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Rising Unemployment: Are we Missing the Wood for the Tree?

We are still stuck in a low wage, lower productivity environment. Policymakers must recognise that there are several moving parts to job creation, influencing it at different rates and at different periods of time. We focus narrowly. And can't see the wood for the trees

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Government departments receive lakhs of applications for lowly ranked jobs (peons, helpers etc.) from postgraduates and PhDs. Our young prepare for job-based competitive exams till they become ‘old and ineligible’.

Why do the highly educated seek low-level government jobs? The answer lies deep within our system. 

Government jobs at the lower end of the pyramid pay multiple times more than similar roles and qualifications in the private sector. People are attracted to the long-term job security, better working hours, little or no stress and pensions. There are other ‘attractions’ too, namely weak and often no linkages to performance or productivity. Some others are allured to government jobs for the opportunities to ‘make’ money. 

The government ‘working’ class are aristocrats. 

*Most economies celebrate this ‘problem’  

People entering the workforce earn and spend, trigger demand and consumption. The virtuous cycle grows the economy. 

Our working age population is growing at a faster rate than the overall population. A million enter the workforce every month. Less than a third acquire jobs. Jobs are scarce. The situation is alarming, equally dismal. A third of the unemployed are so disheartened that they ‘stop’ looking for jobs. 

A high proportion of the ‘qualified & educated’ lack the skills for corporate jobs. The corporate sector employs less than 10 per cent of the employed. The unorganised sector pays less, provides neither job security nor benefits. The corporate sector pays well, the government and the PSUs even more so. 

A Crux research highlights that the employment market is elitist (government ‘overpays’ its own) at one end of the band. As much as 90 per cent of the ‘employed’ at the other end are exploited. Less than 40 per cent of jobs pay ‘regular’ salaries. Two thirds of the self-employed and contract workers make less than Rs 10,000 per month, substantially lower than the per capita income. 

 A ‘lowly’ paid government helper draws thrice the salary of a counterpart in the private sector, and six times more than an unorganised sector employee. Equity dictates both the need to move notches up and down appropriately.

The economy ‘creates’ merely 60 per cent of the jobs needed, despite low (less than 10 per cent) women labour participation. Another dismal feature of the job market is underemployment in urban India and disguised unemployment in rural India. More than half the urban low paid workforce are ‘underemployed’. Similarly, India’s farm sector employs 50 per cent of the workforce, but contributes to only a seventh of the GDP. It suffers acute disguised unemployment, with less than 60 per cent ‘gainfully’ employed. As little as eight per cent of the formal jobs contribute to 55 per cent of the GDP, while 92 per cent of the informal workforce, including farm labour, contributes towards 45 per cent of it. This partly explains the gaping wage anomaly and unemployment. 

But there is more. 

The Crux study of the last two economic boom cycles confirms a slowing pace of job creation. The correlation between turnover and employees is weakening, and is at a historic low. Jobs growth is down to 0.15 per cent from 0.4 per cent for every one per cent growth in the topline. 

The evolving nature of job creators necessitates innovative and holistic policy making. Most new jobs are from the service sectors, such as healthcare, financial services, technology etc. Manufacturing jobs have barely grown in the last decade, despite doubling in value. Agriculture- based jobs add less value.

*Economical with the truth. Acknowledge the writing on the wall  

Our romanticism with the MSMEs, and of late with the startups as job creators, is misdirected. It trivialises any sincere effort at generating employment and numbs any effort at a robust solution. Given. Jobs come from both small and big businesses, and must be taken with both hands. 

Our low wage regime is unique and a concern. Most economies like the Asian Tigers and China attracted investments, ‘manufactured’ and captured the global markets. Lower wages contributed to low-cost manufacturing. However, technology, process, efficiency and productivity helped them scale and fortified their competitiveness. Scale strengthened the moat. Within a decade they ‘corrected’ the wage disparity. 

We are still stuck in a low wage, lower productivity environment. Policymakers must recognise that there are several moving parts to job creation, influencing it at different rates and at different periods of time. We focus narrowly. And can't see the wood for the trees.

Where do we go from here?  High-tech and new-age jobs in the semiconductor, AI, high-tech green businesses etc.  have obviously rekindled hope and may even be a part of the solution. But they are unlikely to move the needle. These industries are too small, too fragmented to trigger the job multipliers. They may not even have the potential to scale.

*Boat has left the shore

There should also be a deeper recognition that the manufacturing sector is de-globalising. Our ambition to be the ‘factory to the world’ is neither desirable, nor attainable. We must extinguish the China obsession and focus on our strength i.e.  services. 

Policymakers must be realistic and focus on spurring broad-based, high multiplier sectors like retail, tourism, IT, and healthcare. A job linked incentive like the PLI may help. Today the ‘compliance regime’ disincentivises firms to hire beyond certain numbers. Additionally reforming the higher education sector, linking education to skills will enable productivity, enhance value, and make us more competitive globally.   

The job seekers must embrace rising ‘temping’. Contract and Gig work is widely prevalent, has existed for decades and now forms a big chunk of jobs, and are proliferating. Labour laws must evolve and the ecosystem must enable and catalyse job growth. 

Government can create jobs. They must

Policymakers and their ilk shirk their responsibility about job creation. Economists too propagate that it is not the government’s job to create jobs. It is. 

Policies make it easier or harder for the private sector to create jobs. Government spending in Infra brings in investments, creates assets that generates value, triggering a growth cycle. Infrastructure building is a growth multiplier. Similarly focusing on and the approach to value drivers plays a role. Ease of doing business attracts entrepreneurship. Labour laws determine allocation of funds to job creating activities or not, (mechanisation vs manpower). Taxation and trade policies determine ‘make’ vs import. 

Job creation is a marathon and not a sprint. Policy makers must recognise that India needs intertwining of several factors as well as the braiding of enabling policies that can catalyse a virtuous growth-job cycle. 

Jobs are key to inclusion and upward mobility. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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unemployment Magazine 13 Aug 2022

Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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