Is Labour the Problem of Slow Economic Development in India ?

The occurrence of labour disputes (total man-days lost due to labour disputes normalized by the total number of factory employees) in Kerala is among the highest in the country and, invariably, labour is criticized for the industrial backwardness of the state.

Greer Commission of Public Works | Economic Development

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The dominant perception is that labour organizations and the high incidence of labour disputes in Kerala have slowed down its industrial progress. This paper shows that they have not, though with a few qualifications. Labour disputes and growth performance have moved independently of each other. Wage increases have been commensurate with productivity growth and have had little association with labour disputes.

These facts fly in the face of the dominant perception that Kerala’s industrial slowdown has been caused by labour problems. Yet, the possibility of a negative association between labour disputes and investment in the state cannot be ruled out. Traditional industries suffered a major decline in Kerala, even as labour in the state fought for decent working conditions and fair wages.


As modern industries were slow to emerge and generated very few jobs, Kerala’s labour market faced a crisis: work participation rates declined; educated unemployment was the highest of all states in the country; and the relatively better-educated workers had little choice but to work in relatively less value-adding economic activities.

Can workers in Kerala be held responsible for the decline of traditional industries and a possible slowdown of investment in the state?

No, they cannot be held responsible because the real reason is not the struggles against exploitation by worker organizations in Kerala, but the sheer absence of worker organizations in other parts of India.

Vast numbers of India’s labourers in both rural and urban areas are far from organized. They work under highly exploitative conditions, and are paid extremely low wage rates.


Against this Indian context, the experience of the labour movement in Kerala has been a singular one, in that is has succeeded in bringing in all sections of the labour force including those in the informal sector into its fold. The wage rates of casual as well as agricultural workers in Kerala have risen, and are higher than the Indian average.

But for the same reason, capital, which is highly mobile within India, may have found Kerala a less attractive place to invest in, particularly in those industries which intensively use unskilled labour and also in those traditional industries, wherein Kerala does not have any location-specific advantages.

The glitter of achievements by worker organizations in Kerala has been significantly diminished, as industries in Kerala failed to move from the traditional to the more advanced technologies, due to problems that have their origins in inadequate state intervention.

In view of the rising levels of literacy and worker organizations, industries based on traditional technologies, labour exploitation, and cheap wages could no longer be sustained in Kerala. But that was definitely not the end of the road.


None of the late industrializations proceeded on the basis of stagnant wages; wages rose in all the late industrializing countries from their low initial levels, quite impressively so in Japan and Korea.

In Korea, such rapidly rising wages were an inducement to workers to learn the imported technologies. For all the wage increases in the informal sector, wage levels in the factory sector of Kerala even today are not higher than the Indian average and definitely much lower than the levels in East Asian countries.

This implies that great possibilities existed in Kerala during all the previous decades (and exist even today) for industrialization, based on the intensive use of skilled labour. That such possibilities have not been explored much or even discussed adequately is a major failure in Kerala’s industrialization experience so far.

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