essential to the prosperity of industries,

enterprises, markets and economy.
 Dignity of labour adds to influencing productivity of labour.
 Social and job security to the labour force both in Organized and Unorganized
 Helps enrich constitutional goals

Labour Regulations in India

 Law of Welfare & Working Condition : The Factories Act, 1948, Sexual Harassment of
Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

 Law of Industrial Relations : Industrial Disputes Act, 1947 , Indian Trade Union Act,
1926; The Trade Unions (Amendments) Act, 2001.

 Law of Wages: Payment of Wages Act, 1936; Minimum Wages Act, 1948

 Social Security Legislations: Employees’ Compensation Act, 1923; Employees

Compensation (Amendment) Act, 2017, Industrial Employment (Standing Orders) Act,
1946

The Factories Act, 1948

 The Act consists of 120 Sections and 3 Schedules.

Schedule 1- contains list of industries involving hazardous processes

Schedule 2 -is about permissible level of certain chemical substances in work environment

Schedule 3 -consists of list of notifiable diseases.

  Applicable to all factories using power and employing 10 or more workers, and if not
using power, employing 20 or more workers on any day of the preceding 12 months.

To whole of India and persons employed in factories, mines, plantation, construction,

mechanically propelled vehicles and in some hazardous occupations are covered under the
provisions of the Act

 The major goal of the Factories Act of 1948 is to establish adequate safety measures and
to enhance the health and welfare of workers employed in a factory. The Act also protects
workers from various industrial and occupational hazards.

o Heath: According to the Act, all factories must be kept clean, and all essential
safeguards must be taken to safeguard the health of workers. The factory must
have a sufficient drainage system, adequate lighting, ventilation, temperature, etc.
There must be clean water supplies. Separate restrooms and urinals must be built
in convenient locations for males and females. These must be freely accessible to
employees and kept clean.
o Safety: The Act requires that machines be properly fenced; that no young adults
work on any dangerous machines in enclosed places, and also that appropriate
manholes be provided so that employees may escape in an emergency.
o Welfare: The Act specifies that appropriate and suitable washing facilities for
workers must be provided and maintained in every factory. There must be storage
and drying facilities, as well as sitting areas, first-aid equipment, shelters,
restrooms and lunch rooms.

 Section 2(k) Factories Act, 1948.

Explanation of the manufacturing process and what it entails

 Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning,

breaking up, demolishing, or otherwise, treating or adopting any article or substance
with a view to its use, sale, transport, delivery or disposal; or
 Pumping oil, water or sewage or any other substance; or  generating, transforming,
transmitting power; or
 Composing types for printing, printing by letter-press, lithography, photogravure or
other similar process, or book-binding; or
 Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or
vessels; or
 Preserving or storing any article in cold storage.

 Worker Section 2(l)

 workman covers skilled, unskilled, manual or clerical work. However, workman does
not include employees engaged in a managerial or administrative capacity or supervisory
capacity and also it does not include workers subject to Army Act, Navy Act or Air Force
Act or police or prison services.
 Factory Section 2(m)
 ‘Factory’ means: any premises or precincts thereof –
(i) whereon 10 or more workers are working, or were working, on any day of the
preceding 12 months, and in any part of which a manufacturing process is being carried
on with the aid of power
 wherein twenty or more workers are working, or working on any day of the preceding 12
months and in any part of which a manufacturing process is being carried on without the
aid of power. This does not include :
 mine under mines act
 -mobile unit belonging to armed forces
 -railway running shed
 -hotel
 -restaurant
 -eating place
 -greenhouse engaged in floriculture or high value crop rearing

 In Indian Oil Corporation vs. Chief Inspector of Factories,

it was observed that it is the Government which looks after the successful implementation of the
Factories Act . The ultimate control over all the affairs of the corporation is with the Central
Government by appointing the person to manage it.

