Role of labour regulation and reforms in India: Country case study on labour market segmentation

Papola, Trilok Singh
November 2013
Employment Working Paper;2013, Vol. 152, preceding p1
Case Study
The Indian labour market is characterized by a high degree and numerous bases of segmentation. Large geographical size and economic and socio-cultural variations, sharp rural-urban divide, and caste and religion based distinctions add to such common bases of segmentation as gender, and occupation. Labour market institutions such as unions and regulatory and welfare regulation also tend to widen rather than reduce segmentation in the Indian labour market. Labour laws with differentiated criteria of application tend to divide workers into several categories with respect to the degree of job and social protection. Size of enterprise can be a basis of segmentation, but is explicitly made so by labour laws in the Indian case. Dualism is the most obvious form of segmentation, but there are several layers of labour market segmentation within and across the formal and informal sectors. There has been a debate on whether segmentation, especially the one that is created by labour regulation, has adversely affected growth and quality of employment. Most of the regulation, in fact, applies to a relatively small part of the workforce. Employment has grown relatively well but most of it has been of the informal kind. Stagnation and slow growth of employment in the formal sector where most of the labour laws apply has given credence to the contention of its negative impact. Evidence, however, is inconclusive. Yet reforms in the regulatory framework seem necessary both to remove some irrationally restrictive and often antiquated provisions discouraging growth of good quality employment and to ensure a minimum flour of fair employment conditions and social protection to the vast mass of the informal workers.


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