Increase in Productivity and Real Wage Earnings:

Labour has been charged that whereas it presses for higher wages through trade unions, it has failed to raise productivity. Shariff and Gomber (1999) studied the problem of increase in labour productivity and real earnings of regular wage and salaried employees. Their study revealed that during 1983-88, whereas labour productivity increased by 3.16 per cent, real wage earnings rose by 7 per cent. But during 1988-94, whereas labour productivity increased by 3.32 per cent, increase in real earnings showed a miserable increase of 1.0 per cent. Obviously, gains of productivity in this period were transferred to the workers to the extent of only 1.0 per cent and the rest were pocketed by the employers. This had an adverse effect on labour welfare.

There is a shift in the attitude of employers in the post-reform period. Instead of treating labour as a partner in the production process, the employers started treating labour as a mere instrument of production which can be dispensed with when in the judgement of the employer, it is no longer useful. Voluntary Retirement of old workers and their replacement by younger ones is a reflection of this attitude. In developed countries, where social security systems are well- developed, the process of downsizing labour is relatively less painful as compared to downsizing in under-developed countries. Workers are entitled to a dole in developed countries and thus can obtain a basic minimum for their survival, but in under-developed countries like India, downsizing which is another name for retrenchment results in depriving the workers of their livelihood. It is due to this reason that trade unions are opposed to an exit policy, or the right to hire and fire by the employers. This has been replaced by a softer term ‘labour flexibility' which also implies the right to retrench workers.

The Government and the industrial lobbies argue that they will provide safety net for retrenched or laid-off workers, but Joseph Stiglitz criticising this policy mentioned: "There is no safety net that can fully replace the security provided by an economy running at full employment. No welfare system will ever restore the dignity that comes from work." Stiglitz, therefore, urged, "workers rights should be a central focus of development".