Authorities

 Agencies of the State Government to carry out administration of the Act

 Inspecting Staff (Sec 8-9) -
 Inspector- Section 8- State Government to appoint Inspectors, Additional Inspectors and
Chief Inspectors

Section 8(2) - the government may appoint Additional, Joint or Deputy Chief Inspectors such
other officers to assist inspector and as it thinks fit.

Powers of Inspectors (Section 9)

 Enter with assistants in any place used as a factory and make examination of the
premises, plant, machinery, article or substance;
 Inquire into any accident or dangerous occurrence, bodily or not and take down
statements for assistance in inquiry of the same.
 Demand the production of any prescribed register or any other document relating to the
factory
 Seize any register, record or other document as he may consider necessary in respect of
any offence under this Act
 Direct for removal of any article or substance that causes injury or poses a threat to the
health and safety of workers

Certifying Surgeons (Sec.10)- The State Government may appoint qualified medical
practitioners to be certifying surgeons for the purposes of this Act within factories.

 He provides certificates of fitness to the young or adult workers which declare them to be
fit and fine for the factory work. A factory may involve some hazardous processes and
 other dangerous occupation wherein all sorts of workers may not be fit for such work. So,
a certifying surgeon has to take special scrutiny of the fitness of the workers.

Welfare Officers (Sec 49)-

 In every factory wherein five hundred or more workers are ordinarily employed the
occupier shall employ in the factory such number of Welfare officers as may be
prescribed.

 Powers of welfare officers

 Supervise and encourage welfare committees
 The Welfare officer is obligated to intimate the factory management about the grievances
of the workers, by acting as a bridge between them.
 Provide Amenities to Workers- canteens, water, shelters, restrooms etc.
 The welfare officer must assist the management in regulating the provisions such as
grant of leaves with wages etc.
 Monitor relations between workers and management and settle disputes between
them.
 Restrain the workers and Management from any illegal Activities.

Safety Officers (Sec 40 B)

A Safety Officer is an officer appointed by the occupier of the Factory who can be directed
by state government where the no. of workers in the factory is more than one thousand.
The safety officer is appointed to ensure the safety of the workers within the factory.

 Measures to be taken by factories for health, safety and welfare of workers

Welfare Provision [Sec.42-50]

 Washing facilities(Sec 42)-

-Adequate and suitable facilities for washing

-Male and female demarcations

-Such facilities shall be conveniently accessible

 Facilities for, storing & drying clothes(Sec43)

- The State Government may make rules requiring the provision of suitable places for keeping
clothing not worn during working hours and for the drying of wet clothing

 Facilities for sitting(Sec 44)

-In every factory suitable arrangements for sitting shall be provided and maintained for all
workers obliged to work in a standing position

 First aid appliances(Sec 45)

-There shall in every factory be provided and maintained so as to be readily accessible during all
working hours first-aid boxes or cupboards equipped with the prescribed contents.

-number of such boxes or cupboards to be provided and maintained shall not be less than one for
every one hundred and fifty workers.

 Canteen( Sec46) –

The State Government may make rules requiring that in any specified factory wherein more than
two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided
and maintained by the occupier for the use of the workers.

 Rest room, shelters, lunch room( Sec 47)-

In every factory wherein more than one hundred and fifty workers are ordinarily employed,
adequate and suitable shelters or rest rooms and a suitable lunch room, with provision for
drinking water, where workers can eat meals brought by them, shall be provided and maintained
  Power to make rule(Sec 50)- State government may make rules.

 Working Hours Sec.51- Weekly hours not more than 48 hours a week.

 Sec.52-First day of the week i.e. Sunday shall be a weekly holiday.

 Sec.53-Compensatory holiday- Where a weekly holiday is denied he shall be allowed to

avail the compensatory holiday within a month.

 Sec.54-Daily working hours- no adult worker shall be allowed to work in a factory for
more than nine hours in any day.

 Night Shifts [Sec.57] - If shift extends beyond midnight , a holiday for him will mean a
period of 24 hours beginning when his shift ends.

