Labour Costs and Productivity

Globalisation in its present phase has had wide-ranging repercussions. National barriers for trade have been lowered and competition among manufacturers and service providers has increased. There is a need for reducing production costs and the most “natural” way to do this is by reducing labour costs. This can be done in a number of ways but the most popular way is by removing any form of protection given to workers. Organisations like the World Bank (WB) and its allies have been convincing governments of developing countries to relax or remove all forms of protection granted to labour. These agencies point out that protective legislation for labour is in fact detrimental for increasing jobs and investment. Investors would prefer a flexible policy that allows them to hire or fire labour at their will and also fix wages according to what they think are viable.

The WB’s World Development Report of 1995 noted that,

In many Latin Ameri­can, South Asian and Middle ­Eastern countries, labour laws establish onerous job security regulations, ­rendering hiring decisions practically ­irreversible; and the system of worker representation and dispute resolution is ­often subject to unpredictable government decision-making, adding uncertainty to firms’ estimate of future labour costs.¹