So who's here for the worker?

Most of us, even those not fed on the FICCI-CII staple diet, intuitively know that the so-called pro-worker legislations, such as those that make it near-impossible for them to be laid off, haven't really benefited the workers, in the sense that they haven't resulted in any real growth in jobs.

You just have to look at states like West Bengal and Kerala, two very pro-worker states, and see the lack of industrial growth there, to know this. In any case, employment data just put out by the ministry of labour confirm this.

Overall employment in 2002 has fallen -- two per cent in the public sector and one per cent in the private sector. And even in the unorganised sector that accounts for 93 per cent of total employment, growth from 1993-94 to 1999-00 is a mere one per cent.

But what brings this out in a very stark manner is a paper presented by Robin Burgess and Anthony Venables of the London School of Economics at the World Bank's just-concluded Annual Bank Conference on Development Economics -- since most papers presented here concentrated on explaining pretty basic stuff, appropriately perhaps, the conference is called ABCDE!

Anyway, Burgess and Venables have done an analysis of labour legislation in different states in the country in the 1958-92 period, and have classified them as 'pro-worker' (if you can't get laid off) and 'anti-worker' (if you can).

They've then studied the impact of labour policy on growth and poverty. And the results they get are very revealing, and frightening.

They found, not unexpectedly, that states which had 'pro-labour' policies saw a decline in total manufacturing sector output, and that while this was concentrated in the organised manufacturing sector, output in the unorganised sector actually rose.

This is to be expected since, in states where firing workers is difficult, industrialists tend to set up small units in the unorganised sector as workers in these units have no relative power.

But what's even more interesting is the impact of this on urban poverty. According to the duo's analysis, 'pro-labour' policies actually result in a significant increase in urban poverty.

The impact on rural poverty is statistically insignificant (the t-statistic is 0.62), which is to say that there is no causal relationship. While this may sound incorrect intuitively, Crisil chief economist Subir Gokarn confirms this.

Independent analysis by him showed that in many states, wages in the unorganised sector were so low that if just one member of the family had a job, the family would be below the poverty line.

It certainly helped if two members worked, but even their combined wages still fell far short of what the lowest paid worker earned in the organised textile industry.

So, if 'pro-labour' policies result in more unorganised sector employment and the wages here are very low, 'pro-labour' policies will cause more poverty.

Burgess and Venables also study the impact of agricultural growth on poverty, and come up with the conclusion that higher farm growth does not really affect poverty levels at all (again, the t-statistic is a mere 1.27 for rural areas and 0.48 for urban ones).

While this sounds preposterous given that even lay observers can see that rural poverty has gone down in periods of high agricultural growth, this is something that most agriculturists keep pointing out -- at present input-output prices, farming in India is simply not remunerative enough.

So then what causes poverty to decline in years when the crop is very good? Non-agricultural output growth, that's what.

That's wages got from building roads in rural areas, desilting of canals and tanks, and so on. This non-agricultural output increase, Burgess and Venables' study shows, has a very high positive impact on poverty reduction.

The duo also analyse the impact of rural banking on output and poverty. Till 1990, for every bank branch opened in urban areas, banks had to open four in rural areas that did not have any banks.

Once this number is fed into the model, it is found that total manufacturing sector output increases, but primarily in the unregistered sector.

And since wages in the unregistered sector, though lower than those in the organised sector, are higher than those in pure agriculture, there is a significant fall in rural poverty.

Several policy conclusions emerge from this exercise. For one, while various governments continue to wash their hands off labour reform (in the sense that FICCI and CII understand it, and not in the manner trade unions interpret it!), it is crystal clear that unless this is done, workers are going to get hurt badly by lack of job creation -- the numbers just released by the labour ministry only confirm this.

Equally, while the small-scale and unorganised sector may be eulogised by politicians as a sign of the great entrepreneurial spirit of the tiny Indian, this doesn't help workers as the wages are so low -- Burgess and Venables, in fact, say that this increases poverty.

Also, while it is true that banks don't like the rural branch-building obligations, as they seem the complete anti-thesis to liberalisation, their role in building capacity in rural areas is very substantial.

Even if this means subsidising banks in a more direct fashion, the government needs to ensure rural credit delivery is enhanced. Given that less poverty and more output growth means more consumer demand for their products, may be it is time FICCI and CII began endorsing this as well.

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