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Industrial Disputes in India: An Empirical Analysis Author(s): Bibhas Saha and Indranil Pan Reviewed work(s): Source: Economic

and Political Weekly, Vol. 29, No. 18 (Apr. 30, 1994), pp. 1081-1087 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4401140 . Accessed: 19/04/2012 03:19
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Bibhas Saha Indranil Pan



An EmpiricalAnalysis
Thepresent paper tries to identify some of the determinantsof industrial disputes (both strikes and lock-outs) by developing an econometric model using disputes data for 19 industries over seven years from 1980 to 1986. The dependentvariabe of the model is industry-wisemandays lost per employeefrom disputes and independentvariables are the degree of trade unionisation, average factory size and average monthly earnings of an employee. It is found thatin more unionised industries, mandayslostfrom disputes are likely to be less comparedto less unionised industries. In contrast, industries with larger average factory size will have greater mandays lost. Employees' monthlyearnings seem to be a weak variable having ambiguous and almost insignificant effects on mandays lost.

bargainingis a way of disCOLLECTIVE tributing organisationalrents(i e, economic profits) among workers and employers. While the size of the organisational rents constitutesthe scope of the bargaining,the relativeshares of the two parties are determinedby a numberof factors such as union power,skills Qfbargaining,labourlaws and regulatoryframework.In an actual process of bargaining, parties sometimes deliberately pull out from a negotiation for some strategicreasonsandsuch strategicpull outs aregenerallyfollowed by strikes, lock-outs and other types of agitations which are called industrialdisputes. The subject matterof this paperis industrialdisputes in Indian industries.The frequencyof industrialdisputes in Indiais very high compared to the industrialisedcountries.For instance,between 1980 and 1982, the Indian industrial workers were reportedly engaged in 2055 strikes per year (on average) which resulted in a loss of 14 million mandaysper year. The corresponding figures for France between 1977 and 1983 were only 494 and .38 million respectively [Windmulleret al 1987]. In terms of the combineddata on strikes and lock-outs, which will be referredto as industrialdisputes, the Indian industry from 1984 onwards,however,witnessed a declining trend unlikein the preceding 10 years;in the early years of the 80s, the trend of industrial disputes was increasing. Maintainingindustrialpeace is as important for a worker as it is for an employer. Disputes tend to reduce the size of the rents and inflict damages on organisational both sides. From a dynamic point of view, disputes pose problems for rationalising labourand capital. Such problems are indeed becoming visible in the context of exit of sick units. However, economic theoryon negotiations and strikes predicts that in a real world negotiation, disputes may be-

come unavoidablebecause each side might have different informationabout the gains from bargaining. Yet the duration of disputes can (and should) be reducedthrough appropriate regulatory and legal mechanisms. Additionalpolicies can also be aimed at achieving this objective. Therefore, we need a clear understanding what factors of influence the frequency and duration of disputes. The presentpapertriesto identifysome of these factorsby developing an econometric model using disputes data for 19 industries over seven years from 1980 to 1986. The dependent variable of the model is industrywise mandays lost per employee from disputes. Its determinants that are in incorporated our model are the degree of tradeunionisation,averagefactorysize and average monthly earningsof an employee. The degreeof tradeunionisationreflectsthe bargaining strengthof the workersandaverage factorysize is meantto capturesome of theeffects of employmentregulationswhich applyon the basis of factorysize. The single most importantcause (responsible for 30 per cent) of disputes as shown in Pocketbook of LabourStatistics, 1980-90 is workers' wages, bonuses and other payments. Therefore, we have included employees' earningsas a variablein themodel.A dummy variableis also used to pay special attention to the historic textile strikes (thatstartedin October 1981 and lasted more than one year)andsimilardisputesin otherindustries for the years 1981 to 1984. Two more important variables, market demand which plays an important role in determining organisationalrents and the degree of employers' unionisation which can be read from the employers' affiliation to tradeassociations, could not be used for some data related Droblemsand their exclusion certainly lin.its the scope of our analysis. The main results are as follows. First, there is a negative relationship between mandays lost and trade unionisationand a positive relationshipbetween mandayslost

and factorysize. Employees' earningsshow insignificant and ambiguous relationship with mandays lost. In other words, in more unionised industries, mandays lost from disputes are likely to be less compared to less unionised industries assuming other factors unchanged. In contrast, industries with larger average factory size, will have greatermandays lost than thatwith smaller average factory size. Secondly, the year 1984 which is one of the worst years of the decade in terms of disputes and which witnessed some important amendmentsin the Industrial Disputes Act, seems to be generatingan effect similar to structuralbreaks. Thirdly, our model can also -be used to relate to the patternof disputes in the 80s. The profileof the disputesin the 80s has two distinct phases-increasing up to 1984 and decreasing afterwards. The effect of employees' earnings, though statistically not very significant, is dissimilar in the two periodsandin fact coincides with theprofile of disputes. Thus employees' earningscan be regardedas a factoraffecting the profile. Among the othertwo variables,the effect of factory size might have been dominant in the increasingphase of the profile and the effect of tradeunionisationin the declining phase. The negativecorrelation betweenmandays lost and tradeunionisationnullifies the popular perceptionwhich is gaining groundin recent years that trade unions are largely responsible for disputes. It also raises an importantquestion whether strongertrade unions are inclined to more strikes an'd disputes.Theoreticallya strong tradeunion is moreable to implement a threatof strike; but whetherthe tradeunion would actually carry out the threator not, depends on the toughness of its opponent and its own expectationaboutthe outcome of the strike.In fact, the strong threatof a strike can itself avert the strike by making employersmore
willing to negotiate. From the other end,

