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Manufacturing Fragmentation and Flexibility

Flexibility of Labour in Globalizing India: The Challenge of Skills and Technology by Jeemol Unni and Uma Rani (New Delhi: Tulika Books), 2008;

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Manufacturing Fragmentation and Flexibility

Ritu Dewan

T
he nature and impact of the almost two-decade long process of globalisation in India has been evaluated from numerous angles, but rarely from the viewpoint of skills and technology. This book attempts to fill this lacuna, and, it is necessary to note at the outset, it does so in a thorough, rigorous, and yet simple manner. The primary focus is on the entry of new technologies, which permit fragmentation of the processes of production and services, and their impact on the creation of skill biases.

Skilled, Unskilled

The growing differentials between skilled and unskilled labour are common to both developed and developing countries, with several explanatory hypotheses being put forward. One, that trade liberalisation is the main culprit. Two, that technology increases skill-biased productivity by shifting relative labour demand in favour of more experienced and better educated workers accompanied by rising wage inequality. Three, that the trade and technology

Economic & Political Weekly

EPW
february 14, 2009

Flexibility of Labour in Globalizing India: The Challenge of Skills and Technology by Jeemol Unni and Uma Rani (New Delhi: Tulika Books), 2008; pp ix + 226, Rs 425.

explanations combine to reduce demand for unskilled labour. Four, that skill premium rises due to global production sharing which generates new demands for continuous upgradation and also acquisition of new skills; additionally, that trade and investment liberalisation permits the transfer of intermediate goods and services from the developed to the developing world, resulting in greater demand for and returns to skilled labour. Five, that skill bias operates at the micro level in relation to a firm and that globalised production processes make these firms de facto institutions for developing necessary skills to enhance productivity and competition. Also, as the skills and knowledge required for globalised production activities are primarily tacit, hard to obtain, and expensive to transfer between firms, what is brought to the fore is an increase in investment in

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internal training so as to create both competitive assets as well as competitiveness. Last, that investment in education and skills can increase productivity, incomes, and also the nation’s economic growth; and that wage differentials are the result of education and training differentials.

Locating Issues

Globalisation has strengthened the twin processes of informalisation of the workforce in both developed and developing countries, that is, informal work in informal enterprises as well as informal work in the formal sector. This book begins by locating the identified issues in the context of the differential impact of “reforms” on growth with quality employment in the various industry groups within the manufacturing sector in India. To recapture basic information, of the 458 million workers in India in 2004-05, 395 million (86%) were in the unorganised and informal sector, including the 72% informal workers in the non-agricultural sector. This represents a 4 percentage point increase within a short span of half a decade between 1999-2000 and 2004-05. Although employment in the formal sector grew from 54 million to 63 million during the same time period, those with social security benefits remained constant at 34 million, the implication obviously being that the entire increase in formal employment has been

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through informalisation. Further, in terms obvious – the benefits of growth in the of value added and also employment the unorganised sector have been transferred

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organised manufacturing sector grew somewhat in the first few years of globalisation, declining after the mid-1990s both in absolute number and proportion, while in the last decade unorganised manufacturing expanded rapidly.

Impact of Reforms

The differential impact of reforms commences with a categorical rejection of the traditional view that perceives growth of value added and employment creation alone in an industry group as sufficient to ensure productive employment. Also added, therefore, are aspects of growth of employment and labour productivity. Seven groups of growth versus non-growth industries are defined and then clubbed into three categories based on the three variables of value added, employment and labour productivity. The analysis being carried out in two time periods – early reforms extending from 1989-95 over 1984-90, and the rapid reform period extending from 1994-2001 over 1989-95. While it is obviously not possible to go into detailed results of this exercise, the case of the garment industry provides quite a fascinating study. This industry, which had achieved high output and employment growth in the organised sector till the mid-1990s, slowed down in the second phase, accompanied by an expansion in the unorganised sector output and employment. The authors argue quite convincingly that with the adoption of flexible production processes, large firms sub contracted to small firms, leading to the informal segment registering high growth in output, employment and also capital.

