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Chapter - I
Introduction
Contents
• Introduction
• Labour downsizing: Conceptual understanding
• Statement of the problem
• Review of literature
• Research gap
• Objectives
• Hypotheses
• Research design and Methodology of the study
• Scope and importance of the study
• Limitations of the study
• Outline of the thesis
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Chapter - I
AN ANALYSIS OF LABOUR DOWNSIZING IN KARNATAKA: A
STUDY OF PUBLIC SECTOR INDUSTRIES IN MYSORE DISTRICT
INTRODUCTION
After independence, India formulated economic and social policies which
were rooted in its constitution and were derived from a particular resolution that
stated the goal of economic and social policy of India would be the socialistic pattern
of society. These policies resulted into a particular economic structure of the country
in which there was predominance of the public sector, with was highly regulated and
controlled Private sector and there were restrictions on direct investment by foreign
multinationals. In this structure of the economy, a particular pattern of labour
relations emerged in which labour was highly protected by legislations. Public sector
set up standards and model in matters of labour relations, higher emoluments for
workers, and less number of industrial strikes and better working condition and
welfare activities. The private sector was expected to emulate this. It was, however,
felt that for still higher rate of growth there was need for dynamism in the economic
competency and industrial efficiency. The economic crisis in early 90’s has resulted
in the adoption of New Economic Policy (NEP) with radical structural changes and
this adjustment is bound to alter the existing pattern labour relations in our country.
The NEP laid down by the government towards the middle of 1991 aimed at,
inter alia, imparting liberalization to industrial and trading activities and giving the
economy a global linkage. The NEP, which is also termed as “Economic
Restructuring” or Structural Adjustment Programme of the Indian economy, had far-
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reaching implications for employment and labour market. It was expected to increase
competitive efficiency and better prospects for growth which would, in turn lead to
expansion of employment opportunities. The faster pace of job creation and the rise
in productivity would shift workers from less productive rural jobs to more productive
urban jobs and reduce poverty.
A series of steps have been taken in pursuance of these new policies. Since
then major changes have been effected in trade, credit and industrial policy. The new
trade policy has liberalized imports and exports. Devaluation of Rupee has been
adopted to bring its exchange value in line with the world market. In the sphere of
industrial policy, licensing and bureaucratic controls have been given away. Flow of
foreign capital, multinationals and private sector have been encouraged to invest in
India. Privatization of public enterprises is also effected in some cases even in
moderately profit making enterprises. In this context, on Exit Policy Labour
downsizing has emerged. Though the ‘Exit Policy’ has not been implemented
enthusiastically due to pressure from trade unions, it has created an environment of
job insecurity among workers.
LABOUR DOWNSIZING: CONCEPTUAL UNDERSTANDING
The most common reasons for downsizing the labor force stem from the
effects of the global economic recession. However, certain industries have been into
this cost-cutting measure even before the recent economic crisis. What could have
been their reasons for trimming down their labor force, and why?
It is interesting to know that the concept of “downsizing or “scaling-down”
had its origin in the automotive industry. The reasons for downsizing dates back to
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the 70’s era when the “oil crisis” was the main issue to contend with, and shrinking
the large family-sized cars seemed to be the best solution. Thus, the term
“downsizing” became the byword as vehicles turned more compact but less
accommodating.
Unfortunately, as succeeding developments would have it, the word
‘Downsizing’ became synonymous with layoffs, as the concept was applied to human
resources. Ironically, the automotive industry was one of the most affected because
the so-called “oil crisis” developed into a large-scale problem, which the world is now
experiencing today as an economic crisis.
Based on its origin, downsizing can be defined as a “managerial strategy to
reduce, streamline, trim down or shrink into size a particular structure by scaling
down its features or by dispensing certain physical elements that are considered as
burdensome and with the least economic value. This was done in order to optimize a
particular structure in the most practical or most beneficial condition in order to
minimize the use of other essential resources1.
Many synonyms for downsizing exist, most of which are euphemisms and
more abstract descriptions of the process, most of which can also be used for more
inclusive processes than that of reducing the number of employees. However, more
precisely Labour Downsizing is the "conscious use of permanent personnel reductions
in an attempt to improve efficiency and/or effectiveness"2. Since the 1980s,
downsizing has gained strategic legitimacy. Indeed, recent research on downsizing in
1 Edwards Ginney., Published Aug 29, 2010. 2 Budros., 1999, pp: 70.
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the U. S3, UK4, and Japan5,6 suggests that downsizing is being regarded by
management as one of the preferred routes to turning around declining organizations,
cutting costs, and improving organizational performance 7, most often as a cost-
cutting measures are often used to "soften the blow" in the process of firing or being
fired8.
The term "layoff" originally meant a temporary interruption in work (and
usually pays). The term became a euphemism for permanent termination of
employment. Many other euphemisms have been coined for "(permanent) layoff",
including "downsizing", "excess reduction", "Rightsizing", "Delayering",
"Smartsizing", "Redeployment", "workforce reduction", "workforce optimization",
"simplification", "force shaping", "recursion", and "reduction in force" (RIF),
especially in the government sector.
"Mass layoff" implies lying off a large number of workers. "Attrition"
implies that positions will be eliminated as workers quit or retire. "Early retirement"
means workers may quit now yet still remain eligible for their retirement benefits
later. “Layoffs” imply economic forces beyond the employer's control, especially in
the face of a recession such as the one that began in the late 2000’s.
A "layoff" is an action by an employer to terminate employees for lack of
work. The term connotes that the termination is temporary-but it may well become
3 Baumol, W.J. Blinder, A. S. & Wolff, E. N. (2003), Downsizing in America: Reality, Causes and Consequences. New York: Russell Sage Foundation. See also the American Management Association annual surveys since 1990. 4 Sahdev et al., 1999; Chorely., 2002; Mason., 2002; Rogers., 2002. 5 Mroczkowski, T and Hanaoka, M. (1997), ‘Effective downsizing strategies in Japan and America: is there a convergence of employment practices?’ Academy of Management Review, Vol.22, No.1, pp. 226–56. 6 Ahmakjian and Robinson., 2001. 7 Mellahi, K. and Wilkinson, A. (2004) Downsizing and Innovation Output: A Review of Literature and Research Propositions, BAM Paper 2004., British Academy of Management. 8 (Wilkinson., 2005; Redman and Wilkinson., 2006).
