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Ministry of Labour and Employment | NITI Aayog
The ILO Working Paper 157, titled ‘The Impact of Labour Laws on the Labour Share of National Income, Productivity, Unemployment and Employment: First Results from the 2023 Update of the CBR Labour Regulation Index’, utilizes the updated CBR Labour Regulation Index (CBR-LRI) to track labor law changes across 117 countries from 1970 to 2022. The study challenges the neoliberal consensus by demonstrating that worker-protective laws generally improve productivity and increase the labour share of national income. A significant global trend identified is the Brussels Effect, where European regulatory standards for gig workers and flexible employment are increasingly adopted by non-EU nations to facilitate trade or market access.
Key global findings and trends include:
Steady Improvement: There has been a steady and incremental global improvement in worker protections since the 1970s, with no evidence of the “end” of labor law.
Crisis Response: The COVID-19 pandemic prompted many countries to tighten dismissal controls to stabilize employment relationships during the emergency.
Normalizing Gig Work: There is an emerging global trend toward extending protections to platform workers, acknowledging the legitimacy of gig work while regulating its use.
Democratic Correlation: Stronger labor protections are closely associated with periods of democratic rule, particularly observed during transitions in South Africa and South America.
Key India-specific findings from the econometric analysis include:
Short-term Labour Share Gains: Increases in labor regulation lead to an initial rise in the labor share of national income, though this effect diminishes over time.
Mixed Productivity Outcomes: India shows an initial small decline in productivity followed by a recovery, but the overall magnitude of this impact remains limited.
Unemployment Spikes: Regulatory shocks are correlated with rising unemployment initially before rising, without a clear long-term trend.
Structural Complexity: Clear conclusions for India are hindered by high levels of informality and significant variations in the enforcement of laws across different states.
Policy Relevance
The findings are vital for India as it operationalizes its four Labour Codes. The report suggests that regulatory “shocks” alone may not drive sustainable employment growth in the absence of complementary coordinated market institutions, such as formal training systems and regulated worker voice. Policy stakeholders must focus on bridging the enforcement gap to ensure that formal labor protections do not inadvertently incentivize capital-for-labor substitution in a highly informal economy.
What is the “Brussels Effect” in the context of global labour standards? The “Brussels Effect” refers to the process where the European Union’s unilateral regulatory standards become the de facto global standard. In labor law, this is observed when non-EU countries adopt protections for gig workers or flexible employment forms—similar to EU directives—either to facilitate trade agreements or to ensure their domestic companies can access the European market, leading to a worldwide diffusion of protective norms.
Follow the full news here: ILO Working Paper 157