Towards a Model of Contractualisation of Labour in India: Testing the Effect of Unionisation of Regular Workers and the Wage Gap

Abstract

When manufacturing firms employed labour on a low-wage contract in big numbers during the post-reform in India, the demand for cheap contract labourers increased and contract labourers were prepared to work for lower wages as they were not unionised and could not bargain for higher wages. So, have regular workers tried to organise their contractual counterparts so that latter could negotiate higher wages? By helping contract labourers, have regular workers lost the premium wages that they were able to negotiate? In this article, I used wages of regular workers and contract labourers and the wage gap between the two groups to come up with a framework for understanding why contract labourers continued to help firms in India’s manufacturing sector as well by not moving the elasticity of labour demand and demand of substitution of labour upward concerning all other inputs to the production during the post-liberalisation era. I posit four different scenarios to speculate how improved labour flexibility made one of the two sections of workers prosper at the cost of the other section’s hardships.