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permanent. A "downsizing" simply means releasing employees because the operation
no longer needs them; reorganization or restructuring of the institution has eliminated
jobs. The euphemistic "right-sizing" is sometimes substituted—to flatter management
and RIF which stands for "reduction in force," is an old and rather straightforward
term, its most likely source being governmental and military changes in employment:
both actually take place from time to time. The newest addition to this lugubrious
terminology (at least from the employees' point of view) is "outsourcing" or "off-
shoring," meaning that the work is being transferred to another organization either
domestically or overseas.
STATEMENT OF THE PROBLEM
Indian economy has been in a bad shape in early 90’s. It has been witnessing
a high rate of inflation, decelerated industrial production, fiscal indiscipline, and a
very high ratio of (internal and external) borrowing to the GNP and a dismally low
level of foreign exchange reserves. In early 1991, the foreign exchange reserves had
become so low that these were barely sufficient to meet about three weeks imports.
Then the government, in fact, had taken the extraordinary step of pledging gold to
meet the country’s foreign exchange requirements.
The successive governments, since 1990, when the economic crisis really
reached its peak, have been highly concerned with the problems, particularly the ones
related to foreign exchange reserves and repayment of loans. Since these two
problems defied short term solutions, the government approached the World Bank and
the IMF for additional loans. The request was acceded but with a major stipulation
that India will opt for a free market economy which meant dismantling its regulated
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regime. It was left to the government to accept the ‘conditionality’ of the World Bank
and the IMF.
Having given their nod, the government announced a series of economic
policies beginning with the devaluation of rupee. This was followed by the
announcement of new industrial, trade and fiscal policies. The new economic policies
have wide ranging implications for the economy, industry and industrial relations in
the country.
The impact of this structural change on the labour force is substantial,
particularly in the field of employment, wages, industrial relations, working
conditions and welfare, both in the short run and long run period. Under the New
Economic Policy, there is feverish drive towards rationalization, deployment of
labour, reduction of unit labour cost to increase competitiveness and efficiency,
particularly in the public sector.
Liberalization of Indian economy has implications for Union Management
relations. This liberalization programme has led to industrial and labour restructuring
in both public and private sector. It is, however, observed that although the process of
restructuring started a decade ago, only a few scholars have paid much attention to the
questions of industrial restructuring and industrial relations issues in India.
Economic literature, distinguishes technically between stabilization and
structural adjustment. Stabilization policy is essentially considered as a short-term
device to reduce the macro economic imbalances such as fiscal and BOP deficits.
Structural adjustment is designed to improve the productivity of resources in the long
run. Moreover, the Structural Adjustment Programme (SAP) is clearly based on the
flow down or the trickle down or percolation theory of development. Supporters of
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SAP argue that benefits certainty flow down to poor people in the long run. Labour
restructuring is an important component of SAP, which is of course, facing lot of
opposition from the labour class. To ensure competitive efficiency labour downsizing
was started in the public sector industries, as a component of industrial restructuring
programme.
The evolution of the problem of labour downsizing and its ramifications and
rationale could be approached from the following perspective:
• Fiscal Reforms: - The need for fiscal reform was apparent in 80s due to
deterioration in government finances. Where in government expenditure
increased faster than its revenue, huge fiscal deficit and monetization of
government borrowing from RBI, worsened the financial position of the
government Long term fiscal policy, SAP and the recommendations of Raja
Challaiah committee focused on expenditure management by the government.
This approach, among many other things called for an assessment of the man
power requirements and labour downsizing through VRS, in order to reduce the
financial burden of the government. In this way, labour downsizing came into
force both at the administrative and industry levels.
• Public sector reforms: - Public sector reforms constitute an important component
of SAP and the related economic reforms in the country. The economic crisis on
the eve of SAP, liberal trade and poor performance of public sector, have called
for a complete overhauling of the public sector in various aspects like financial,
managerial, marketing, legal, labour and organizational. As it has already been
stated, over staffed public sector accounted for a very significant increase in wage
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bill without corresponding rise in labour productivity. And hence, labour
downsizing in public sector, began to receive prominence.
• Productivity Drive: - Most of public sector enterprises have recorded low
productivity, efficiency, poor performance and low capacity utilization. The SAP,
which is designed to increase productivity of resources in the long run called for
not only reducing the excess staff of the public sector but also to increase their
productivity. This would reduce the cost of servicing other inputs and shifts the
resources from less productive to more productive activities. And hence,
unemployment on account of labour restructuring would be temporary in nature
and in the long run this process of labour downsizing would increase the
productivity of all factors, including labour factor. But this does not mean that
productivity can be increased only by reducing number of workers.
• Exit Policy: - NEP in general and New Industrial Policy in particular attracted lot
of criticisms from different sections of the society and then the Government of
India formulated the so called “Exit Policy” in 1991 to reduce the adverse impact
of SAP on labour and to provide them a safety net. Dr. Manmohan Singh
defined Exit Policy as the one ‘which aims at maximizing efficiency gains out of
SAP’. This is a turning point in the history of labour policy in India. This Exit
policy provides, for ‘Downsizing’, ‘Smartsizing’ and ‘Rightsizing’ of labour
force, by focusing on labour redeployment, retraining and if possible even
retrenchment. Thus labour downsizing become the most proclaimed programme
of labour and restructuring.
The government in recent years has formulated various schemes to reduce
hardship and sufferings of workers resulting from structural change and adjustment.
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These measures include various forms of Voluntary Retirement Scheme, Golden
handshake scheme and setting up of the National Renewal Fund for redeployment of
workers and providing social safety net in case of unemployment among workers.
These measures have not created confidence among the Indian working class and their
trade unions. Unless the governments suitably modifies item policies, launches a
massive employment programme and pursue private and public sector restructuring
vigorously with political will and determination, the country is going to experience
widespread industrial unrest and social tension in the years to come.
Ultimately, the importance of downsizing from a social policy point of view
depends on its long term impact on workers. If they find their way back to
comparable employment quickly, then downsizing is not much of a concern. On the
others hand if downsizing leads to long term unemployment or dimmed career
prospects, then there is more reason to monitor it and consider remedial action. There
are diverse plausible arguments about this, some having to do with the composition of
the workers shed by downsizing, other to do with the special extra impact that has on
one one’s job. However, all these become significant in the analysis of labour
downsizing. It is in this background, the study intends to explore the various
dimensions of labour downsizing in Karnataka focusing on the public sector
industries in Mysore district.