employers also find it difficult to impose a

Economic and Political VWeekly April 30, 1994


lock-outwhen confrontedby strongunions. Thus, strong tradeunions can help to keep negotiations from turning into disputes. However, one should also consider that if there were no unions (or were only weak unions), the employers can appropriateall organisationalrents. Such an outcome, althoughunfair,is indeed dispute free. Therefore,theeffect of tradeunions on disputesas such as ambiguous.In fact, the revelatipnof information through negotiation, learning andexpectationsof a negotiatingtradeunion aboutthe outcome of a dispute play crucial roles in containingor extending the duration of the dispute. In our model due to datarelatedproblems we cannot distinguish between strike and lock-outs and thereby we are unable to speculatethe relationshipbetween disputes and tradeunions. However, we can say that the observed negative relationshipbetween mandays lost and degrees of trade unionisation is perhaps a result of heavy lock-out incidence witnessed from 1982 onwards.Although we do not have firm or industrylevel dataon lock-outs, we suspect that such lock-outs were more frequent in industrieswhere the workers were weakly unionised. Thepositivecorrelation betweenmandays lost and average factory size has some implications for employment regulations. Collective bargainingin large factoriesnormally follows a formal course within the frameworkof IndustrialEmployment Act and IndustrialDisputes Act and it is expected that bargainingin this environment would be more dispute free thanotherwise. But our model casts some doubts on the efficacy of such regulationsin reducingthe frequencyof disputes.Itmay also imply that bargaining power anemployerwithadequate which is presumablythe case with the owners of large factories, is more willing to exercise lock-outs as bargainingstrategies. The paperis organised as follows. In the next section, we presenta brief overview of the literature which provides the context of our work. The regulatory framework of industrialrelationsis very importantin unof the derstanding structure disputes. Since these regulationsare not directly incorporatedin our model, we discuss them separately in Section III. Section IV presents a bird's eye view on aggregate strikes and lock-outduring80s and late 70s. The main model and the resultsare discussed in Section V and VI respectively, while some further commentsaresaved for the concluding section.

Economic Literature The economic literature industrialdison on putes which has been mainly a literature strikes, has developed in two disjoint 1082

branches-theoretical andempirical.While the theoreticalliterature triedto explain has why strikes take place, the empiricalliteraturehas examined the relationshipbetween strikes and other closely related variables such as wage, inflationand unemployment rates. The problemof explainingstrikesis quite old and still, in a sense, unresolved. The main difficulty of providing a theory of strike which was first discussed by Hicks (1965) and later came to be known as the Hicks paradox,lies in the very natureof the problem.If there is a theory of strikes that predicts the incidence and outcome of a strike, then the employer and workers can avoid the strike by agreeing to the same outcome in advance; but then the theory would cease to hold. This paradox indeed became a bottleneck in almost all strike models. However, Hicks suggested two avenues of research-reputation and private information.Hicks arguedthatworkers(or their unions) engage in strikes to maintaintheir reputationas hard bargainers.This argument, althoughvery appealing,has not yet been utilisedto developa satisfactory model. The second argument of Hicks-that is, private information-has led to a substantial volume of research.In privateinformation models [Hayes 1984], a financially weak firm whose profits are not known to the workers, cannot convince the workers about its inability to meet high wage demands and therefore, accepts strikes as a price for lower wages. These models were the first to point out that industrialdisputes play an important role in transmitting information from the informed to the uninformed party and such information transmission can significantlyalterthe course of disputes. The empirical literatureon strikes has been preoccupiedwith differentquestions. Some of the questions are: Are strikes procyclical?Is therean inverse relationship between strikesand wage increase?A number of serious studies in the context of the US, the UK andCanada,have foundsignificant negative relationshipbetween strikes andreal wage increasesandbetween strikes and the unemployment rate [Ashenfelter andJohnson1969, Abbott 1984]. Although, most of the empiricalstudiesarerarelyseen to be backed up by theoreticalmodels, they have been consideredvaluable for bringing importantfacts into light and providing materialsfor theoreticalresearch. In the context of India, the literatureon strikes and disputes is at its infant stage as the problem of industrialdisputes has not received. much attention from the economists, even though journalists and legal experts have been writing on this problem for many years (see Economicand Political Weekly, January18, and March II and 18,

1989 for some interesting reports on disputes). Our work, being primarilyempirical, tries to identify some determinants that can explain the problem of industrialdisputesover a significantpartof the 80s. Such findings can be useful in providing directions for more detailed research and have the additionalmeritof verifyingthe popular perceptionsof the problem. III

