Dr Bharat Jhunjhunwala
Unemployment occupies the centre stage in the present elections. The high voter turnout appears to be due to the entry of many young voters and these are those who bear the brunt of unemployment. No wonder all parties are promising that they will create jobs. But they also want to espouse globalization. They do not realize that there is a fundamental contradiction between the two. Globalization is leading to unemployment. A study by VV Giri National Labour Institute, Lucknow has found that 26.9 per cent youth between the age group of 15-29 years is neither working, nor studying and not even looking for a job. At the same time the share markets are booming across the world. The Dow Jones Index of New York Stock Exchange closed at an all time record of t 15,783 in November. Our own Sensex has only recently scaled historic heights.
The ILO and many other well wishers of the poor have suggested that the Governments need to implement special policies to promote employment. These are called Active Labour Management Policies (ALMP). I rely on a Knowledge Brief issued by the World Bank to examine the success of these policies. The first policy suggested is that of providing information regarding availability of jobs. Often the worker has a skill and employer needs that skill but they cannot connect with each other. The Knowledge Brief says that the positive impacts of information this program: Evidence from European Countries shows the benefits of job search assistance for outsiders on their employment prospects, especially for long-term unemployed workers. But it cautions that effectiveness of this policy is concentrated in the short run is not sustainable. This happens because there is no new job creation or skill generation in this program. It can only cut the flab a little. It is like putting new mobil oil in the car. The performance can improve only marginally. To sustain the improvement we need to put a turbo charger or change the size of the engine.
The second policy suggested is that of training. I was recently visiting Churu District in Rajasthan. One Computer institute was conducting a training program funded by the Government. The Knowledge Brief says that these training programs are costly but effective only in the long run. On the other hand, most programs funded by our Government are one shot modules. These are not long term programs. Evaluations of these programs show mixed results. Often, those who already have the appropriate skills are inducted into these programs. They are likely to get a job anyways hence there is little net addition to the national skill set. These programs could be made more effective if they were targeted to the chronically unemployed workers. But given the easy ways of the Government and NGOs this is not likely to happen in our country.
The third ALMP is that of providing subsidies for employment. Subsidies for elf-employment show a clearly positive impact. According to the Knowledge Brief, evidence confirms the positive impacts of providing incentives for self-employment, even though its applicability is limited to a small fraction (up to 3 percent) of the unemployed workforce. The limited result of this policy arises because the space for small businesses is rapidly shrinking with the entry of large companies in manufacturing as well as trade. The policy of seeking FDI in retail is a case in point. Subsidies to kirana shops will be of no avail if the buyers flock to Wal Mart.
Subsidies for employment are not found to be effective. These result is deadweight employment. Certain persons are rendered employable only as long as employers get subsidies to give them work. They are thrown out of work as soon as subsidies are removed. Another problem is of substitution. One person who is currently unemployed is provided a job but in the same breath one who was employed till date is thrown out. The result is that subsidized employment is created in place of a standalone employment. This is a regressive step because subsidy is provided with no net gain in employment. In particular the Knowledge Brief says that public works programs like MNREGA are a fiscal drain and can even have negative effects on participants’ later employment prospects. These programs neither enhance the labor supply nor promote adaptability in the labor market.
The result is not very encouraging. Information exchange is only marginally effective because no job creation or skill upgradation is involved. Training, if at all, indicates effectiveness in the long run and it is difficult to target these programs towards the less skilled who genuinely need training. Self-employment subsidies are effective but they are limited by the market which is dominated by big companies. Employment subsidies do not generate new jobs. Public programs for employment generation are wholly negative because they hit at the long term employability of the person. At the end of the day we really have no solution for employment generation. No wonder the World Bank found no relationship between spending on ALMP and unemployment rates in Europe. We would have expected that countries that have higher expenditures on ALMPs would have lower rates of unemployment. That is not the case. Of the six countries for which data were analyzed, only in Slovakia we see high expenditures on ALMPs and low unemployment. These statistic indicate that ALMPs are basically ineffective in creating employment. So much for MNREGA.
The problem is structural. Capital is dirt cheap today. It is profitable for businesses to employ automatic machines instead of labour. A business friend of mine in Bengaluru exports auto components. He says he can compete with suppliers in other countries only on the strength of low wage rates. So wages and employment have to decline in tandem with lower interest rates.
We will not be able to create employment for the large numbers of our youth as long as we continue with the big-business led economic development model. The idea that taxes paid by big companies will be used to generate employment is fundamentally false because the big businesses will be able to pay taxes only if they use automatic machines and kill jobs in the first place. The only way to generate employment is to put restrictions on globalization and big businesses in certain employment-intensive sectors such as weaving; or subject them to punitive levels of taxation. High growth rates will not create employment. On the contrary a reduction in growth rates brought about by heavy taxation of automated production alone will create employment.
(The author was formerly Professor of Economics at IIM Bengaluru)
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