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REVIEW OF LITERATURE
After stating the problem, the next logical step would be surveying the
literature pertaining to the stated problem. Survey of literature enables an
understanding of various dimensions and ramifications of the proposed research topic.
It helps to identify the research gap and facilitates the formulation of hypotheses and
objectives. Literature review also helps the concretization of the proposed thesis.
The literature base, however, is very deep and wide therefore, in this context an
attempt is made to highlight a few important sample studies, which are closely related
to the proposed issue.
Frank Drzensky and Matthias Heinz (2013), “The Hidden Costs of
Downsizing” revealed that, to analyze whether a principal’s decision to lay off an
agent affects the performance of the surviving agents in a laboratory experiment.
They have found that agents reduce their performance by 37% as a response to the
layoff decision. Heterogeneity in principals´ decisions can largely be explained by
different beliefs about how agents react to layoffs.
Robert Gibbons, Lawrence F. Katz (2013) in their paper on “Layoffs and
Lemons” provide theoretical and empirical analyses of an asymmetric-in-formation
model of layoffs. When firms have discretion with respect to lay off, the market
infers that laid-off workers are of low ability. Assuming that no such negative
inference is warranted if workers are displaced in a plant closing, post displacement
wages should be lower and post displacement unemployment spells should be longer
for those displaced by layoffs than for those displaced by plant closings, but pre
displacement wages should not differ by cause of displacement. Evidence on
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displaced workers from Current Population Surveys supports all three of the model's
predictions in the study.
Matthew Dolan (2012) in his paper on “A Labor Force Faces the Ultimate
in Downsizing”, as revealed that, The Detroit's disordered government, which, like
the city itself, is shrinking fast. The city of 713,000 now employs 11,000 workers,
down from more than 13,000 when Mayor Dave Bing took office in 2009. Another
1,000 workers are scheduled to lose their jobs in the current year due to budget cuts.
Yet this labor force retains a complex organizational structure, a vestige of a time
when it served a population of nearly two million. Workers are represented by 21
unions and 48 bargaining units, several of which now have fewer than 10 members.
The five police officers in the city's health department have their own labor council.
Vinitha Kumar (2012) in her research article titled “Labour laws- are they
holding back manufacturing sector and employment in India” examines the
controversy pertaining to the problems of labour market flexibility in India. The
author supports the World Bank Report 2008 which argues that most restrictive and
complex labour legislations in India have constrained the growth of manufacturing as
well as employment in the organized sector. Fallon and Lucas have found that
employment growth in the organized sector would have been higher by 17.5% if the
job security provisions had been less rigid. On the other hand the economists like
Roy (1998) T.S Papola (1994), Ghosh (1994) Bhalhotra (1998) and Goldar (2000
and 2004) observed that job security regulations, did not have significant adverse
impact on neither employment growth not productivity.
Indira Hirway, Neha Shah (2011), in their paper “Labour and
Employment under Globalization: The Case of Gujarat”, states that the dynamics
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of the process of change in the status of labour and employment in the rapidly
globalizing state of Gujarat in India. This study shows that the rapid growth in the
state has not been shared by labour. And it also argues that an unfair deal to labour
need not be a part of neo-liberal economic reforms and that providing a just share to
labour can contributes towards promoting labour-intensive and equitable growth in
the state.
Werner Guth (2011) in his research article “Downsizing the Labor Force
by Low and High Profit Firms- an Experimental Analysis”, argues for appointing
a principal agent to capture the effects of downsizing the labor force. The main
findings are that downsizing is often avoided and its frequency does not depend on its
profitability. The evidence further suggests that the firms spend more when
downsizing is more profitable and what might explain that downsizing frequencies
hardly depend on the profitability.9
To facilitate voluntary retirement, the Government of India, like many other
countries who have taken up similar schemes of privatization, accepted to support
financially the Voluntary Retirement Scheme (VRS) in October 1988. While VRS
has been in operation in India for more than a decade, empirical studies to assess the
impact of the VRS on those who opted for it have not been many. From the
responses of the trade union representatives and the few available studies,10 it appears
that the experience at VRS has not been very encouraging; and there continues to be
confusion on certain aspects of the VRS.
9 Werner Guth (2011) in his “Downsizing the Labor Force by Low and High Profit Firms- An Experimental Analysis” in “Institute of Economic Theory and Statistics (ETS) Karlsruhe Institute of Technology (KIT), Germany”. 10 Maniben Kara Institute, Voluntary Retirement Scheme and Workers’ Response, Friedrich Ebert Stiftung, New Delhi, 1994 and B.P. Guha, Voluntary Retirement: Problems and Prospects of
Rehabilitation.
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Sebastian Buhai and Hans-Martin Von Gaudecker (2010), in their paper
titled “Firm downsizing, public policy, and the age structure of labour
adjustments” analyze the role of firms and social security institutions in shaping the
early retirement behavior of workers. To this aim, they model a firm’s workforce
adjustment following negative demand shifts. In particular, and interested in how the
age structure of the firms’ employment adjustments reacts to corresponding age-
related institutional arrangements. To develop a parsimonious labour market model,
which has a core prediction that distressed firms will dismiss relatively more workers
from those age groups that are targeted by early retirement policies? Their model is
tested on exhaustive longitudinal linked employer-employee data from Denmark--
where several important reforms to the pension system have been enacted within the
past three decades.
Smith Paul (2009), in their paper, “New labour and the commonsense of
neoliberalism: Trade unionism, collective bargaining and worker’s rights”, revealed
that the assumptions and values of neoliberalism came to dominate the conservative
governments, since 80’s inspiring a range of policies that included industrial relations
and employment law.
Wayne F. Cascio (2009), in his article “If you Must Downsize, Do it Right”
says that, Employment downsizing has become a fact of working life as companies
struggle to cut costs and to adapt to changing market demands. Indeed, given the
speed and depth of the economic crisis that began in 2007, many companies
experienced precipitous drops in sales and revenue. Those drops hit single-line
businesses especially hard, because the drops could not be offset by stable revenues or
even increases in other lines of business that led many such businesses to consider
downsizing their workforces. Consider this simple, fundamental truth expressed by a
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small-business owner in recent testimony before Congress: “My ability to maintain
employment levels and hire workers depends on whether revenue exceeds costs.”