Regulatory Framework
Industrialrelations in Indiaare regulated by threemajoracts:(i) theTradeUnionAct, 1926, (ii) the Industrial Employment (Standing Orders)Act, 1946 and(iii) the Industrial Disputes Act, 1947. The Trade Union Act allows registration unionsin an industrial of establishment with no restrictions on the number provided that a union has at least seven membersfromthe establishment. The Industrial Employment Act (in short IE) was intendedto make labourcontractscomplete, fair and legally defensible. Underthis act, the employer is requiredto inform his employees of their rights and obligations, the terms and conditions of work, conditions of recruitment, discharge,disciplinary actions, etc. However, until 1982, the scope of the act was limitedonly to establishments employing 100 or more workers. A 1982 amendmentof the act made it applicableto all establishments employing 50 or more workers. Any dispute on terms and conditions of work arising from the IndustrialEmployment Act comes under the purview of the Industrial DisputesAct (ID). This act underwent a numberof significant amendments in 1976 and then again in 1982 and 1984. Apart from providing an elaborateprocess of government mediated conciliation, voluntaryarbitration a three-tiersystem of and adjudication,the ID Act tried to reducethe incidence of strikes and lock-outs by making strikes and lock-outs legal only under certain conditions. Under this act, regular (but not the casual or 'badli') workersare or eligible forlay-off compensation retrenchment benefits if the factory size (in termof employment) is at least 50. However, layoffs, retrenchmentand closure in factories employing 100 or more workers, will be considered illegal if the employers do not obtain prior written permission from the relevant state government. This particular clause of the ID Act has been a subject of controversy in the context of the recent debateon exit policy. This clause was introduced in 1976 duringemergency as partof a more direct control on the employersand employment.At thattime the specified factorysize was 300 which was laterrevisedto 100 in the 1982 amendmentof the ID Act. Like many other regulations in India, employment regulations also work on the April 30, 1994

Economic and Political Weekly

basis of the factory size. If we summarise themain benefits of the regulationfrom the point of view of the workers, they can be called bargaining rights (from the Trade Union Act), income security (from the IE Act) andjob security(from the ID Act). The term security should be understood in the sense of eligibility of receiving compensation and in the sense of restrictionson layoff or closure. While the bargainingright is grantedin virtuallyall factories (employing at least scven workers), income security is providedonly when the factory size reaches 50 and employment security is confined to factories employing 100 or more workers. Thereforc, in studying industrial disputes one shouldconsidervarioussizes of factories coming underthe realm of different regulations and analyse the consequent impact on bargaining strategiesof each party.In large factories where the workers enjoy all the benefitsof regulation, bargainingfollows a formalprocess often culminating into legal battles. As a contrast, in small factories where the workers enjoy only the trade unionrights and not the benefits of IE or ID Acts, trade unions heavily rely on their political nexus to create informal pressure on theemployers. To sum up, largerfactory size leads to (i) more organisational rents, (ii) more powerful employees, (iii) more powerful employer, all of which can contributeto serious disputes. This observation hasmotivated us to include factorysize as a determinantof industrial disputes in our econometric model. Factory size, as we know, is also importantfor regulatingcapital and products which can influence the incidence of disputes as well by affecting the size of the organisationalrents. In evaluating employment regulations, Mathur(1992) notes that in manufacturing industrywhere the employment security is highest, 78.5 per cent of establishments employ less than50 employees and another 10.8per cent of establishmentsless than100 employees, leaving bulk of the workers outside the scope of regulations.An econometric study by Fallon and Lucas (1991) claims that the 1976 amendmentof the ID Act restrictingthe employers' right to layoff or retrench(in factories employing 300 or more workers) has led to a significant reductionin industrialemployment. An importantquestion to be answeredin thisregardis whethertheemploymentregulations have really acted as a deterrentfor industrial disputesor have reducedthedurationof disputes.Evidence suggests tbatthey probablyhave not. The interpretation the of acts itself has been a problem and a source of disputes. 'Ihere have been innumerable court cases where the employees wanted theirunits or organisationi be declared as to 'industry' and themselves as 'workmen', which arecrucial for the applicabilityof the ID Acts.

It is also not clear whether the threatof governmentinterventionin the formof conciliationandadjudication helpedquicker has settlements or not. For example, between 1980 and 1988, about 16 per cent of the disputes per year were disposed by office of the Controller of Industrial Relations machinery after a delay of at least four months. Ilowevcr, the rate of settlement through government intervention rose steadily from27.5 percent in 1982 to48 per cent in 1987. But there is a danger that official agencies can act like a 'captive regulator'and activatea biasedoutcome. In fact, a standard practice is to influcnce the governmentto declarea strikeor a lock-out illegal and there are many loopholes in the acts that can be utilised to this end. For example, an employer in a largerfirm opting for a closureis required serve a notice to to the government at least 90 days in advance asking for permission. However, according to the ID Act, if he does not receive any response from the governmentwithin 60 days, thepermissionforclosurewould be deemed to havebeengranted.Clearly,there is an incentivefor theemployerto influence the relevantadministrative agency to delay theresponsebeyond60 days.lThus scope the of 'legal' disputes itself is quite large. The regulatoryframeworkis crucial for understandingindustrialrelations and the abovediscussionshouldbeviewedas supplementary to our econometric analysis, althoughwe have tried to capturesome indirect effects of regulationsthroughthe variable factory size.