 Fencing of Machinery[Sec.21] - Every dangerous parts must be securely fenced. The

State Government may by rules prescribe such further precautions.

 Machines in motions[Sec.22] - Examination of machinery in motion only by a specially

trained adult male worker wearing tight fitting clothing. No women or child should be
allowed to work.

 Employment of young persons on dangerous machines[Sec.23] - No young person

should be allowed to work on dangerous machines (unless he has been trained, and is
under supervision).

 Self acting machines[Sec.25] - no person should walk in a space within 45 cm from any
fixed structure which is not a part of machine.

 Casing of new machines[Sec.26] All machinery driven by power & installed should be
so sunk, encased or otherwise effectively guarded as to prevent danger.

The Industrial Disputes Act, 1947

  To secure industrial peace and harmony.
 To establish machinery and procedure for the investigation.
 Settlement of industrial disputes by negotiations.

Section 2(j)

Industry mean any systematic activity carried on by cooperation between an employ and his
work man for the production supply or distribution of goods and services with a view of
satisfying human wants or needs.

Strike [Sec. 2 (q)]

Strike means "a cessation of work by a body of persons employed in any industry acting in
combination or a concerted refusal under a common understanding of any number of persons
who are or have been so employed, to continue to work or to accept employment.“

 Interest dispute: Interest dispute arise out of deadlocks in negotiation for collective
bargaining.
 Grievance dispute: Grievance dispute pertains to discipline, wages, working time,
promotion, rights of supervisors etc. It is also called as interpretation disputes.
 Unfair labour practices: Unfair labour practices are those arising out of right to
organize, acts of violence, failure to implement an award, discriminatory treatment,
illegal strikes and lockouts.

WORKS COMMITTEE (Section 3):

 Every employer should form a works committee if they have more than 100 employees
in the organization.
 The works committee is a committee consisting of equal numbers of representatives of
employers and workmen
 The works committee is a forum for explaining the difficulties of all the parties.
 The main objective of the works committee is to solve the problems arising in the day-to-
day working of a concern.
CONCILIATION OFFICER (Section 4):

 The main objective of appointing conciliation officer is to create good atmosphere within
the industry.
 The duty of the conciliation officer is not judicial but administrative. He has to hold
conciliation proceedings, investigate the disputes.

BOARDS OF CONCILIATION (Section 5):

 The Board shall consist of a chairman and 2 - 4 other members in equal numbers
representing the parties to the disputes as the appropriate Government thinks fit.
 The Chairman shall be an independent person.

LABOUR COURT (Section 7):

State Govt can constitute one or more labour court for adjudication of industrial disputes relating
to any matters specified in the Second Schedule.

A person shall not be qualified for appointment as the presiding officer of a Labour Court,
unless--

(a) he is, or has been, a Judge of a High Court; or

(b) he has, for a period of not less than three years, been a District Judge or an Additional
District Judge;

(d) he has held any judicial office in India for not less than seven years; or

(e) he has been the presiding officer of a Labour Court constituted under any Provincial Act or
State Act for not less than five years.

PROCEDURE OF STRIKES

 According to Sec. 22(1), No person employed in a public utility service shall go on strike
in breach of contract-
  (a) without giving to the employer notice of strike, as hereinafter provided, within six
weeks before striking; or
 (b) within fourteen days of giving such notice; or
 (c) before the expiry of the date of strike specified in any such notice as aforesaid; or
 (d) during the pendency of any conciliation proceedings before a conciliation officer and
seven days after the conclusion of such proceedings.

The Minimum Wages Act, 1948

 To provide minimum wages to the workers working in organized sector
 To stop exploitation of the workers in fixing minimum wages and to revising it in a
timely manner
 To apply this law on most of the sections in organized sector

Wages [Sec. 2(h) - all remuneration capable of being paid in money terms for work done if
terms of contract were fulfilled

- Basic + Dearness Allowance + House Rent Allowance

Every 5 years, basic rates of every industry are decided by Minimum Wages Committee

Dearness Allowance changes every six months and is decided by Government.

