Law, skills and the creation of jobs as ‘contract’ work in India: exploring survey data to make inferences for labour law reform

The paper begins with a discussion of Indian labour law and the increasing use of ‘contract labour’. The authors question the widespread praise for the use of contract labour that highlights flexibility in the face of shocks and instead focus on the costs that show up when the employment relation is viewed as an ‘incomplete contract’. The incomplete contract framework stresses the point that when efficient contracts, that condition relation- specific investment cannot be written, it can lead to underinvestment. The underinvestment in this case is the relation specific investment made by a worker in a job – if a worker does not feel reassured in investing in her job because her employer will fire her, she will under invest. To explore these concerns we use the responses from a specially commissioned survey in Haryana, a state having a well-established industrial base with a large pool of skilled labour force, in order to gain empirical insights on the links between law, skills and the extensive use of ‘contract’ labour. Having argued for the importance of relationship specific investments for skills, the paper underscores the role of the labour law in this context and the importance of such concerns for labour law reform.