Strikes and Lock-Outs

In this section we review some dataon the two types of disputes-strikes and lockouts. Afterthelifting of Emergencyin 1977, the number of both strikes and lock-outs In increaseddramatically. fact,between1977

and 1983, the numberof strikes was consistently at a very high level as reflected in Table 1. After 1983, the numberof strikes declined sharply.In contrast,the numberof lock-outs has shown a much greater increase from 1982 onwards. The data on mandays lost reveal the same pattern. Mandays lost due to strikes were remarkably higher over a period of seven years from 1978 to 1984 which almost coincided with the yeais of greaternumberofdisputes. The year 1980 registcreda highernumberof strikes but with a very small number of mandays lost. IBut the year 1977 can be considered exceptional, as it had the third highest numberof strikes, but with the lowest number ofmandayslost indicating smaller duration of strikes and/or involvement of fewer workers.Similarly, mandayslost due to lock-outs showed an increasing trend with the increasing numberof lock-outs. It is also noteworthy,that from 1978 to 1984, the numberof mandayslost due to strikehas always been fargreaterthanthatdueto lockouts. It is only after 1984 thatmandayslost due to lock-outs settlcd around 20 million and exceeded mandays lost due to strikes which came down to a level of 12 to 14 million. The average intensity of a strike in terms of mandayslost as reflected in mandayslost per strike has generally been in thc orderof 10,000 mandays with the exception of two years, 1982 and 1984 wlhichcorTespond to the years of prolonged textiles and jute strikes. Moreover,from 1982 onwards,this figure is showing a declining trendimplying thaton an averageeach strikeis getting less costlier (in terms of mandays lost). On the contrary,each lock-out has been four times more costlier on averagethanstrikes.While the year 1982 registered highest mandays lost per lock-out, the trend after a shortdip between 1982 and 1985 has again been rising. In fact, mandays lost per lock-out in 1988 is almost as high as thatin 1982. Thus,




Strxkes Mandays Lost (MiUlion) 2.8 1.3 15.4 35.8 12.0 21.2 52.1 24.9 39.9 11.4 18.8 14.0 12.5

Mandays Lost Per Strike (Thousand) 2.25 .48 5.57 13.21 4.79 9.44 25.67 12.49 23.62 8.41 12.89 10.38 9.58


Lok-Ouis Mandays Lost (Million) 9.9 11.9 12.9 8.0 9.9 11.0 22.5 21.9 16.0 17.5 13.9 21.3 21.4

Mandays Lost Per Lock-Out (Thousand) 45.41 27.93 30.35 23.59 27.88 31.97 49.55

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

1241 2691 2762 2709 2501 2245 2029 1993 1689 1355 1458 1348 1304

218 426 425 339 355 344 454 495 405 400 434 451 441

3 43.7S 32.02 47.22 48.52

Source: Pocketbookof LabourStatistics.

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The variablesthat arechosen as possible determinantsof disputes are the degree of trade.unionisation (iV), average monthly earningsof an employee (ME) and average factorysize (FS). Withan industrybeing the unit of observation,all data correspondto the two-digit level of aggregation.The data sources areAnnualSurveyof India, Indian Labouir Yearbook Pocketbook Labouir and of Statistics.' TlhevariableTU is defimedas the number of employees listed as tradeunionmembers actuallystengthned the handsof the work- in an industry divided by the number of the ers by restricting employers'abilityto employees of that industry. One problem of with this variablcis thatits dataset probably lay-off. solvethispuzzle,wecanthink To two factorsthathave possiblyinfluenced suffersfromirregularities, becausethenumthepattern disputes: highGNPgrowth berof tradeunionmembersis reportedonly of (i) and returns thereand rate, technical (ii) change rationalisation fromtheunionssubmitting of labour. HighGNPgrowthratehas per- fore it is naturalto suspect that many other of easierresolution strikes. The unions have been left out. However, haps helped rate technical industrywise comparison reveals that this highgrowth hasalsorequired of and changes rationalisation labour. Many problem is not so serious across all indusfromlaying tries. For example, cotton textiles do show largefirmswhicharerestricted haveprobably expectedly high degree of unionisation off or retrenching workers, takenresortto strategiclock-outsto put whereasthejute industrycan be suspected on to pressure theworkers quitorto optfor to be poorly represented.Despite this data Sothe voluntaryretirement. increasing num- problem, there are compelling economic berof lock-outs shouldnot be viewedsim- reasonsto includethis variable.T'rade union ply as a sign of increasein the bargaining membershipis an importantconstituentof powerof the employers.It can also be a bargaining power. It not only helps the labour. workers strategic ploy forrationalising tosteeranegotiation alongaplanned and formal path, but also enables them to V lobby in the governmentthroughpolitical affiliation. Model and Methodology The variable ME captures some of the (a) Choice of Variables important causes of disputes. Of all the disputes at least 30 per cent is caused by Having described the importance of the issues relating to workers' incomes. The regulatory framework and the interesting figures on employees' earnings cover not patternof disputes that has emerged in the only wages butalso otherpaymentsmadeto 80s, we set out to identify some determi- the employees. Mandayslost peremployee nants of disputes and test their statistical is expected to be negatively correlated to significance. The dependent variable we earningsof the employees. have chosen is mandayslost (in short, ML) The averagefactorysize (FS) is obtained from industrialdisputes. Since the data on by dividing the total numberof employees mandayslost combine not only the duration in an industryby the numberof factories. of disputes but also the numberof workers Admittedly,by averagingout we are ignorand the numberof workshifts per day, the ing the distributionof factory sizes within costs of disputes are not comparableacross an industry which itself is an important industries. So we redefimethe variable on factor.Ideally, one should study the effects per employee basis by dividing the total of factory size both within the industryas mandays lost from disputes in an industry well as across the industries.We have igby the total number of employees of that noredthe within industryeffcct for simpliindustry.However, since we are using the fying reasons. total numberof employees rather than the. The main motivationof the variableFS is total number of workers involved in dis- to capturesome of the effects of employputes as the basis of normalisation, the ment regulationswhich we have discussed resultantfigures are likely to understatethle in Section III. We know that in large firms, actualduration. Therefore,ourresultsshould workers enjoy both income and employbe interpreted only in terms of average(per mentsecuritythroughi andID Acts antd IE to employee) duration of disputes. Another protect their secure positions, workcers in importantpoint to note is that the data on these firms invest heavily on tradeunions, mandayslost fromindustrialdisputescover political affiliation and legal assistance.'ro both strikes and lock-outs and in this re- counter this, the employcrs also hire spect, our model is different from otlher specialised expertise on disputes and perempirical models in the literaturewhich arc sonnelmanagement. Bcsidcs, theprocessof concerned only with strikces. resolvingdisputesis generallyoverseenand