Fixing of minimum rate of wages [Sec. 3]

 The Appropriate Government shall fix minimum rates of wages for an employment
 Shall review at intervals not exceeding 5 years the minimum rates of wages.

 Wages in Kind [Sec. 11]

 Minimum wages shall be paid in cash but where there has been a custom of payment in
this manner, payment of minimum wages either wholly or partly in kind
 The appropriate govt. may authorize supply of essential commodities at concessional
rates.
Section 4: Minimum rate of wages.

 Any minimum rate of wages fixed or revised by the appropriate Government in respect
of scheduled employments under section 3 may consist of-
 a basic rate of wages and a special allowance at a rate to be adjusted, at such intervals and
in such manner as the appropriate Government may direct, to accord as nearly as
practicable with the variation in the cost of living

Procedure for fixing wages Section 5

 Committee Report – appropriate Government may fix committee

 appoint as many committees and sub-committees as it considers necessary to hold
enquiries and advise it in respect of such fixation or revision,
 After notification, publish its proposals for the information of persons likely to be
affected thereby and specify a date, not less than two months from the date of the
notification
 Section 7: Advisory Board- the appropriate Government shall appoint an Advisory
Board for the purpose of co-ordinating the work of committees and sub committees
appointed and advising the appropriate Government generally in the matter of fixing and
revising minimum rates of wages.
 Section 8: Central Advisory Board- the Central Government shall appoint a Central
Advisory Board, the Central and State Governments in the matters of the fixation and
revision of minimum rates of wages and other matters under this Act and for co-
ordinating the work of the Advisory Boards.

Labour law challenges

 Underemployment and the prevalence of low wages

 Industrial upgrading
 Distributive conflicts and asymmetries in bargaining power among social groups
 Legitimacy of the object of the agreement
 Specification of the object of the agreement
 Termination of Employment Agreement
  The duration of work- fixed as per law
 Working conditions of Women
 Safety & Labour hygiene

Informal Sector

 informal employment relations in formal enterprises- dynamic opportunities for workers

with less protection
 small and microenterprises are more likely not to comply with laws, and not to have laws
enforced upon them, compared with larger enterprises
 Small Business Administration Board- USA and Singapore
 forced labour likely occurs in informal economies
 Instability and insecurity- social protection, which includes mechanisms for health, life,
disability and unemployment insurance, as well as pension schemes, childcare and
maternity leave.
 The absence of collective agreements.

Labour Laws (codes)

Four codes – on wages, industrial relations, social security conditions & occupational safety,
health and working conditions

 Objective is to simplify and modernize labour laws in India, with an emphasis on ease of
doing business.

The Occupational Safety, Health And

Working Conditions Code, 2020
The Code subsumes 633 provisions of 13 major labour laws into one single Code with 143
provisions.
Scope

The Code applies on factories having 20 or more workers and manufacturing process is being
carried on with the aid of power or 40 or more workers where manufacturing process is being
carried on without the aid of power.

Emphasizes on health, safety and welfare of the workers employed in various sectors like
industry, trade, business, manufacturing, factory, motor transport undertaking, building and other
construction work, newspaper establishments, audio-video production, plantation, mine & dock-
work and service sectors. It applies to contract labour employed through contractor

Welfare Facilities, Working Hours and Annual Leave

Chapter-VI provides for welfare facilities that need to be maintained in an establishment under
Section-24,

these include but are not limited to, the following:-

 Adequate and separate washing facilities for men and women

 Facilities for bathing and locker-rooms for men, women and transgender employees
separately
 Space to store clothes that are not used during the hours of work
 Seating arrangements for employees obliged to work in a standing position
 Canteen in an establishment for employees thereof, wherein 100 or more workers
including contract labourers are ordinarily employed
 In case of mines a medical examination must be provided to persons who are to be
employed and who are in employment, both before their employment as well as at
specific intervals during the same
 Adequate first aid-boxes readily accessible during all working hours

