The government is set to introduce a ‘Labour Welfare and Employment Index’ (LWEI) to rank Indian states and Union territories (UTs) based on key parameters such as employment, labour welfare, social security coverage, and productivity. This initiative aims to foster ‘healthy competition’ among states and enhance the ease of doing business, according to a report by The Financial Express.
Components of the Index
1. Employment Rate
- Definition: The percentage of the working-age population that is employed.
- Measurement: Calculate the ratio of employed individuals to the total working-age population (usually ages 15-64).
- Importance: High employment rates indicate a productive workforce and economic stability.
2. Unemployment Rate
- Definition: The percentage of the labor force that is unemployed and actively seeking employment.
- Measurement: Calculate the ratio of unemployed individuals to the total labor force (employed + unemployed).
- Importance: Low unemployment rates signify a healthy job market and indicate economic growth.
3. Quality of Employment
- Definition: Measures the types and conditions of employment available.
- Components: Include metrics such as:
- Informal Employment: Percentage of workers in the informal sector.
- Job Security: Ratio of workers with permanent contracts vs. temporary or informal contracts.
- Wage Levels: Average and median wages adjusted for inflation and purchasing power parity.
- Gender Disparities: Gender wage gap and representation in various sectors.
- Importance: Assessing the quality of employment ensures that jobs provide fair wages, security, and equal opportunities.
4. Labour Force Participation Rate
- Definition: The percentage of the working-age population that is either employed or actively seeking employment.
- Measurement: Calculate the ratio of the labor force (employed + unemployed) to the total working-age population.
- Importance: High participation rates indicate that a significant portion of the population is economically active.
5. Labour Rights and Welfare
- Components: Evaluate indicators such as:
- Legislation: Strength and enforcement of labor laws protecting workers’ rights.
- Social Protection: Availability and coverage of social security, health insurance, and pension schemes.
- Work-Life Balance: Policies promoting parental leave, flexible working hours, and workplace safety.
- Importance: Protecting labor rights and ensuring welfare promotes social justice and sustainable economic growth.
Calculation and Weighting
- Normalization: Normalize each component to a common scale (e.g., 0 to 100) to facilitate comparison.
- Weighting: Assign weights to each component based on its relative importance. For example:
- Employment Rate: 25%
- Unemployment Rate: 20%
- Quality of Employment: 30%
- Labour Force Participation Rate: 15%
- Labour Rights and Welfare: 10%
- Index Calculation: Aggregate the normalized scores using weighted averages to compute the overall Labour Welfare and Employment Index.
Interpretation and Use
- Benchmarking: Compare index scores across countries or regions to identify best practices and areas needing improvement.
- Policy Implications: Inform policymaking by highlighting strengths and weaknesses in labor market performance.
- Longitudinal Analysis: Track changes over time to assess the impact of policy interventions and economic trends on labor welfare and employment outcomes.
By ranking states and UTs based on the LWEI, the government aims to drive states to focus on areas where labour law codification is lacking or inadequate. This focus is expected to bring about more consistent employment policies and benefits, especially for businesses operating in multiple states.
The Ministry of Labour is expected to launch the LWEI in the coming weeks following consultations with state governments, NITI Aayog (the policy think tank of the government), the International Labour Organisation (ILO), and other relevant central ministries.
This initiative might be announced by Finance Minister Nirmala Sitharaman during her Budget speech, which is poised to take place next month.
The LWEI is expected to promote uniformity in the implementation of labour laws across the states and ultimately improve labour welfare, The Financial Express report noted. The introduction of the index is designed to make states more competitive and responsive to the evolving employment and labour requirements, directly benefiting workers and enhancing transparency and business operations.
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This would be similar to the Labour Rights Index, which serves as a comparative tool and international standard for evaluating labour legislation across 135 countries. This tool is essential to providing information and insights to workers to help improve their working conditions.
Currently, 24 states and union territories have established rules under all four labour codes. However, West Bengal, Meghalaya, Nagaland, Lakshadweep, and Dadra & Nagar Haveli have yet to formulate rules under any of the codes, according to a recent study by the government’s VV Giri National Labour Institute.
The study also highlighted significant disparities in the rules framed by various states and union territories, indicating that some regulations contradict the basic principles and objectives of the new labour codes.
“The rules of some states and UTs prima facie seem to go against the basic ethos and spirit of the codes and may defeat the objective sought to be achieved,” the study noted.
On Thursday, the Centre conducted a review meeting with officials from state labour departments, urging them to expedite the process of formulating rules under the new labour codes. Implementation of these codes remains a top priority for the government.
“It was a review meeting where the rules formulated by states were discussed. It was also decided that the process of formulating these rules should be hastened by the states that have not yet formulated them. Also, the need to make the rules uniform was discussed so that the whole exercise of enacting new codes doesn’t go in vain. Representatives from all states agreed on the proposition,” a person aware of the development said, as earlier reported by Business Standard.
The LWEI aims to standardise labour welfare practices across the country, ensuring a more equitable and efficient labour market that benefits workers and businesses alike.