Suppose it does not? With credit markets frozen, many organizations had little choice
but to downsize their workforces in an effort to save the jobs of those remaining. In
this case, downsizing was a reaction to an emergency situation11.
Chakrabarti Anjan, Dasgupta Byasdeb (2007), in their paper “Disinterring
the Report of National Commission on Labour” uncover the report of the National
Commission on Labour to reveal the ideological basis of the changes sought in the
labour laws. Changes suggested in the labour laws flow from an understanding of
labour that is derived from the perspective of capital.
Rajeev Meenakshi (2006), “Contract labour in Karnataka: emerging
issues and options” reveals that in order to effectively compete in a global market the
industrial sector demands flexibility. To circumvent rigidities imposed by labour
laws, the new form of employment that is being created in the economy is largely
contractual. Based on a field survey, this paper looks at the status of contract labour
in the state of Karnataka.
Subramanian deli (2005), in his study on “Deregulation and labour policies
in a public sector firm mixed result at ITI” explains the impact on the employees.
It concentrates on the initiatives pursued by the company in order to build a workforce
and forge labour policies tailored more closely to the imperatives of competition and
evaluates how far these objectives were achieved. In the field of labour relations,
these revised priorities would take two main divergences: the implementation of a
11 Wayne F.Cascio., (2009), in “IF you Must Downsize, Do it Right” in “Business week” March 11, pp: 104.
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voluntary retirement scheme (VRS), and the tightening of disciplinary controls
together with cutbacks in welfare benefits.
Bhalla V.K.(2005), in his article, “Globalization Markets for workers and
labour”, states that governments around the world share the goal of having more and
better jobs for their citizens, and argues that the public policies affecting the labour
market play a critical role effecting jobs. Though regulation of labour markets is
usually intended to help workers, it can also be a significant constraint for job
expansion.
Sanghamitra Bhattacharyya and Leena Chatterjee (2005), in
“Organizational Downsizing: From Concepts to Practices” examine that the broad
questions relating to downsizing (why, what, and how) have been studied in fairly
rigorous detail till date. Despite a theoretical understanding of the principles
underlying the process, the negative consequences associated with this exercise on
both organizations and individual employees continue unabated (Labib and
Applebaum, 1993). It is hypothesized that this could be the result of viewing
downsizing as a panacea for organizational problems rather than seeing it as a part of
an overall strategy for organizational renewal. These negative consequences could be
minimized by viewing it as a process of transformation not just through incremental
changes but also by reframing existing mental models, assumptions, policies and
relationships to enhance the adaptive potential of the organisation12.
Zachariah K.C, Prakash B.A, Rajan S Irudaya (2004), in their paper on
“Indian workers in UAE, Employment, wages and working conditions” reveal
12 Sanghamitra Bhattacharyya and Leena Chatterjee, (2005), “Organisational Downsizing: From Concepts to Practices” in “Vikalpa” Volume 30, No 3, July.
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that the United Arab Emirates was once formed a principal destination for Indian
emigrants in search of jobs. But the fear of a rapid demographic imbalance has
prompted a policy shift – “amortization” – which has led to a decline in number of
unskilled and skilled emigrant labourers of India. This article examines the state of
Indian emigrant labour to the UAE, the structure and conditions of employment.
Punekar S.D, Deodhar S.B, Mrs. Saraswathi sankaran (2003), in their
paper “Labour Market and Employment: an update” reveal that NEP was
introduced during mid-1980’s in terms of some liberalisation measures by way of a
gradual shift in the spheres of industry, Exports-imports, inflow of foreign capital and
foreign collaboration and was accelerated since 1991. The structural changes and
adjustment forming part of NEP raised significant employment and labour market
issues.
Chattopadhyay Paresh (2002), in his paper “Marx on Capital’s
Globalization’ the dialectic of Negativity”, drawing on Hegel, in his Parisian
Manuscripts of 1844 reveals that Marx first attempted to show how capitalism not only
contained within itself conditions for its own negotiation, but also created elements of
the new society that would supersede it. Under capitalism, labour, like other factors,
too is converted to a commodity - ‘surplus labour’ with exchange value; while
production is not bound by limited needs nor needs that limit the production.
Kapila Raj and Kapila Uma (2002), in their joint paper “Reforms of Labour
Laws” argue that one of the factors which is often said to restrain expansion of
employment in the organized sector in India is the rigidity of our labour markets
arising from the nature of our labour laws.
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Chaudhuri Sudip (2002), in his paper “Economic reforms and industrial
structure in India”, focuses on the impact of India’s economic reforms on industrial
structure and productivity. It reveals a disappointing overall performance in both
output growth and employment.
Chadha G. K and Sahu P.P (2002), in their article, “Post-Reform setbacks
in Rural employment issues that need further scrutiny”, look at the pace and
pattern of employment growth in the 1990s (post- reforms period) and compares it
with the 1980s (pre-reforms period), based on NSS data, and attempts made to figure
out the challenges and threats that lie ahead for rural workers in India.
Sawant S.T’s (2000) paper on “Globalization and Indian Labour”, revealed
that today’s world is continuously undergoing rapid changes. Waves of globalization,
privatizations, integration and liberalisation are sweeping a large number of countries.
Rapid technological advancements including those of space and developments in
transport and communication are breaking all barriers for not only goods, services and
capital but also for labourers and professionals. This paper has examined the need for
restructuring Labour under Globalization.
Vaikunthe L.D. (2000), “Exit Policy: An Economic Analysis”, examined
the major aspects of the structural reforms undertaken by the government to initiative
and provide exist route to non-viable industrial units, and their labour force. Though
the explicit exit policy is yet to be announced, necessary ground is being prepared by
the government, while the employers have been welcoming it on expected lines, trade
unions are quite apprehensive about its adverse impact on labour. The Nature and
structure of industrial labour adjustment to the requirements of globalization are
considered.
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Saxena A.K and Raj Aparna (2000), “The Exit Policy vis-à-vis Voluntary
Retirement Scheme, A comparative study” explains that labour problems are not
being given their due importance. The nation is not realising the labour problems, nor
recognising their due importance, in the present context, thereby still treating labour
as a commodity which is a great blot on the Indian economy.