Chapter-VII relates to working conditions relating to hours of work, weekly rest day and annual
leave with wages

 Section-25 - that no worker shall be required or allowed to work for more than:
  a) 8 hours in a day; and
 b) The period of work in the eight hours shall be so fixed so as to not exceed such hours
with intervals and spread overs, as may be notified by the appropriate Government
 Section-26 of the Code relates to weekly and compensatory holidays and states that no
worker shall be allowed to work in an establishment for more than 6 days in any one
week.

 Section-27 makes provisions for wages to be paid for overtime work, it stipulates that
there shall be wages paid at twice the rate of wages in respect of overtime work.

 Section-28 of the Act relates to night shift regulations that apply to workers whose shift
extends beyond midnight, a weekly holiday for a full day in the context of such workers
means a period of 24 hours beginning when the worker’s shift ends.

Authorities

Section 16. (1)- the Central Government shall, by notification, constitute the National
Occupational Safety and Health Advisory Board to perform functions under the act in concerns
relating to:

 (a) standards, rules and regulations

 (b) implementation of the provisions of this Code
 (c) the issues of policy and programme relating to occupational safety and health

CHAPTER X SPECIAL PROVISION RELATING TO EMPLOYMENT OF WOMEN

 Sec 43. Women shall be entitled to be employed in all establishments for all types of
work under this Code and they may also be employed, with their consent before 6 a.m.
and beyond 7 p.m.
 Sec 44. Where the appropriate Government considers that the employment of women is
dangerous for their health and safety, in an establishment or class of establishments or in
any particular hazardous or dangerous processes in such establishment or class of
establishments, due to the operation carried out therein. Government may in the
 prescribed manner, require the employer to provide adequate safeguards prior to the
employment of women for such operation.

Penalty for non maintenance of register, records and non-filing of returns

Shall be liable to penalty which shall not be less than fifty thousand rupees but which may
extend to one lakh rupees.

Punishment for falsification of records,

Shall be punishable with imprisonment for a term which may extend to three months, or with
fine which may extend to one lakh rupees, or with both.

Punishment for contravention of provisions of duties relating to safety provisions

Causing death- he shall be punishable with an imprisonment for a term which may extend to two
years, or with a fine which shall not be less than five lakh rupees,

Causing serious bodily injury to any person within the establishment- he shall be punishable with
an imprisonment for a term which may extend to one year, or with a fine which shall not be less
than two lakh rupees but not exceeding four lakh rupees,

The Industrial Relations code, 2020

Grievance Redressal Mechanism

 Sections 43 and 44 of the IR Code now provide only for Conciliation Officers, Industrial
Tribunals and National Industrial Tribunals.

MECHANISM FOR RESOLUTION OF INDUSTRIAL DISPUTE

WORKS COMMITTEE (Section 3):

  Every employer should form a works committee if they have more than 100 employees
in the organization.
 The works committee is a committee consisting of equal numbers of representatives of
employers and workmen
 The works committee is a forum for explaining the difficulties of all the parties.
 The main objective of the works committee is to solve the problems arising in the day-to-
day working of a concern.

Sec 4 Grievance Redressal Committee

An application in respect of any dispute may be filed before the Grievance Redressal Committee
by any aggrieved worker in such manner as may be prescribed within one year from the date on
which the cause of action of such dispute arises.

Section 43- Conciliation officers.

A conciliation officer may be appointed for a specified area or for specified industries in a
specified area or for one or more specified industries and either permanently or for a limited
period.

Section 44 Industrial Tribunal

Every Industrial Tribunal shall consist of two members to be appointed by the appropriate
Government out of whom one shall be a Judicial Member and the other, an Administrative
Member.

