What part does labor play in the economic progress of a country?

What part does labor play in the economic progress of a country?

The economic progress of a country is vitally dependent on its labor supply. Labor should be meant not only the number of workers but also their efficiency. A highly developed state of industrialization, no less than prosperous agriculture, requires a plentiful supply of skilled and efficient labor.

Prosperous agriculture is dependent on a painstaking, persevering, thrifty, and toiling peasantry. Therefore, also the industrial progress of a country is dependent on its supply of skilled and efficient labor. Laborers should be sufficiently alert and intelligent to tend to highly complicated types of machinery, which are nowadays used largely in modern factories. Moreover, unless industries are run on a large-scale basis, the economy of production can hardly be achieved and economic progress remains a distant dream.

In developing countries, wages are in some sense both less and more important as a source of labor income than in developed countries. They are less important because a smaller share of the labor force holds a wage job, as opposed to being self-employed or a family helper than in developed countries. Global statistics show that by 2010, the share of wage earners represented 20 percent of all workers in South Asia or sub-Saharan Africa, about 50 percent in East Asia and North Africa, roughly 65 percent in Latin America and the Middle East, and more than 85 percent in developed economies – clearly indicating that the proportion of wage employees increases with the level of economic development.

In another sense, however, wages matter far more as a source of labor income for the 1 billion or so wage earners who live in the developing world, than for the 400 million in the advanced countries. This is because the former have much more limited access to social transfers and alternative social protection schemes. Their wage is thus often what makes the difference between a decent life and a life of destitution, between affluence and poverty.

The first part of this chapter discusses the determination of wages and the empirical link between wages and labor productivity, the determinants of labor productivity, the impact of excess labor supply on wages, and the role of trade unions and collective bargaining in imperfect markets. The second part of the chapter looks at the personal distribution of wages, discusses how wages are linked to the level of education and skills, how globalization has increased the returns to education, why women earn less than men and why wages of similar workers differ across industries, and across firms and plants. This second part also discussed the role of minimum wages and collective bargaining in reducing inequality in developing countries.

Labour's Role in a Developing Economy

INDI A is in the process of economic growth. Condemned to servitude for centuries, her economy till recently was geared to the bandwagon of another country, which exploited her for its own purpose. She was not allowed to, develop her own basic industries and to utilize fully the productive potential warranted by the existing state of technical knowledge. Her backward economy was marked by such features as the concentration of ownership of land by a few rich people, growth of commerce and trade in respect of consumers' goods, excessive dependence on exports of raw materials, the inadequacy of transport facilities, subsistence peasant economy and the development of consumers or semi-raw materials industries with substantial foreign capital.

Her agriculture suffered from a large mass of landless laborers living below the poverty line, on the one hand, and prosperous Intermediaries, absentee landlords, and unscrupulous money-lenders, on the other. After Independence, it became obligatory on the part of the State to devise ways and means to take the country on the path of economic development. The backwardness of our economy which had remained stagnant for the last few decades offered a formidable challenge that had to be accepted. Out of this acceptance came the First Five-Year Plan. It made proposals for the initiation of institutional changes and for meeting certain urgent problems that had arisen out of the war and partition. It gave certain assurances to labor in recognition of its rights which had long been neglected. In return, it sought labor's cooperation in having more production.

The Second Five Year Plan, though a continuation of the first plan, made the objectives of planning more clear. It affirmed that the benefits of economic development must accrue more and more to the relatively less privileged classes of society. The objectives of the plan were an increase in national income with a consequent higher standard of Living, rapid industrialization, particularly of basic and heavy industries, a large expansion of employment opportunities, reduction of inequalities of Income, and a more even distribution of economic power.

Labour, not only as a vital section of the community but as the most important factor In production, is directly concerned with these objectives. The plan's commitment to progress towards a socialist pattern of society follows the ideal for which our labor movement strived. It is, therefore, in the interest of our laboring classes to get the plan implemented successfully and to achieve their material well-being through such implementation. 

Labour's Traditional Role

The labor movement and the trade union movement in India have grown as a response to the challenge thrown by the modern capitalist system. They have been a natural and inevitable reaction to the development of large-scale industries. Modern industrialization, with its impersonal character and loss of cordial relations between the manager and the manager, created complex labor problems, which have been channelized through organized movements.