Swapan sen and Rezeian Farzin (2000) in their paper on “Downsizing,
Capital intensity, and Labour Productivity”, explain that the recent studies on
corporate downsizing attribute variability in labor employment to business cycle and
the process of technological innovation (Caballero & Hammour, 1996), the
outsourcing decision by corporations (Sen & Zhu, 1996), the lack of flexibility of
workers compensation schemes (Gerhart & Milkovich, 1990), and institutional
factors (Nagao, 1995). This theory presents a simple model to study employment
variability due to fluctuations in labor productivity. The study of a production
function demonstrates that the firm’s use of a factor of production is inversely related
to the productivity of that factor. Further, the variability of employment of a factor
due to its own productivity fluctuations is magnified by the intensity of employment
of the other factor of production13.
Battacherjee Debashish’s (2000) paper on “Globalizing Economy,
localizing labour” discussed evolution of Indian industrial relations in a historical and
structural context. It deals with the post-liberalization period along with the
‘Structural adjustment programme’. The essential theme of this paper is that the
gradual spread of market principles has led to wide inter-regional and inter-sectoral
13 Swapan sen and Rezein Farzin, (2000), in “Downsizing, capital intensity, and labour productivity” in “Journal of Financial and Strategic Decisions”, Volume 13 No. 2.
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differences in the levels of economic activity resulting in considerable variation in the
nature of labour-management relations.
Shahs and Gandhi’s (1998) paper on, “Industrial Restructuring; Workers
in plastic processing industry”, explores how the newly introduced economic
reforms and in particular industrial restructuring is affecting women at their work
place and in their homes. They have considered the impact of Industrial restructuring
on Women workers who are more vulnerable to industrial restructuring.
Deshpande Sudha and Deshpande Lalit (1998), in their paper on “Impact
of Liberalisation on Labour Market in India: what do facts from NSSO’s 50th
round show?” state that the demand for Labour has increased after liberalisation but
the increase was not shared evenly in rural and urban India between men and women
and regular and casual workers. The structure of employment moved away from the
primary sector for rural men. Liberalisation has affected casual workers, particularly
the women casual workers, more favorably than regular workers.
Gangopadhyay Shubhashis and Wadhea Wilima (1998), in their paper
“Economic reforms and labour”, have analyzed, at the disaggregated level of 2-digit
industries, the changing pattern of labour productivity, labour costs and total factor
productivity in Indian industry over the period 1973-74 to 1993-94. It is expected that
the economy will go through major restructuring in the coming years. For higher
employment growth in this changing scenario, one needs rapid industrial expansion.
Guha B.P. (1996), in his article “Voluntary retirement schemes in Indian
industries” revealed that manpower adjustment is an effective strategy for increasing
the productive efficiency especially when a sizeable labour force becomes redundant
due to restructuring or rationalization of an enterprise.
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Ghosh (1995), in his study on “Industrial restructuring and labour
relations; Emerging patterns, implications and strategic choices”, says that, not all
industrial-restructuring exercises can be lumped together in one undifferentiated
category. The paper identifies the distinct patterns, which have been shaped as much
by economic environment and market compulsion as by prevailing labour
management relations.
Ratnam C.S. Venkata’s (1995), paper on “Appropriate structural adjustment
policies; the perspective of employer’s organization in select countries”, argued that
instead of straightjacket global approach, country specific programmes are appropriate
for structural adjustment. The author highlights the need to protect workers against
unjustified dismissals and macro-economic risks. He also argues that since structural
and other changes make unions and workers more vulnerable, employers need to show
greater restraint in the transition period.
Papola T.S. (1994), in the paper entitled “Employment growth and social
protection of labour in India” examined the social protection to labour particularly
with reference to growth and structural change in employment on the one hand,
industrial restructuring and structural adjustment on the other. It assesses the possible
impact of institutional framework governing the growth and structure of employment,
as well as the labour market trends.
Krishna Anujahesh and Monappa (1994), “Economic restructuring and
Human resources management” in their paper seek to examine some of the issues
that will need to be addressed to in the light of such integration. Issues like the impact
of economic restructuring on employment generation, on productivity, and product
quality, over manning and exit policy have been discussed. In the interim phase job
22
losses will be quite significant but from a long term point of view a different set of
skills will emanate.
Rao S.L. (1994), in his research paper on “Labour adjustment as part of
industrial restructuring: Human dimensions of liberalization” says that changes
in labour legislation or ‘exit’ policies and compensation to workers through the
National Renewal Fund are only of cosmetic value in bringing about industrial
restructuring and labour adjustment. At the National level what the country needs are
policies towards literacy, education, training retraining of the workforce and making
the workforce and managements accountable for their performance.
Masilamani S. (1993), in his study on “Industrial restructuring and Union
management power dynamics: a case study” indicates that the industrial
restructuring, welcomed by the employers and opposed by the employees and their
unions, has implications for industrial relations in our country.
Singh Ajit Kumar (1993), in his paper on “Social consequences of New
Economic Policies” explained, With particular reference to the levels of living of
working class population, some of the likely consequences of the new economic policy
measures particularly their impact on the living conditions of the working class. The
author reviews the theoretical literature dealing with the distributional effects of
stabilization and structural adjustment programmes. This is followed by a brief survey
of the empirical experience of countries in different parts of the world with respect to
the social consequences of economic reforms.
Sodhi’ J.S. (1993) “New economic policies and their impact on industrial
relations” opines that, the economic measures adopted by the government under the
New economic policy have far reaching implications for, among others, the industrial
23
relations. In India, the three main actors namely the management, Trade unions and
the state have been playing a key role in determining the employment relationships,
the rules governing their relationships and other aspects of industrial relations. The
paper examines the response of the three actors, highlights the challenges and
opportunities, which have come up in view of the policies and suggest measures to
improve industrial relations and achieve growth in industry.
Leelavathi D.S (1992), in her article on “Exit Policy: some major issues”,
has discussed the spectrum of labour exit policy in the background of SAP. Several
leading issues of the policy are exposed and suggested a few measures to reduce the
painful impact of SAP on labour and also to ensure the smooth implementation of
labour exit policy.
A study on “The Impact of Economic Restructuring on Labour” by A.
Prasad and Mohan Prasad (1992) examines the impact of economic restructuring in
India on labour force and identified some corrective measures to reduce the hardships
faced by the working class.