 The application and interpretation of standing order

 Discharge or dismissal of workmen including reinstatement of, or grant of relief to,
workmen dismissed;
 Illegality or otherwise of a strike or lockout;
 Retrenchment of workmen and closure of establishment
 Trade Union disputes.

Sec 49 Powers
 1. enforcing the attendance of any person and examining him on oath;
2. compelling the production of documents and material objects;
3. issuing commissions for the examination of witnesses;

Code Of Wages, 2020

The Code on Wages Bill 2019, also referred to as Wage Code, consolidates provisions of four
labour laws concerning wages and bonuses, while allowing for timely payment of wages for
workers in India.

CODE OF WAGES 2019

The government of India began considering a plan in 2015 to consolidate India’s 44 labour laws
into four codes in order to rationalize labour laws and improve ease of doing business. The other
three are the Occupational Safety, Health and Working Conditions Code, the Industrial Relations
Code, and the Code on Social Security.

The Code on Wages Bill, in turn, will subsume four laws:

1 . Minimum Wages Act (MWA)\

2. Payment of Wages Act (PWA

3. Payment of Bonus Act (PBA)

4. Equal Remuneration Act (ERA)

CHANGES

As per Labour Minister Santosh Kumar Gangwara, the new law will benefit about 50 crore
workers in the country.

In addition, other changes will also become available:

  As per the bill, a committee of trade unions, employers and the state government will fix
a floor wage for workers throughout the country.
 Provident fund (PF) and gratuity components and take-home pay of employees will be
impacted. The new definition of wages caps allowances at 50% of total compensation.
 The basic pay will be 50% or more of total pay as per the new code. This will change the
salary structure of most employees as the non-allowance part is usually lower than 50%.

It has brought changes in PF structure, pay-out fund etc.

SALIENT FEATURES

The following are some of the features of the Code on Wages Bill, 2019:

 Uniform Applicability: The Wage Code now will ensure uniform applicability of the
timely payment of wages. Irrespective of wage ceilings and different industrial sectors
when previous laws like the Payment of Wages Act, Minimum Wages Act had placed
restrictions.
 Uniform Definition of Wages: The definition of ‘wages’ slightly varied across PWA,
MWA, PBA and this has resulted in numerous litigations. Therefore, the Wage Code
seeks to provide a single uniform definition of ‘wages’ for the purposes of computation
and payment of wages to the employees. As per Wage Code, the term ‘wages’ means all
remuneration whether, by way of salaries, allowances or otherwise, expressed in terms of
money and includes basic pay; dearness allowance; and retaining allowance if any.
 The distinction between Employee and Worker: The Wage Code provides separate
definitions of ‘worker’ and ‘employee’. The definition of ‘employee’ is broader than that
of ‘worker’.
 Equal Remuneration: The Wage Code prohibits discrimination on the ground of gender
with respect to wages by employers or for purpose of recruitment, with respect to the
same or work of similar nature of work.
 Payment of Bonus: There is no significant change from PBA and the provisions relating
to the payment of bonus are also consistent with the terms of PBA. Earlier, the
applicability was limited to employees drawing wages not exceeding INR 21,000 per
 month. Now, under the Wage Code, the appropriate government is empowered to fix the
wage threshold for determining the applicability.

The Code On Social Security, 2020

The Code on Social Security, 2020 is a code to amend and consolidate the laws relating to social
security with the goal to extend social security to all employees and workers either in
the organised or unorganised or any other sectors.

 Social security refers to protection measures provided to workers to ensure

healthcare and income security in case of certain contingencies such as old age,
maternity, or accidents.
 The act amalgamates nine central labour enactments relating to social security. Some
of them being:
o The Employees’ Compensation Act, 1923
o The Employees’ State Insurance Act, 1948
o The Maternity Benefit Act, 1961
o Unorganised Workers’ Social Security Act 2008.
o among others.