are for it canbe saidthatif workers blamed should indulgingin morestrikes, employers for be heldevenmoreresponsible rampant of imposition morecostly lock-outs. Thuso'e.; characterises yearsof the the late70s andearly80s as the eraof strikes the the dominanceand laterpartof 80sasthe cra of lock-outsdominance.Ilowever,it appears puzzlingwhy the lock-outsincidenceincreasedsignificantlyin the later of partof Ss, sincethe1982amendment the theID Act (whichcameintoforcein 1984)

monitored government by Thereagencies. fore, one can expect thatdisputeswill be resolved muchmorequickly largethan in in small firms.Ourstudytriesto verifythis perception. Apartfrom the above-mentioned variables,we have included dummyvariables for the years 1981 to 1984 to pay special attention thehistorictextilesstrikes to and similar in disputes otherindustries. these In four years, mainly two industries-cotton textilesandjute-showed verybigb levels of disputeswhichare also responsible for
inflatingthe figures for totaldisputesunlike

in the years beforeand afterthis period. we out Therefore, triedto separate theeffects of such industries introducing by a dummy'variable them. for It wouldhavebeenmore satisfactory if we incorporated employers' unions our into analysis.The employers'unions(or trade associations) animportant in display role the putesthatconcern entireindustry. Also in mattersof firm-specificdisputes,the employers' at abilityto arrive a favourable settlement depend whether emon may the ployersare associatedwith a majortrade association not.Buttheavailable on or data unions quiteincomplete are employers' and so underreported that the degree of unionisation the employersreducesto of almostzerofor all industries. hasdisThis us couraged fromusingthisvariable. Another important variable hasbeen that left out is marketdemand.Disputesare believedto be strongly with correlated the fall andriseinmarket demand theprodfor ucts produced the industry. by Ilowever, thereis a problem findingvariables of that cansuitably the capture mnrket demand. As proxy for demand,variableslike sales

Year 1980 1981 1982 1983 1984 1985 1986

R2= 0.84 Adj R2=0.8

Mean ML of 2.36 4.30 2.84 6.26 7.85 4.05 4.75

F = 29.78


wO INrawr AND DM CoErFIcmrNTo OF DM Esti- t-Ratio nmate


Year 1980
1981 1982 1983 1984 1985 1986

Intercept Esti- t-Ratio mate .601

.74 2.58 3.09 10.54 5.69 14.92

.53 1.12 .88 2.61 1.25 4.14 8.75 13.49 28.47 33.91

12.82 8.42 9.93 10.54



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revenue and productionfigures have been used in the litertur. But these variables give rise to serious simultaneitybias as they are correlatedwith disputes [Fisher(1991) for a discussion on this problem]. Therefom, we refrainedfrom using such proxies andhadto be contentwith fewer variablesto maintainconsistency in our methodology.

For brevity of notations we denote the left hand side (vector) variable as y and combine the right hand side (vector) variables in a matrix x to wrtie them in the familiar matrix form: Y1=X1B1+e1, t=1,2,...,7 (4)