Mathur. N Ajeet (1992) in his work “Employment security and industrial
restructuring in India: Separating facts from Folklore” states that in the concept of
compensating individuals, groups and organizations according to their worth in the
market place is painful but this pain may be mitigated if social partners claim space
and actively participate in the process of restructuring the Indian economy through
institutional change. A continuing dialogue between the actors in the industrial
relations system may lead to discovery of better ways to regulate employment and
organize. Recognizing the linkages between labour institutions and economic
24
development in the context of economic and political reforms would be a good move
in this direction.
Veerashekarappa’s (1992) “Impact on structural adjustment on working
class” states that Structural adjustment is designed to improve the productivity of
resources including labour in the long run. Moreover, the Structural Adjustment
Programme is clearly based on the flow down or the trickle down or percolation theory
of development, and hence, it is expected the benefit also reach the working class.
Datta Meera’s paper (1992), “Labour absorption under new economic
policy” analyzed that the growth of production depends on two factors, viz., growth of
employment and growth of labour productivity. The evolution of technology in the
developed capitalist nations, because of their resource endowment remains oriented to
increasing labour productivity which implied capital intensive technique of
production.
Sivaprasad K. and Sreerama Murthy K, in their joint paper (1992),
“Structural adjustment and its impact on labour: some unforgettable issues”,
explain that in a socialist democracy, labour is a partner in the common task of
economic development. As such whatever policy the government adopts, it should
aim at improving the living conditions of its labour.
Geoffrey Winster M. (1992) “Impact of economic restructuring on labour
in Indian context” said that as a result of economic restructuring and privatization,
the public sector workers will be thrown out of their jobs but without property safety
net system.
25
Birundha Varadarajan Dhulasi (1992), “Export orientation, structural
change and employment: An empirical evidence from the Indian economy”
explained that the employment generation in the economy is not only influenced by
the internal factor viz., structural changes but also the externally dependent factors like
exports and imports.
Kant Jha Ashwini and Nath Jha Bibhuti (1992), “Potential of workers’
co-operatives in restructuring the economy”, said that the question related to
industrial restructuring are not about the direction or its motivation, but more in the
nature of concerns arising from dimensions of the process.
Singh S.N. and Singh Parmanand (1992), “Restructuring of the Indian
economy and its impact on Indian labour” explained that since the assumption of
power at the centre by the government under the leadership of Sri Narasimha Rao
sweeping changes in economic policies have been done. The Nation said good-bye to
a loud thinking of active governmental control and regulation of the economy and now
market-friendly approach has been adopted which invariably demands Labour
restructuring and downsizing of Labour in Production system.
Mishra Umesh’s (1992) paper on “Industrial Exit-its Impact on Labour
and Real Options”, said that the Indian state which claims to be a Democratic
Socialist Sovereign Republic owes, as a matter of duty, to the toiling industrial classes
against the employers militancy. Improved legal framework is necessary but not a
sufficient protection against the retrenchment, lockouts and closures. For this purpose,
the active involvement of the labour ministry at the centre and state levels to ensure
quick and prompt action is needed.
26
D. Heggade Odeyar (1992), in his paper “Impact of privatization on
industrial labour: some issues” stated that Macro-Economic Policy has a direct
adverse impact upon the stability and the future rate of expansion of employment
opportunities for industrial labour in India. The possibility of labour retrenchment on
economy-wide basis has raised the fear psychosis of labour losing jobs both in public
and private sector, and hence labour is opposing the new economic reforms.
Prasad Nrendra (1992), in his paper “Impact of India’s New Economic
Policy on Employment” revealed that the collapse of the system of command
economy, the system of centralized planning and the system of state control and the
turn of the world economy towards a market oriented economy compelled India to
realize that it cannot live in isolation. Both the State and labour have to adjust with the
New Economic Philosophy.
Vijayaranjan A. M (1992) in his paper “Impact of Privatization on
Labour” explained that the Privatization of the public sector units and government
undertakings are the important measures in the newly announced package of economic
policy measures during 1990-91. This has become a worldwide trend now. This
paper makes a modest attempt at examining the various aspects of privatization and its
impact on labour with a focus of attention on trade unions, attitude towards
privatization of labour efficiency and labour exploitation.
The Disinvestment Commissions of the Government of India in all its 12
reports, examined in detail issues relating to disinvestment inclusive of labour
restructuring. In all these reports, protection of the employee interest has been given
due importance while restructuring PSUs. These reports argue in favor of sustaining
long term employment by financial turnaround of loss making PSUs and providing
27
adequate and fair compensation through VRS to surplus labour force, effective labour
participation in management and employee stock option. The commission
recommended a clear cut policy on VRS with long term perspective and make
provision for assured and adequate funds for the purpose.
RESEARCH GAP
The literature review clearly shows that the studies have focused more on
Industrial restructuring and its impact on employment, industrial relations and labour
management. Similarly impact of privatization on labour has been analyzed by a few
studies. However, studies relating to Labour Downsizing or Rightsizing are very
scarce. Therefore, the Present study is an attempt to fill this Research Gap. Also,
studies relating to Labour Downsizing in Public sector industries both at National and
Regional levels are a rare phenomenon. Similarly, the evolution of Labour Exit
Policy, its various dimensions, practical difficulties in executing the Policy as well as
its impact on the working class are not comprehensively researched in a systematic
manner in the above mentioned studies. With regard to the study region Karnataka
and the case study District Mysore, studies on Labour Downsizing particularly in
Public sector industries are hardly found. Comprehensive studies on labour
downsizing involving VRS, retrenchment and layoffs are very rare and therefore the
present study is an attempt to fill this gap.
28
OBJECTIVES
The major objectives of the study are as follows:
• To examine the impact of globalization on organized labour in terms of
employment in organized sector.
• To trace the evolution of Exit policy in India as well as in Karnataka.
• To analyze the different approaches to the problem of labour downsizing.
• To study the pattern and impact of labour downsizing in public sector
industries in Karnataka, with special reference to Mysore district.
• To suggest feasible labour downsizing policy measures based on the
theoretical and empirical foundation.
HYPOTHESES
A typical social science research begins with well formulated hypotheses. The
proposed thesis has set the following hypotheses, which have been tested in the course
of the study:
1. Labour downsizing is a universal phenomenon and is the result of
globalization.
2. VRS is the prominent mechanism of labour Exit Policy in India.
3. There is a positive correlation between economic performance of the case
study units and VRS.
