We have four new labour codes but also need the safety net of job-loss insurance

Subscribe to enjoy similar stories.When India enacted its four new Labour Codes, consolidating over 40 central labour laws, the promise was straightforward: simplify compliance, make labour markets more flexible and attract investment. These are worthy goals. But for the Codes to deliver on that promise, they should be accompanied by a reform that has been conspicuously absent from the conversation: a properly designed, state-sponsored unemployment insurance system.

Without it, the Codes will continue to impose costs on the wrong parties, distort company behaviour and leave workers exposed to financial precarity in every business-cycle downturn.Most developed market economies have long understood this. Insurance cover for joblessness is seen as a standard feature of the labour market—not as charity, but as a mechanism for helping workers weather temporary job losses. The logic is economic.

When workers lose jobs for no fault of their own—say, because of a recession, a sectoral contraction or a firm-level restructuring— the ability to maintain consumption while searching for a new role keeps skills from atrophying and prevents people from being pushed into the first available job rather than the best-matched one. Why must the state provide this rather than private insurers? The answer lies in two problems of information asymmetry. First, adverse selection: workers most likely to face unemployment are those most eager to buy coverage, making private insurance financially unviable.

Second, moral hazard: such coverage may reduce the urgency with which the laid off seek re-employment. Together, these are market failures. The state, which can mandate participation and spread risk across the entire workforce, is the only