India: Please, let us join the race to the bottom!

India has achieved its impressive annual growth of 8.2 per cent over the last nine years despite a largely moribund manufacturing sector,  argues Rajeev Dehejia, a professor of public policy at New York University.  But if the country wants to employ its legions of unskilled workers, that has to change.

As GlobalPost reported last November, India's labor unions are again flexing their muscles. But in calling for strict application of the country's tough labor laws — now skirted by companies who employ so-called "contract workers" and outsource jobs to the informal sector — they may well be hurting the masses of workers they purport to represent.

"Looking just at 2006, we find that formal urban service enterprises accounted for 71.9 per cent of total output, whereas they accounted only for 29 per cent of employment," Dehejia writes in the Indian Express, describing research he conducted in collaboration with Arvind Panagariya. "In other words, urban, formal service firms and the workers they employ are at least three times as productive as informal and rural firms, yet the latter categories employ more than 70 per cent of the service sector workforce."

Meanwhile, India's proposed labor reforms "go precisely in the wrong direction: they would raise the already high labor costs in the organised sector," Dehejia argues. "While such increases may be popular with already well-paid and vocal organised sector workers, they will drastically cut the already meagre employment opportunities in the organised sector for those informal, contract and casual workers toiling at subsistence wages or worse."

In other words: Please, please, please let India join Bangladesh & company in the race to the bottom — at least where it comes to wages and manufacturing costs.