4. Bigger the size of the family higher is the demand for VRS.
5. Lower the pay scale higher is the demand for VRS.
6. Lower the educational level higher is the demand for VRS.
29
METHODOLOGY
The Research methodology included the following:
� Selection of the parameter/variable.
� Data sources and its analysis.
� Selection of the case study area/ region.
� Defining the reference period of the study.
Selection of the Parameters/ Variables
Seventy eight Public sector industries are available to study Labour
Downsizing in Karnataka out of which five are in Mysore District. The Impact of
Globalization on Labour downsizing and Employment generation at Global level,
National and at State level is examined. The Phenomenon of jobless growth and
declining employment elasticity, the Exit Policy in India, its various dimensions at
state and district level are considered.
The study analyses the problem of downsizing and labour restructuring in
public sector industries in Mysore district. The major Public Sector Industries in
Mysore district consists of BEML (Bharath Earth Movers Limited), a Central
government undertaking, KSIC (Karnataka Silk Industries Corporation), KEONICS
(Karnataka State Electronics Development Corporation Limited), KSDL (Karnataka
Soap and Detergent Limited) and MPVL (Mysore Paints and Varnish Limited).
Bharath Earth Movers Limited is a central government enterprise and the other four
industries are governed by the state government. But KEONICS is a Computer
education and training center for training the poor and backward class people.
30
KSIC, KSDL and MPVL are selected for the field study, since they are the
manufacturing industries under the state supervision. The researcher visited KSIC,
KSDL and MPVL to collect the information regarding the proposed study and had
discussions with the managers, workers and collected information on labour
restructuring, retrenchment, VRS etc., from 2001 to 2010 through scheduled interview
questionnaire. Only around 50 per cent of the workers, who have accepted VRS,
could be traced in and around Mysore city and the remaining however could not be
traced due to change of address. The details pertaining to Labour downsizing in
Public sector industries in Mysore District are related to their age, family size,
education, qualification, social class, VRS package, reasons for accepting VRS, post
VRS experience, impact of VRS on economic performance of the industry etc.
Sample size
A total of 276 workers from the two study units have opted for VRS, out of
which 241 are from KSIC and 35 are from KSDL. The optees are from both work
force and the management staff. Out of 276 who have taken VRS, 81 are from KSIC,
9 are from KSDL i.e. a total of 90 are selected randomly. Stratified random sampling
could not be done because of the small size of the sample.
Sources of Data and Data Analysis
The study involves both primary and secondary data. The secondary data is
collected from Kaveri Emporium in Mysore District, Statistical Department,
Department of Labour, Dairy circle, Bannerughatta road, Bangalore, Ministry of
labour Government of Karnataka, ILO reports etc. Data collected from journals like
‘The Indian Journal of Labour Economics’, ‘Indian Journal of Industrial Relation’
31
and ‘Economic Political Weekly’, ‘World Bank Report’, ‘Indian Economic Survey’,
‘Annual Reports’, ‘Karnataka Economic Survey’, ‘Ministry of Industry’, ‘Bureau of
Public Enterprises’, ‘Plan documents’, ‘Published documents’, ‘Published articles’,
‘Periodicals’, and Internet sources.
Interview schedules (pre-tested) were prepared for VRS optees in the two state
owned public sector industries namely KSIC and KSDL. Respondents’ addresses
were collected from the Human Resource department of the industry and the
researchers has met majority of them. A few were contacted over phone and where
about of the small proportion of them could not be traced. Most of them were under
the impression that the survey is sponsored by the government to give them still better
emoluments. The general as well as the HR manager of the two industries responded
to the interview fairly well, which has enabled the researcher to capture the
comprehensive picture of VRS and other downsizing mechanisms. The office bearers
of the INTUC as well as HMS and a few members of these Trade Unions in Mysore
were also interviewed to gather an impression of Trade Unions about VRS.
Period of the study: The study had covered the period of since 2001-2011, is taken
and divided the reference period into two parts.
Part - I
The study included the period since 1991-2011 for the analysis of the research
problem at Global level, National and in State level.
32
Part - II
This included the ten years 2001-2011 period. This is for the obvious reason
that VRS started only during the second generation period.
The researcher has to depend on multiple methods for data collection and
information gathering. Discussions were held formally with the Managers and
labourers and informal discussions were held with bearers of Trade Unions relating to
the research topic. Field observations were made systematically. The information
thus collected was validated by cross checking the same with a different group of
people (Worker/Staff).
Rationale of selecting Mysore district as the study area
Along with the heritage tag, the economy of the city of Mysore is flourishing
with the presence of some of the prominent industries. Mysore city was ranked as the
5th best city in India to conduct business in the successive years and it was ranked first
in terms of best tourist place in India and 4th best tourist attraction in the world. The
city has some of the major industries involved in IT, Electronic hardware, automotive
and manufacturing of agricultural products etc. Mysore is also one of the cities
known for its booming industrial manufacturing computer and software products in
recent years. Mysore district was purposively chosen as case study area for the
following reasons:-
� Companies like IT, Electronic, Hardware, Automotive, Computer software
etc., are growing faster than Public sector industries in Mysore district.
� The impact of Globalization on labour is proved here in Public sector
industries.
33
� Despite increase in employment opportunities in the State, public sector
industries in Mysore district have not accounted for the expansion of
employment opportunities.
� Apart from a limited spread of Public sector industries in Mysore district, the
share of these to State industrial output in Mysore district is declining
rigorously.
� Despite operation VRS, no studies have been made relating to labour
downsizing in the study area.
� No study has attempted to examine the issues relating to redeployment,
retrenchment, layoffs and retraining of workers in the public sector industries
of the study area in the background of exit policy.
SCOPE AND IMPORTANCE OF THE STUDY
A review of literature survey reveals that, many of the traditional studies are
related to the implication of New Economic Policy on employment generation, which
highlights the Phenomenon of jobless growth and declining employment elasticity.
This implies greater reliance on the market forces both within and outside the
economy so that greater efficiency and productivity leading to competitive capability
in the world economy. Industry has, therefore, started restructuring, downsizing and
reducing overhead cost with a view to minimizing cost particularly labour cost. All
these efforts of restructuring and downsizing have resulted in loss of jobs.
Labour Restructuring and downsizing both aim at reducing the labour force to
raise productivity. Industry has been demanding a policy of flexibility which implies
the right to ‘Hire and Fire’. It denotes the right to reduce ‘redundant labour’.
