Economists and pundits make compelling arguments that some level of unemployment is “natural and normal” and cannot be erased. However, India, blessed with its demography, can neither afford nor accept this “natural and normal” level.
Unemployment imposes significant, often insurmountable, costs on the individual. A high unemployment rate has a self-perpetuating and negative impact on the economy and society.
*Labour data is misleading, patchy, lazy and opaque. Mask more. reveal less
Our labor data is a mirage. He is not sturdy. Often unbelievable. The measures as well as the periodicity are poorly defined. Right high frequency data is rare. There are also quality challenges. Employment data captures underemployment and disguised figures. However, he ignores the “discouraged” who aren’t even “looking” for a job. Thus, policy-making is based on shallow data, many flawed assumptions.
Decision makers are flying blind. Practitioners drive while looking in the rearview mirror.
The Crux “Growth-Job Elasticity” study, covering 14 economically “important” states, on six key economic indicators with 30,000 households and 250 economists and political influencers, has bad news. Manufacturing employment data, discretionary spending is weak. Sales figures for automobiles, housing and household appliances are stable. Other economic indicators are also not based on confidence.
*Formalization has inadvertently discouraged hiring. Short term negative
The government solved the wrong problem. Formalization will not create well-paying jobs. It will guarantee neither employment nor social protection. It has inflicted grueling regulatory filings, taking value away from middle-income businesses and imposing costs. Formalizations devoid of the supporting ecosystem depreciate the value. It has proven to be a stumbling block for mid-sized business growth.
They are the job providers.
Decision-makers resort to the welfarism of “work”. MGNREGA is not a substitute for employment, nor a growth trigger. Unemployment requires higher social spending on the one hand, and lower tax revenues on the other. The long-term ramification of lower consumption triggers a vicious effect. It ripples and ripples through the economy. MGNREGA highlights acute unemployment, signals continuing economic distress.
The intangible cost exceeds the financial cost several times. The unemployed lose income; suffer from physical and mental health. Unemployment erodes skills, evaporates savings and lowers incomes for years. Unemployment depreciates human capital.
Unemployment paralyzes the poor. This is the only asset they have.
*Work is the “main” self-defining
The Crux study states that most middle-aged men view work as the “primary” definer of self. Unemployment lowers self-esteem. It takes away something more vital than their jobs and careers. They lose their dignity.
The societal costs of widespread unemployment are visible; the cost is equally opaque. It causes crime, incites gender inequality, stirs up social unrest and deepens marginalization. Disgruntled people lose faith in the system, manifesting as indifferent participatory democracy. Prolonged unemployment leads to deeper skepticism, broader pessimism and manifests itself in a reluctance to invest in the key multipliers of upward mobility, namely health, skills and education.
The micro-components of the economy, especially large organizations, pay the cost of unemployment. The government imposes higher taxes, counterintuitively discouraging growth, thus hiring. Industry is losing its skilled labor and confidence; reluctant to invest.
* India needs a differentiated growth framework
Manufacturing has changed and is no longer the bulwark of the job market. Jobs have halved over the past five years, even as manufacturing’s share of GDP has increased. Capital drives scale, technology drives productivity. Automation and optimization of logistics generate value. Workshop workers have become cogs. Most of the others are bolt nuts.
The “value generators and auxiliaries” of the manufacturing sector will be the job creators. India must add value by positioning itself on a “niche”, and not aspire to become the factory of the world. We must aim higher, choose our “tools” in the global trade war. We must manufacture what we can competitively, “move” and trade what we cannot.
The big ones don’t offer jobs. The jobs-capital measured in the context of the Crux study, “Jobs-Growth Elasticity”, highlights that MSMEs create 20 times more jobs than large organizations for each unit of investment. Similarly, the firm-to-job multiple is highest for medium-sized units.
*Agricultural sector overburdened, growth threatened
The agricultural sector is full of young aspirants. Policy makers have to come to terms with the fact that one sixth of GDP cannot support half the population. India needs to plan holistically, invest in the agricultural ecosystem of value migration. Similarly, India should extend the framework of the SEZs and create at least five “free” business centers on the model of Singapore and Hong Kong. It has the potential to create five million jobs a year and increase GDP growth by a few percentage points.
India’s unemployment crisis is arguably the biggest in the economy. Ideas like an urban MGNREGA can bring relief, especially for the millions affected by the pandemic, but only narrowly. It won’t solve the real problems. Not even the bangs.
Our young people will put pressure on the job market for the foreseeable future. Policy makers must prepare for the worst as more and more women seek employment. Similarly, the government must tackle the “polarization” of the labor market, ie the “disappearance” of medium-skilled jobs. The polarization is the advent of AI, cybersecurity jobs on one side and blue collar jobs on the other.
Under ideal conditions, the economy has the potential to create about one million jobs for every percentage increase in GDP. But lately that has not been the case. We have experienced jobless growth over the past decade. The low elasticity of employment to growth results from the large-scale substitution of labor by automation and capital. This accelerating trend is consistent with developing economies. However, India has been the hardest hit as we are failing to supply; and are unable to capitalize on our enabling demographics.
*Growth and jobs are decoupled
According to the Crux study, the correlations between growth and employment have weakened over the past 30 years, dropping from 0.4% to 0.25%. This effectively means that for every percentage of GDP growth, employment growth is only 0.25%. Previously, it was 0.4%. The government’s incentive structure favors capital-intensive growth at the expense of labour, which aggravates the unemployment crisis.
Policy makers need to understand that the future growth cycle will not lead to the creation of correlated jobs. India needs strong 10.5% GDP growth to start creating new jobs. Anything less, in a growing automation ecosystem, will take away jobs.
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