Workers’ Well-being

Analysis of the implications of growth for the well-being of workers begins with posing two basic questions – did the workers in the unorganised sector gain from the growth in the industry, and was the increase in the ranks of the unorganised sector due to push or pull factors. The average rate of growth per annum of wage earnings in the unorganised sector at 12% is much higher than that in the organised sector at merely 1%. The implication is to the workers. The opposite holds true for the organised manufacturing, with workers not benefiting from high growth of either employment or wage earnings even in the industries which witnessed rapid growth of value added and labour productivity.

Workers are generally perceived to be a homogeneous group, disaggregated only by industry and rarely by quality. In the context of the current growth paradigm, it is essential to examine how changes in technology affect the demand for labour, and how the elasticity of substitution between skilled and unskilled varies across different sectors. A negative relationship between the wages of skilled and unskilled labour, and the ratio of skilled to unskilled workers would imply that there is perfect substitution between the two categories. The skill-biased technology change hypothesis is tested for onedigit industry groups in order to seek an explanation for rise in the wage premiums of skilled workers, wherein skills are measured by the level of education and techno logy by the relative wage bills. As expected, the services sector witnessed the greatest technological change, rise in skilled workers as well as in skill premiums. Also, as expected, technical change and increasing skill premiums have occurred in the activities that engage mainly male as compared to female workers, thus reinforcing gender bias, more for regular salaried compared to casual workers. This too reinforces heterogeneity of the labour-force and urban rather than rural workers thus strengthening sectoral/regional inequalities.

Trade and Technology

The combined trade and technologyrelated hypothesis has been tested by classifying manufacturing industries into trade categories that are export-promoting, import-substituting, and those that have shifted between the above two. Again, as expected, the impact of trade liberalisation on inflow of technology, rise in skilled workers and skill premiums is most prominent in export-oriented industries, the implication being that they were better poised to take advantage of the new opportunities offered. The deeply gendered

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february 14, 2009 vol xliv no 7

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Economic & Political Weekly

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nature of this process is apparent in that the only export-oriented industry group, where women seem to have benefited, is the wearing apparel and garment industry, skill premiums having increased primarily among production workers.

The hypothesis relating to global and local production linkages is discussed via the impact of subcontracting linkages between large firms (both foreign and Indian), and small firms in the specific micro context of the auto-components industry through extensive fieldwork. Much of the improvement in production processes results from the transfer of skills and technology from parent firms to subcontracting firms particularly in the Chennai and Pune regions. Further, the process of technology upgradation generally leads to improved skill intensity, although instances of deskilling of workers are also recorded. Quality upgrading of firms additionally occurs due to improvement in existing machines, purchase of new

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machines, and of course, increase in demand in an expanding market.

While macro as well as micro empirical data support both the trade and skill- technology explanations for the rising skill base, and hence, premiums, these very same factors have resulted in increasing casuali sation and contractualisation which consequently excludes the majority of the workforce from social security benefits. It is convincingly argued that with the rise in the competitive nature of the manufacturing sector, the only benefit that the workers seem to be gaining is in the form of on-the-job training and rotation of work, which, while helping in attainment of new skills, actually assists in subsidising productions costs. However, it is also argued that ultimately the inflow of new technologies in the tradeliberalised regime has helped improve skills and employability, but with the benefits of improved productivity accruing primarily to the firm.

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Additionally, the rising prices of raw materials and the lack of upward price adjustments for finished products, along with the absence of a creative and dynamic policy for small enterprises, have led to a lowering of labour costs. The hierarchical structure of the majority of large companies that encourages subcontracting has resulted in the creation of “captive” units, thus increasing the exploitative nature of the production process, with workers in the small and informal sector bearing the brunt of downward adjustments in product prices and upward rise in input prices. Combined with persistent macro and meso efforts to dissuade workers from forming unions in both large and small enterprises, the result is a dramatic decline in wage bargaining ability, in ensuring proper work contracts, decent employment, and social security, and, in fact, in a decline in the very quality of not only the present, but even the future workforce.

Email: dewan.ritu@gmail.com

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Economic & Political Weekly

EPW
february 14, 2009 vol xliv no 7

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