34
Restructuring helps to correct the mistakes of the past and thus reduces excess fat and
make the enterprise leaner and thinner. In other words, productivity is raised by
merely reducing the denominator ‘labour’ i.e., the number of workers.
Thus, even when the enterprises ‘net income’ remain unaltered, productivity
per worker seems to rise. It means that labour restructuring is a negative instrument
to raise productivity. Denominator management (downsizing) is an accountant’s
shortcut to raise asset productivity. C.K. Prahallad (2000), therefore, opines:
“Downsizing can be like corporate anorexia; it can make you learner and thinner but it
won’t necessarily make you healthier. Ultimately, you need to grow and you need to
change”. The present study attempts to trace the effect of Labour downsizing on the
process of labour downsizing and the profitability of Public sector units in the study
district.
The basic problem with all attempts at economic reforms is not to treat labour
as an asset, but as a mere instrument, which can be dispensed with when in the
judgment of the employer, it is no longer useful. This is a very mechanical view of
labour, which is resented by trade unions on the one hand, and judiciary on the other.
For the employer, it is an attempt at cost reduction, but for the employee, it is the
question of survival. In developed countries, where social security systems have been
extensively developed, the pains of restructuring are much less and is also not
deprived of a basic minimum essentials for livelihood. However, in India, this
restructuring and downsizing leading to retrenchment or closure results in depriving
the workers of their livelihood.
‘New Economic Policy’ is quite vast and wider in scope. It would
differentially affect different social groups and classes in the economy. However, the
35
scope of this work is limited to the extent of analyzing the impact of these policy
changes on the labour restructuring in India, in Karnataka, with a case study of
Mysore District. The study area is Mysore district in Karnataka and the study period
ranges since 2000 to 2010.
The importance of the study lies on following facts, in the background of
economic liberalization there is tremendous scope for future policy research. The
paradigm shift in Development Policy has led to a series of elaborate changes in
different sectors of the economy including both industry and labour. The intention is
to increase the competitive efficiency of the economy in order to capture the benefits
of liberalization. The proposed study centers on the problem of labour adjustment in
the organized public sector. The global as well as the Indian experience have clearly
revealed that globalization has adverse impact on labour, especially in terms of
employment in the short-run. The overhauling of labour in the public sector has
created a big opposition from the working class, as well as the champions of social
cause. Their argument is that the axe falls heavily on labour, which is not fair.
However, given the efficiency and number scenario of labour, one could easily say
that there is over staffing in public sector, efficiency of labour is low and they are
overprotected. Also, the mechanism of industrial restructuring has called for labour
restructuring in terms of redeployment, retraining and ultimately retrenchment and
downsizing.
The proposed study intends to probe deeper into the issue of labour
downsizing, which has become a major component of new labour policy which
permits the employers to hire and fire the workers and to trim the Labour number.
Despite, several approaches are available for the purpose: the focus is mainly on
labour downsizing through VRS. This has certain serious ramification which also has
36
led to jobless growth. The evolution of the performance of public sector points more
heavily towards labour factor as responsible for the poor performance. Since 90’s
these issues are gaining lot from attention from different stake holders.
Karnataka has fairly a big public sector and labour restructuring is taking place
in different public sector activities. Including manufacturing the proposed study aims
at exploring the labour downsizing exclusively in manufacturing sector. What type of
mechanisms is being used? What is the extent of VRS? Whether the financial position
of the employers and labourers who have opted for VRS/ who have been retrenched in
the process, has improved or not, what procedure is followed for the purpose? etc.,
will be carefully looked into. Freeze in government jobs, computerization of banks,
slimming the excess workforce in manufacturing sector really demands a thorough
study of various issues involved. The study is a combination of theoretical, secondary
and primary sources of information. This throws light on policy imperatives to
smoothen the transition of labour force. Mysore district is considered as the
geographical framework of revenue division to explore and understand the above
mentioned intricacies. The major public sector industries in Mysore district are the
BEML, KSIC, KEONICS, KSDL and MPVL. The study enables an understanding of
the nature and structure of labour downsizing in the public sector manufacturing
industries in Mysore district. In Karnataka as well as in the study district hardly there
are any studies on these issues although there are 78 Public sector manufacturing
industries in Mysore district. There have been few attempts to trace the impact of
liberalization on the labour force in the Public sector. Therefore, the study is timely,
desirable and fills a major research gap and hence a main stream research area.
37
LIMITATIONS
1. The major limitation of the study is related to the fact that, time series data on
labour downsizing and various components of exit policy are not available. The
obvious reason is initially, only in certain central public sector enterprises the
VRS scheme was introduced under the supervision of NRF. However later the
fund was closed down and the responsibility was transferred to the Department of
Public enterprises DPE, which changed subsequently the VRS mechanisms. The
state governments started VRS all most a decade later including the government
of Karnataka. This has limited the quantification of variables as well as the
application of rigorous econometric tools for analysis.
2. At the field level study, the managerial staff does not have a complete perception
of VRS and its implications either for the industry or for the workers. They say
that they are just executing the orders of the government. Therefore the researcher
could not capture the entire gamut of VRS from the managerial perspective.
3. Majority of those who have opted for VRS could not be traced since they have
settled down in different places with changed addresses. Hence the researcher had
to face lot of problems to collect information from them. Further the researcher
had to spend lot of time listening to their post VRS grievances than eliciting
information on research questions.
4. Another limitation is that the researcher could not meet the office bearers of all
trade unions which are functioning in the district. However only a few trade
union leaders from within the study units, Hind Mazdoor Sabha and INTUC –
Indian National Trade Union Congress, office bearers were interviewed to elicit
38
their opinion about labour downsizing under the assumption that the opinions do
not differ significantly.
OUTLINE OF THE THESIS
• The first chapter of the thesis deals with the introduction, statement of the
problem, objectives, hypotheses, importance of the study, literature survey and
methodology.
• The second chapter examines the Globalization impact on labour, theory and
practical experience across the globe, national and at regional levels.
• Approaches to Exit policy in India, Historical, Theoretical and Analytical
Perspective are discussed in the third chapter.
• Chapter four deals with Labour downsizing in Karnataka, the process and its
mechanisms.
• Chapter five deals with Labour downsizing in public sector industries in
Mysore District and the analysis of results of the case study.
• Inferences, testing of hypotheses and suggestions are covered in the last
chapter, based on secondary and primary data.