t=I = 19--= T

14.43 7


whereX, = [TU,,ME,,FSJ] [TU,,ME,,FS,, or DM,Jand B',= [bo, bl, b2t, or [bo, b,,, b2, b3t] bV, b4j depending on t. y, and e, are 19x 1 Now we present the basic model where variables are both year and industry spe- vectors. Xl is a 19x4 matrixand Blis a 4xl cific. Ignoring the year-specificity for the vector for t=l, 6, 7. For all other t, the time being let us write the basic regression dimensions of xt and Btare 19x5 and 5x 1 equationfor a given year as respectively. Since we are interested in finding the ML =bO+b,TU1+b2MEi+b3FS,+eV, sensitivity of ML with its determinantsnot (1) only for a given year,butalso over the years, i=1,2,...,9N we have pooled our cross sectional and wherei refersto industryande is the random time-seriesdatain a largermodel where we error term. e is assumed to be normally can allow changes in interceptsas well as distributed with zero mean and vanance &. slopes acrossthe years.The estimationtechLaterwhen the time subscriptswill be used, nique thatwe have used is generalisedlea,st (2 will be denoted as &.e for a given t. N is squares(GLS) (see Judgeet al 1988: p 444). the number of industries. Writing in the The GLS estimatesareasymptoticallymore convenientvectorform,we can suppressthe efficient than the OLS ones. In the present subscripti, context, the added advantage of the GLS methodis that it takes account of the posML = b+b,TU+b2ME+b3FS+e (2) sible excluded factorsthatmay have affected the mandayslost from disputes in more where ML, TU, ME, FS and e are Nxl than one year. For example, 'workers'exvectors. Now in orderto identify the model pectations,government'spolicy andtheemin termsof years, let us add a time subscript ployers' union powerthataffectedthe durat to the variablesexpressed in vector forms tion of the prolongedtextile strikeshave not in (2), been includedin the model. But theireffects are present in the error term. Since such , = b+b,TU,+bAMEI+b3,FS+eI, effects are likely to spill over in otheryears, errortermsarealso likely (3) the corresponding ... A=1929,T to be correlated.The GLS method makes a We have covered 19 industries(i e, N=19) correction for this problem which was not for 7 years (i e, T=7) from 1980 to 1986. possible in year to year separate OLS However, as we mentioned earlier, apart regressions.2 from the above three variables we would Afterpoolingthecross-sectionalandtimelike to use a dummy variable (DM) in the series data, we write our model as years 1981 through1984 to separateout the effects of textile strikesand similardisputes Y=XB+e (5) in few other industries.The variableDM is defined as follows: where Y ande are 133x i vectors.The numIn 1981, DM = 1 for Tobacco, Cotton ber 133 correspondsto 19 observationsfor textiles, Jute and Electrical machinery in- seven years. X is a 133x32 block diagonal dustries, matrix,wherethe blocks aregiven by x -s as = 0 otherwise. defined in (4). The coefficient vector A,the In 1982and 1983, DM= 1 forCottontextiles dimension of which is 32xl, consists of 32 and Jute industries, coefficients which correspond to 7 inter= 0 otherwise. cepts, 4 dummy variablesand 3 basic variIn 1984,DM = I forCotton textiles, Juteand ables in all seven years. Textile productindustries. The computation of GLS estimates re= 0 otherwise. quires estimates of variances and covariances for all seven years. Let us denote the Thus we rewrite(3) as variance-covariancematrix as l, a typical ML,= b+b,,TU,+b2,ME,+b31FS,+e,, element of which a32 . ? is a 7x7 matrix. estimatesofo2,s -s areobtainedas (3a) Consistent t=1,6,7 N and


of in k, beingthe number regressors the tth year. Since differentequationshave different number regressors, average of an number regressors be used for all of can equations to obtain the consistentestimatesof variancesand covariances. The estimatesof the errortermse1,,are obtainedfromOLS regressions. Theseestimatesare also unbiased wheneachequation uses the same numberof variables [Judgeet al 1988: p 452]. The resultant estimates thevariance-covariance of terms are collectedin the matrix?. TheGLSestimator B is for


[X'(A-' 01 ) XI-lx' (?-'0 I)Y

where0 is theKronecker product and sign I is a 19x19 (i e, NxN) identitymatrix. Applyingthe Kronecker product method, eachtermof i-l is multiplied the 19x19 by identity matrixand the resultantmatri (1) reachesa dimension 133x133. of The numerical estimates Barereported of anddiscussedin the next section.

Year 1980 1981 1982 1983 1984 1985 1986


Estimate 10.52 -4.27 -8.16 -14.08 -38.56 1.75 -16.36

t-Ratio 5.27 -2.21 -2.77 -2.12 -4.22 .36 -3.26

EsnMAms Tm CoEFFICENT FS OF OF Estimate -.0011 .00 .0031 .0034 .0083 .0066 .0042 t-Ratio -1.87 .06 1.92 1.34 2.33 1.94 1.68

Year 1980 1981 1982 1983 1984 1985 1986


Year 1980 1981 1982 1983 1984 1985 1986 Estimate .0095 .0037 -.0006 -.0026 -.001 -.0029 -.0055 t-Ratio .92 2.09 -.23 .76 -.34 -.83 -2.22

