Public spending and economic policy need to be more attuned to employment creation
News reports over the last few weeks suggest that the Central government may finally be starting to think seriously about jobs. Chief Economic Adviser Arvind Subramaniam recently pointed to the need to achieve higher economic growth, in the range of 8% to 10%, 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. It is worth noting that India added just 1.35 lakh jobs in eight labour-intensive sectors in 2015, compared to the 9.3 lakh jobs that were created in 2011, according to Labour Bureau figures. The rate of unemployment grew steadily from 3.8% in 2011-12 to 5% in 2015-16. Union Labour and Employment Minister Bandaru Dattatreya has downplayed the gloomy job situation as being a temporary one. His focus instead is on the new National Employment Policy which, he says, would be released later this year and focus on shifting jobs from the informal to the formal sector. NITI Aayog too has dismissed concerns over jobless growth, saying the real problem is underemployment rather than unemployment. Nevertheless, this month the government set up a high-level task force headed by NITI Aayog Vice-Chairman Arvind Panagariya to obtain reliable data on employment trends to aid policymaking.
The focus on jobs is obviously vital. However, 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, indeed underemployed, in low-paying jobs in the farm sector. Ironically, achieving both those objectives will first require labour reforms — ones 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. Job-creation needs to be an essential axis along which economic and social policies are formulated.
News reports over the last few weeks suggest that the Central government may finally be starting to think seriously about jobs. Chief Economic Adviser Arvind Subramaniam recently pointed to the need to achieve higher economic growth, in the range of 8% to 10%, 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. It is worth noting that India added just 1.35 lakh jobs in eight labour-intensive sectors in 2015, compared to the 9.3 lakh jobs that were created in 2011, according to Labour Bureau figures. The rate of unemployment grew steadily from 3.8% in 2011-12 to 5% in 2015-16. Union Labour and Employment Minister Bandaru Dattatreya has downplayed the gloomy job situation as being a temporary one. His focus instead is on the new National Employment Policy which, he says, would be released later this year and focus on shifting jobs from the informal to the formal sector. NITI Aayog too has dismissed concerns over jobless growth, saying the real problem is underemployment rather than unemployment. Nevertheless, this month the government set up a high-level task force headed by NITI Aayog Vice-Chairman Arvind Panagariya to obtain reliable data on employment trends to aid policymaking.
The focus on jobs is obviously vital. However, 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, indeed underemployed, in low-paying jobs in the farm sector. Ironically, achieving both those objectives will first require labour reforms — ones 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. Job-creation needs to be an essential axis along which economic and social policies are formulated.
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