KEY PROVISIONS

 The definition of employees has been widened to include inter-state migrant workers,
construction workers, film industry workers and platform workers. It has
provisions for the registration of all three categories of workers – unorganised
workers, gig workers and platform workers.
 Gig workers refer to workers outside the “traditional employer-employee relationship”.
o Platform workers are those who are outside the “traditional employer-employee
relationship” and access organisations or individuals through an online platform
and provide services for payment.
 o An unorganised worker is defined as one who works in the unorganised sector,
and includes workers not covered by the Industrial Disputes Act, 1947, or other
provisions of the Bill (such as provident fund or gratuity). It also includes self-
employed workers.
o A social security fund will be created for paying these benefits to workers and it
will be funded by central and state governments and also through CSR funding.
Aggregators who are digital intermediaries employing gig workers will have to
set aside at least around 1-2 per cent of their annual turnover (amount not
exceeding 5 per cent of the amount payable to the workers) for the purpose of this
social security fund.
 The government could notify schemes for unorganised sector workers (such as home-
based and self-employed workers), gig workers, and platform workers.
 The Code also provides for the setting up of a ‘National Social Security Board’. The
functions of the Board include recommending schemes to the central government and
also monitoring the schemes for the different types of workers, advising the Government
on matters relating to the administration of the Code amongst others.

CHANGES

Digitisation:

 As per the Act, all records and returns have to be maintained electronically. Digitisation
of data will help in the exchange of information among various stakeholders/funds set up
by the Government, will ensure compliance and also facilitate governance.

Uniform definitions:

 Uniformity in determining wages for the purpose of social security benefits is another
highlight of the code given the ambiguity in the current regulations.
 This has provided a wide definition for wage. Specific exclusions with ceilings have been
provided for discouraging inappropriate structuring of salaries to minimise social security
benefits.
Consultative approach:

 The Code has brought in a facilitating approach by the authorities. Unlike the existing
role of inspectors, the Code provides for an enhanced role of inspector-cum-facilitator
whereby employers can look for support and advice to enhance compliances.

It has also made more inclusive changes in penal provisions and non deterrence, enhanced
coverage and fixed term employees.

READ MORE : https://byjus.com/free-ias-prep/code-on-social-security-2020/

Labour Regulations in Emerging and Developed Countries

Labour markets in the developing world are characterized by high informality, low union
membership, and minimal social insurance coverage, which pose challenges to long-term socio-
economic development. Factors causing the same are:

 The changing nature of manufacturing and the early transition to the service economy in
developing countries;
 Continued high growth of the labour force.
 The adoption of complex, comprehensive systems ahead of the necessary administrative
and governance capacities.

The shift to organized sector, formal employment and wage jobs saw an emergence of individual
income stability because of two sets of laws such as:

1. Employment protection legislation, which provides protection against discrimination,

arbitrary hiring and firing, employer abuse of power against employees, and danger in the
workplace.
2. Social insurance legislation, which transfers income to people over time as specific loss-
of-income events occur. Known as income smoothing, this is achieved through
mandatory participation (risk pooling), with contributions collected from wages.
The productivity of labour in developed countries' firms allowed the spread of worker protection
and social insurance, as employees were happy to receive both cash earnings and benefits in kind
in the form of worker protection and insurance. The lack of globalization meant that international
competitiveness was not a strong driver of employment or wages, as only the local labour market
mattered. By the time the service economy took hold as the major employer in developed
countries, the employment transition had already taken place.

Developing countries are not able to follow this path for a few reasons- First, the nature of
industrial production has changed with globalization. Second, their demographics are
fundamentally different. Third, the nature of the social security systems which have been put in
place.

Following the lead of developed countries, as well as the advice and standards set by
international organizations, developing countries have passed legislation creating the same type
of comprehensive coverage provided in developed countries despite lacking the tax base or the
institutions to manage and govern system. As a result, the systems in developing countries tend
to have high payroll tax rates but poor benefits and limited coverage.