I e,,e,,

ML1=bOt+b,,TUT+b 2MEt+b3,FS,+b4,DM,+e,,


(a2 = LS


Economic and Political Weekly

April 30, 1994


Interestingly, the variable reveals a curious pattern.Its magnitudeincreases from Results 1981 till 1984,and after 1984 it falls in (a) Positive Relationship with Dummy 1986 barringthe year 1985 when the variable is insignificant and positively signed. Variable The year 1984 is important in many reThe estimatesof the coefficientsof the spects. It recorded the second largest variablesand other relevantinformation mandays lost from overall disputes and are presentedin separatetables for the strikes, in particular, between 1976 and ease of reading they areobtained 1988 (Table 1) and in this year some although in as froma singleregression discussed' the importantamendmentsof the ID Act came preceding section.The meanvaluesof ML into force. This can have an effect similar discussion of the to structuralbreak which is appearing not whichwillbe usedin the' in regression resultsare reported Table2. only in the variable TU but also in FS Thevalueof theF statistic R2as shown and ME. and in Table 2 confirmthat the explanatory The negative sign of the coefficient runs counterto the popularperceptionthattrade powerof the modelis satisfactory. Now let us discuss the estimatesof the unions are responsible for industrial discoefficient of the individual variables. putes. Although one can expect positive The dummy variable,DM, used in the correlation between strikes and years 1981 through1984, is significant unionisation on the ground that more andpositive(Table3). Its estimateshows unionised workers are capable of carrying a steadyincreasefrom 1981 to 1984.This out a threatof strike, sometimes a credible has special relevancefor cotton textiles, threat of strike can itself be deterrent jute and other industriesfor which the against its own realisation essentially by dummyvariableis used. For such indus- making the employers more willing to tries, the regressionequationpredictsa negotiate. Moreover, employers also may level'of mandayslost per employee,sub- find it difficult to declare lock-outs when thanthatforotherindus- confronted by strong trade unions. Therestztially greater The t%es. differenceis given by the esti- fore, the relationshipbetween unionisation ,hates of the coefficient of the dummy and mandays lost from disputes can be variable.For example, in 1984, for the negative. cotton textiles, jute and textile product One can suspect that from 1982 onthe industries, level of mandayslost ig- wards, when the mandays lost from locknoring the effects of other variablesis outs achieved and stayed at a high level,

the attempts to impose lock-outs or continue for a longer period were probably thwarted in more unionised industries, which in turnjustifies the negative sign of the variable TU. However, we would like to add a qualification. One factor that can, to some extent, accentuate the negative relationship is the presence of casual or badli workers who actively participate in disputes and are not necessarily reported as union members. In the jute industry,for example, 43.8 per cent workersare casual. This makes the reported degree of trade unionisation much smaller than what it is. Since the jute industryhad a large share in industrial disputes, the estimates might have been affected by such problems. (c) Positive Relationship with Average Factory Size The second most important finding is that mandays lost per employee increase with average factory size (FS) in an industry. The variable is positively signed for all years except 1980 and it is not significant only in 1981 (Table 5). The estimates of the coefficient of FS can be interpreted in the following way. If the average factory size increased by 10 employees, then in 1986 (for example) ML would have increased by .042. Now given that the average mandays lost over all industries in 1986 was 4.75, the increase of .042 constitutes approximately I per cent. It

+ estimated be 44.45 (intercept coeffito cient of dummy)mandays,whereasthe same figure for other industriesis only 10.54. The large differencebetweenthe two levels is consistentwith the fact that witnessed thetextilesindustries prolonged disputes duringthis period.It is noteworof shows thythattheestimate theintercept an increasing trendfor all industries barfor ring textiles and few otherindustries which the dummyvariableis used. For termincreases suchindustries intercept the up to 1984 andthendeclines. with Degreeof (b) NegativeRelationship TradeUnionisation One of our main finding is that the degree of tradeunionisation,TU, bears significantand in general negative relalost withmandays peremployee. tionship TU Exceptin 1980and 1985,the variable maintainsa negative sign. In economic terms,the estimatesindicate that if the in degreeof unionisation an industryincreasedby 0.1, the mandayslost per employee wouldhave decreasedby .427 in 1981 (for example)and by 3.85 in 1984 (Table 4). These reductionscan be reas whenwe notethatthe garded substantial
average mandays,lost was 4.30 in 1981 and 7.85 in 1984.

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Economic and Political Weekly

April 30, 1994

might appear from similar calculations for other years that the sensitivity of this variableis very weak and to exert a noticeable effect on mandays lost per employee, factory size has to increase substantially. However, we should note that in an industry employing thousands of employees, such small increases in per capita terms will translate into a large increase in aggregate. Like TU, this variable also shows the same pattern with its estimate increasing till 1984 and then decreasing afterwards. Thus 1984 seem to be providing a breakin the pattern of sensitivity of ML with its determinants.We should mention that this is not a result of using a dummy variable for 1981-84. In an experimental regression where we used the same model excluding the dummy variable, the same pattern was observed but with different magnitudes of the estimates. The economic implication of the estimates of the coefficient of FS is that in industries dominated by large factories, disputes which are supposed to follow a formal course because of various employment regulations, seem to continue for a longer duration than in industries dominated by small factories. Since labour in small factories is hardly regulated, our result casts doubts on the efficacy of disputes acts and employment regulations as deterrent to disputes. There may be a numberof reasons which can explain the positive association between ML and FS. First, in large factories, because of a bigger workforce and complexity of management, the issues bearing potential for conflicts are manifold. Secondly, protected by income and employment security under IE and ID Acts, workers may not have an incentive to settle the dispute early before referringit to government mediated reconciliation. Thirdly, similartendency can also be presentamong the employers. As we have explained earlier, prolonged lock-outs can be used as a means of rationalising labour. (d) Weak Relationship with Average Monthly Earnings of Employees Unlike the other two variables the average monthly eamings of an employee appears to be a weak variable. It is significant only in two years-1981 and 1986-and of the estimates in these two years, one is positively signed (in 1981) while the other has a negative sign. The estimates indicate that this variable, when significant, can be said to have strong effects on ML. For example, consider the estimate of the coefficient of ME in 1986. If average monthly earnings increase by Rs 100 mandays lost per employee would

