Three steps to employment, writes Bharat Jhunjhunwala

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The main cause of the increase in unemployment today is technological change. This has happened several times in the history of mankind. The invention of the automobile left the riders unemployed. However, over time more roads were built to run cars, more jobs were created in car manufacturing and repairing, which led to a higher rate of growth and the creation of more jobs. Total employment in the transportation sector in the automobile age would be higher than employment in horse trucking. Likewise, today we can see a large number of jobs lost to robots and artificial intelligence. Whether these technologies will lead to more job creation, as has happened in car repair, will depend on the increase in the growth rate due to these technologies and the creation of new jobs in these new sectors. Unlike in the past, it is nevertheless possible that robots and artificial intelligence lead to less increased growth and less job creation leading to increased unemployment.

The second reason for the increase in unemployment is that manufacturing is increasingly undertaken by large industries where production is undertaken with automatic machinery. Thus, a higher growth rate leads to less job creation. The production of jaggery, for example, previously required a large number of workers. Only 10 percent of these may be needed to make the same amount of sweeteners in a candy. The crucial point is that new technologies directly displace labor but can still lead to increased employment if there is a large increase in GDP. At present, we can see that a large number of jobs are being created in cell phone repair, taxi use, hotels, tourism, business process outsourcing, etc. The question is whether we can create enough jobs from this natural trend of technological change to provide jobs for the large number of workers entering the labor market.

The main difference from the past is that today a very large number of workers are entering the labor market. The number of jobs created appears to be far less than needed. The central government’s periodic labor force survey indicates that between 2012 and 2018, the urban unemployment rate tripled. In 2018, the number of unemployed 15-24 year olds was 28.5%, the highest among the world’s major economies. The wage rate also fell between 2012 and 2018. The real wages of workers in organized sectors fell by 1.7%. The “real wage” means that wages can increase at a rate lower than inflation. A worker can earn Rs 110 this year against Rs 100 last year. But the price of, say, a one yard cloth, maybe Rs 115 this year compared to Rs 100 last year. The worker would get higher wages this year, but the higher wage would buy less fabric. This is called the fall in real wages.

The government said 70 lakh new people joined the Employment Provident Fund Organization (EPFO) in 2018. It is doubtful that these are new jobs. The informal sector was hit hard in 2018 due to the demonetization and implementation of the GST and a large number of workers joined EPFO. Thus, there has been a shift in employment rather than job creation. Anyway, even if we assume that 70 lakh new jobs were created in 2018, it is still far from what is required. At present, 120 lakhs of new workers enter the labor market every year. So even though 70 lakhs of jobs are created each year, still 50 lakhs of people have joined the ranks of the unemployed. We must take proactive measures and not rely on spontaneous job creation due to technological changes in this situation.

The first step the government must take is to reform the education system. The difficulty is that nowadays most young people are only interested in obtaining certificates that would allow them to get a job in the public service. Salaries of government employees are so high that less qualified primary teachers but a government job can earn Rs 70,000 per month, while a more qualified nurse or data entry operator without a government job can earn as little as 15,000 Rs per month. As a result, young people are not interested in learning skills such as nurses and data entry operators. They only join teaching to obtain a certificate. The only way to get young people to acquire skills is to reduce the salaries of civil servants so that the attractiveness of government employment is reduced and young people become interested in acquiring skills that would enable them to earn a job. income in the private sector.

The second step is to relax labor laws in the organized sector. There is a huge tendency to use automatic machines and less manpower because the loss of manpower is rigid and it becomes very difficult for an employer to remove a worker if she is unruly or inefficient or not. required. A study by the World Bank of East Asian countries indicates that more jobs were created in countries where the loss of labor was flexible. Therefore, the government should reform labor laws and allow businessmen to hire and fire workers according to their needs. This will encourage companies to use workers instead of computers and machines.

The third required step is to provide tax incentives to small industries. The production cost of small industries is higher than that of large industries due to economies of scale. They cannot compete with the big industries in a free market. Therefore, the government should reduce the GST on goods produced by small industries so that they can withstand competition from large industries. Then small industries will grow and generate more jobs.

The current government policy is to let the market generate jobs spontaneously does not happen and I do not think the economist in Niti Ayog has a solution to providing jobs for 120 lakh young people entering the labor market every year.

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Posted on: Saturday November 06, 2021 9:00 am IST


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