Capitalist enterprise in India has naturally created a gulf between Capital and Labour and this gulf has been widened so much during industrial development that, at present, employers and employees are being viewed as two distinct classes with divergent interests. This divergence of interests has resulted in mutual distrust and suspicion, unhappy industrial relations, reluctance to negotiate voluntarily, and recourse to State machinery for settlement of disputes. Workers are not only not interested in higher productivity, but they do not mind obstructing the implementation of measures for higher production like rationalization, production committees, work measurement studies, re-organization of wage structure, vocational training schemes, production planning and control, simplification, standardization and specialization, proper maintenance of machinery and efficient plant layout.

Workers' interests are mainly on the consumption side, as seen in demands for higher and higher wages and allowances, more amenities, fewer hours of work, and for more rest intervals. This has been the traditional role of labor, which has been strengthened by the concept of class conflict. The worker demands a larger and larger share of the cake, without in any way striving for the enlargement of the cake. The employer has vehemently opposed this demand because it cuts straightaway into his profits. This struggle of getting the maximum spoils with minimum effort has adversely affected the industry and, consequently, its two partners Capital and Labour.  

Labour's New Role - The traditional attitude of labor of demanding an increasing share in the produce, without increased production, must be modified, if the country is to progress on the path of economic development. The traditional role of labor as an adversary to capital in the field of industrial relations may prove a serious hindrance in the process of economic growth.

Child Labor and Economic Development

218 million children work in the world today. 70 percent are in activities classified as child labor under local laws. While in policy circles child labor is often viewed as a rights issue, it is also an economic issue. Working children are both a cause and a consequence of a lack of economic development. Widespread child employment dampers future economic growth through its negative impact on child development and depresses current growth by reducing unskilled wages and discouraging the adoption of skill-intensive technologies. Child employment also appears to result from a lack of economic growth. Rising incomes are associated with improvements in the family’s ability to triage economic shocks without child labor, shifts in production to the outside of the home, and greater demand for education and leisure. These factors all lead to declines in the economic activity of children.

1. The Impact of Child Labor on the Economic 

UN Sustainable Development Goals list the elimination of child labor as a practical and measurable target for sustainable development under Goal 8: “Promote inclusive and sustainable economic growth, employment, and decent work for all.” Child labor has the potential to undermine economic growth through its impact on child development, wages, and technology adoption.

2. The Impact of Economic Growth on Child Labor

To understand how economic growth impacts child labor, it is useful to have a simple analytical framework in mind. Poor families balance the child's potential economic contribution in each possible activity against alternative uses of child time, such as schooling or leisure. Different activities vary in their potential economic contribution. Families also may have preferences about these activities beyond the economic contribution. Children work when their family’s valuation of the child’s economic contribution is at least as large as the family’s valuation of other uses of child time.

3. The Role of Governments

A review of how governments can foster growth- or how growth impacts the functioning and activities of governments- is beyond the scope of this essay. This section presents a brief overview of the types of actions that governments take in the process of economic development that will directly impact child labor. Specifically, how does child labor-related policy change with growth? Each topic could be worthy of its own separate review, and this is not intended to be a complete review of policy responses to child labor.  

Child labor is a human rights issue. This essay is motivated by the question of whether child labor is also a sustainable development issue. This review of the literature, suggests it is. The world’s 218 million working children depress economic growth in the short run by depressing the wages of unskilled labor, worsening poverty, and discouraging the adoption of skill-intensive technologies. In the long run, work today depresses child development and leaves a country with a substantive share of the future adult labor force poorly positioned to take advantage of new opportunities for growth. Of course, not all child employment is on balance bad for the country, but the developmental impact of both common forms of work and hazardous forms of child labor merits attention in the process of sustainable development.

Because of this impact of child labor on economic growth, there is a strong case that child labor policy should be part of policy efforts to promote sustainable development, without appealing to human rights issues, even though those issues can be important. This essay has reviewed child labor policy that is likely to evolve with economic growth. It is not a thorough review of policy tools available to combat child labor. Nonetheless, the main lesson from the policy discussion herein seems broadly relevant: promote positives and social safety nets. Promoting alternatives to child labor leads families to choose those alternatives, and social safety nets can eliminate motives for child labor. An important lesson from all the literature reviewed herein is child labor can change dramatically and quickly in countries as a result of changes in the economic and policy environment.

While sustainable development projects and programs can focus on child labor and child labor policy may hasten its decline, this study has also documented how central poverty appears to be in explaining the existence of child labor. Thus, a lack of attention to child labor may understate the benefits of projects that promote sustainable economic growth and development. Evidence suggests that in the short run sustainable development projects could increase child employment as households first acquire productive assets or transitory opportunities that induce families to engage their children to take advantage of a short-term opportunity. However, long-run growth and development should eventually lead to declines in child labor as motives for child labor become less salient with improved living standards.
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