a decrease .55 whichconstitutes share of 11 by percentin theaveragemandayslost in 1986. What is interesting about this variable is that its sign follows almost the same pattern as the data on industrial disputes. Industrialdisputes data show an increasing trendup to 1984 and after that the trend declines. The variable is positively signed for all the years except 1982, till 1983 and then switches into a negative sign. This shows that a negative relationship between wages and mandayslost from strikes obtainedin AshenfelterandJohnson(1969) and Abbott (1984) may not be extended to wages and aggregate disputes. Although better paid workers are believed to be having fewer reasons to go ov8 strikes, their managements may have an interest to launch a lock-out to save on labour costs or to make the worker accept a wage cut. Therefore, positive relationship with mandays lost from disputes and employees' earnings is also possible.

also look at strikes and lock-outs data separately. Furthermorethe model should be appliedwith more disaggregateddata. Nevertheless, we believe that our model has found some interestingresults which can be utilised to evaluate disputes acts and employment regulations. Notes
[We would like to thankKiritParikhfor suggesting a normalisationwhich we have used in the empiricalspecificationof the model. AnindyaSen and ShubhashisGangopadhyay made some comments on an earlierversion of the paper.We also thank Saumen Majumdarfor helping us write a which has been used in the computerprogramme estimationpartof the paper.Any remaining errors are our responsibility.]

I Our data correspondto the following industries: food products,tobacco, cotton textiles, wool and silk, jute and hemp, textile products, wood and furniture, paper, leather, rubber, chemicals non-metallic minerals, metals and alloys, metal products,machinetools, electrical machinery, othermanutransport equipment, (e) Combined Effectsof ExogenousVariables electrical gas andwater. and facturing industries, The individual effects of the degree of 2 OLSestimatesarefoundto5slightly different. They are upwardly biased for TU, DM and tradeunionisationand average factory size almostso forME.But forFS, OLSestimatesare are found to be opposing each other, while lower. The variablesTU andMEshow a change the average monthly earnings of an emof signs for one year each-in 1980 and 1983 ployee, although showing poor statistical respectively. The levels of significance imsignificance, sharedits effects first with the prove with GLS estimatesfor the variable FS.

average factory size and later with the degree of tradeunionisation.The net yearwise effect is a result of an interplay of these variables. The combined effect of these variablescan be used to relateto the pattern of disputes in the 80s. Mandays lost from disputes showed a declining trend fvom 1984 after reaching a height in the c rly yearsof the 80s. In 1980, the degree of trade unionisation and employees' earnings had dominanteffects. Then up to 1984 the effects of employees' earnings, factory size and the special problems associated with cotton textiles and jute industries, played dominantroles in generating an increasing profile of disputes. After 1984, monthly earningsandunionisationprobablyplayed a role in reducing industrialdisputes.


Abbott,Michael G (1984): 'SpecificationTests of QuarterlyEconometricModels of Aggregate Strike Frequency in Canada' in Ronald G (ed), Researchin LabourEconomEhrenberg ics, Vol 6, p 177-250. Annual Survey of Industries,1980-86. Ashenfelter, 0 and George E Johnson (1969): 'BargainingTheory,TradeUnions and IndustrialStrikeActivity', AmericanEconomicReview, Vol 59, pp 35-49. Fallon, P and Robert E B Lucas, (1991): 'The Impact of Changes in Job Security Regulations in India and Zimbabwe', The WorldBank Economic Review, Vol 5, No 3, pp 395-413. Fisher, C G T (1991): 'An EmpiricalStudy of the Adverse Selection Model of Strikes', Canadian Journal of Economics, Vol XXIV, VII No 3, pp 499-5 10. Conclusion Hicks, John (1963): The Theory of Wages, 2nd edn, Macmillan,London. The present paper has tried to identify Indian Labour Yearbook,1977-1990. some of the determinantsof industrialdis- Judge, George G, R Couter Hill, William E putes using an econometric model. While Griffiths,HelmutLutkepohlandTsoung-Chao Lee (1988): Introductionto the Theoryand trade unions have been found to have exJohnWiley andSons. Practiceof Econometrics, erteda declining pressureon disputes, large factoriesareseen to be proneto much longer Mathur,Ajeet N (1992): 'Employment Security and IndustrialRestructuringin India: Sepadisputes.However, our model has excluded ratingFacts from Folklore-The Exit Policy some importantvariables such as employControversy', Indian Institute of Manageers' unions and market demand. We also i ment, Calcutta. have not distinguished between industrial Pocketbookof LabourStatistics, 1977-1990. disputes in the private and the public sec- Windmuller, et al (1987): CollectiveBargaining J A in IndustrialisedMarketEconomies.: Reaptors. For more satisfactory modelling one LabourOffice. praisal, International should not only include such variables,but

Economic and Political Weekly

April 30, 1994