Employment generation and sustainable growth – The Irony

Employment generation and sustainable growth – The Irony

- in Analysis, Governance, Special Post

An essential characteristic of equitable growth is its ability to generate productive and remunerative employment. This is, of course, a concern that is as old as the study of economic growth itself, and underlies all the debates about the possibilities of ‘trickle- down’ theory of growth.

It has acquired particular resonance in India in the recent times because of the apparent transformation of the economy and increase in its  growth potential, which has unfortunately not been accompanied by commensurate increase in remunerative employment. The ‘success story’ of India is defined by the relatively high and sustained rate of growth of aggregate and per capita national income, the absence of major financial crises that have characterised a number of other emerging markets and reduction in poverty. These results are viewed as the consequences of a combination of a prudent yet extensive programme of global economic integration, domestic deregulation and a sound macroeconomic management.

Despite these positive attributes, there are significant areas of concern. Recent  economic growth has been marked by increasing inequalities, both spatial and vertical, within regions. High rates of growth in the non-farm employment have been associated with stagnant agricultural incomes and a pervasive agrarian crisis with falling financial viability of cultivation. While there has been a reduction in the rate of poverty, however the same does not equate with the rate of growth of per capita income, which has almost doubled.

Important indicators relating to food and nutrition security have deteriorated for significant sections of the population. The economic growth process in India exhibits a problem which is increasingly common throughout the developing world, which is the apparent inability to generate sufficient opportunities for ‘decent work’ with rise in growth.

India’s Chief Economic Adviser Arvind Subramaniam recently pointed out to the need to achieve higher economic growth, in the range of 8 per cent to 10 per cent, to solve the problem of jobless growth. In particular, he flagged the underperformance of the information technology, construction and agricultural sectors, which earlier served as huge job-creators for the economy.

Although, the focus on job creation is fundamental, higher economic growth alone will not solve the jobs problem. Jobs can be created when growth comes from the transition of labour from informal sectors like agriculture to the more formal manufacturing and service sectors. Such extensive growth, however, runs the risk of stagnation once the available stock of informal labour is exhausted, as some Southeast Asian countries found out the hard way in the late 1990s.

On the other hand, growth can come about without any substantial job creation in the formal sectors of the economy, but through improvements in productivity. The growth record of several developed economies even after the modernisation of their labour force explains such intensive growth. India should aim at growth that is driven both by improvements in productivity and modernisation of its labour force especially since better jobs are crucial to improving the lives of millions, who are employed, under-employed and those in low-paying jobs such as in the farm sector.

Ironically, achieving both those objectives will first require labour reforms that can both boost labour mobility within the formal sector and bring down the barriers businesses face in hiring labour. But incremental labour reforms alone won’t work unless these are combined with a step-up in government spending on asset and job-creating areas such as infrastructure, which in turn inspires private investment. Kick starting nationwide projects such as promoting ‘Make in India’, ‘Digital India’, ‘Skilling India’ and resolving the bad loans burden of banks are all great government initiatives for new employment.

However, the government also needs to preserve the existing jobs, which can be done by means of some choices. First, extend the H1-B strategy, used to a great extent in the US, for temporarily exporting Indian workers overseas. Rich countries, with ageing populations who need the workers, but fear the cultural dilution associated with permanent immigration would be the targets. Assigning the nation ambassadors in these geographies to liaise with the host countries to permit temporary immigrations and directly supported under the ‘Skill India’ initiative, to acquire local language and cultural skills.

The associated fiscal costs are meagre compared to the social and economic benefits from repatriated earnings. An ambitious yet achievable target could be to export a million workers over the next three years. Second, build respect for skilled work by honoring those who have these skills. Our caste and hierarchy-ridden Brahmanical social norms devalue skills and overvalue ‘intellect’, both in the public and private sectors.

This unfortunate social milieu engenders “qualification creep”. Tests and interviews for jobs should focus on personality and psychological attributes, rather than mainly educational qualifications. Only when we consciously make the paper chase redundant will we value real-life skills accretion, where the maximum potential for human jobs exists.

Third, introduce disincentives for layoffs. Companies can be incentivized to be socially responsible employers. Those who go beyond watching their ‘bottom-line’ to retaining and growing their employees should be rewarded through tax breaks, access to cheaper finance and should be publicly recognized as nation builders.

Nevertheless, the implications of the inverse relationship between technological progress and employment generation also must be borne in mind. The promotion of more employment clearly should not involve a glorification of drudgery, especially when newer technological developments open up possibilities for less arduous and tedious ways of working.


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