Growth & Jobs Correlations Weaken, Polarisation Rising

Economists and experts make convincing arguments that a certain level of unemployment is ‘natural and normal’ and cannot be erased. However, India, blessed with its demography, can neither afford to, nor accept this ‘natural and normal’ level.

Unemployment imposes significant, often unsurmountable costs on the individual. High unemployment has a self-perpetuating and negative impact on the economy and society.

*Labour Data Is Treacherous, Patchy, Lagged, & Opaque. Hides More. Reveals Less

Our labour data is a mirage. It is not robust. Often not credible. Measures as well as the periodicity are ill defined. Right high-frequency data is rare. There are quality challenges too. Employment data captures underemployment and disguised numbers. It however, ignores the ‘discouraged’ who don’t even ‘look’ for jobs. Thus, policymaking is based on shallow data, several flawed assumptions. 

Policymakers fly blind. Practitioners drive looking in the rear-view mirror.

The Crux study titled ‘Growth-Job Elasticity’, covering 14 economically ‘significant’ states, across six key economic indicators with 30,000 households and 250 economists and policy influencers, has bad news. Employment data of the manufacturing sector, discretionary spending is low. Auto sales, housing units, and white goods numbers are flattish. Other economic indicators too do not repose confidence. 

*Formalisation Has Inadvertently Discouraged Hiring. Short-Term Negative 

The government has been solving the wrong problem. Formalisation will not create well paid jobs. It will neither secure tenure, nor ensure social protection. It has inflicted back-breaking, value subtracting regulatory filings on the middle-income firms, and imposed cost.  Formalisations bereft of the enabling ecosystem, is value depreciating. It has proved to be a stumbling block for the growth of the medium enterprises. 

They are the job providers.

Policymakers resort to ‘work’ welfarism. The MGNREGA is not a substitute for employment, nor a growth trigger. Unemployment necessitates higher welfare spending on the one hand, lowers tax revenue on the other. The long-term ramification of lower consumption triggers a vicious effect. It ripples and cascades through the economy. The MGNREGA highlights acute unemployment, points to continuing economic distress.

Intangible cost outstrips financial cost multiple times. The unemployed lose income; suffer physical and mental health. Unemployment erodes skills, evaporates savings, and diminishes income outcomes for years. Unemployment depreciates human capital.

Unemployment cripples the poor.  It’s the only asset they have. 

*Work is the ‘Primary’ Definer of Self

The Crux study articulates that most mature-age men view work as the ‘primary’ definer of self. Unemployment diminishes self-esteem. It takes away something more vital than their jobs and careers. They lose their dignity. 

Societal costs of pervasive unemployment are visible; cost is equally opaque. It provokes crime, prompts gender inequality, sparks social unrest, and deepens marginalisation. Disgruntled people lose faith in the system, manifesting as indifferent participatory democracy. Prolonged unemployment leads to deeper scepticism, wider pessimism, and shows up as unwillingness to invest in key multipliers to upward mobility i.e., health, skill, and education. 

Micro constituents of the economy, particularly the large organisations, pay the cost of unemployment. The government imposes higher taxes, counter-intuitively discouraging growth, thus hiring. Industry loses skilled workforce and confidence; is reluctant to invest. 

*India Needs a Differentiated Growth Framework 

Manufacturing has changed, and is no longer the bulwark of the job market.  Jobs have halved in the last five years, even as the share of manufacturing has grown in the GDP. Capital drives scale, technology powers productivity. Automation and logistics optimisation is driving value. Shop-floor workers have become cogs. Most others are the nuts-bolts.

 ‘Axillary and value enhancers’ to the manufacturing sector will be the job creators. India must value-add by going ‘niche’, not aspire to be the factory of the world. We must aim higher, pick-choose our ‘tools’ in the global trade war. We must manufacture what we can competitively, ‘move’ and trade what we can’t. 

The big don’t ‘offer’ jobs. Capital-jobs measured in the context of the Crux study, ‘Jobs-Growth Elasticity’, highlights that MSMEs create 20 times more jobs compared to larger organisations for every unit of investment. Similarly, the enterprises-to-jobs multiple is the highest for medium-scale units. 

*Farm Sector Overburdened, Growth under Threat 

The farm sector is spewing aspiring youth. Policymakers must reconcile with the fact that a sixth of the GDP cannot sustain half the population. India must plan holistically, invest in the value migration agri-ecosystem. Similarly, India needs to augment the SEZ framework, and create at least five ‘free’ business hubs modelled around Singapore and Hong Kong. It has the potential to create five million jobs annually and increase GDP growth by a couple of percentages.

India’s unemployment crisis is arguably the economy’s biggest. Ideas like an urban MGNREGA may provide the balm, especially for the millions scarred by the pandemic, but only just. It will not address the real issues. Not even the fringe. 

Our young will exert pressure on the job market for the foreseeable future. Policymakers must brace for worse as more women seek employment. Similarly, the government must address the ‘polarising’ of the job market i.e., ‘vanishing’ of the middle skill jobs. Polarising is the advent of AI, cyber-security jobs at one end and blue-collar jobs at the other end. 

Under ideal conditions the economy has the potential to create about a million jobs for every percentage rise in GDP. But of late, that hasn't been the case. We have experienced jobless growth in the last decade. The low growth job elasticity is a result of substitution of large-scale labour with automation and capital. This accelerating trend is in line with developing economies. However, India has been hit the hardest as we fail to provide; and are not able to capitalise on our empowering demography.

*Growth & Jobs are Delinked

The Crux study insight is that the correlations between growth and jobs have weakened in the last 30 years, diminishing from 0.4 per cent to 0.25 per cent. This effectively means that for every percentage of GDP growth, the jobs growth is only 0.25 per cent. Earlier it used to be 0.4 per cent. The government’s incentive structure favours capital-intensive growth at the cost of labour, deepening the unemployment crisis. 

Policymakers need to understand that the future growth cycle will not lead to co-related job creation. India needs a robust 10.5 per cent of GDP growth to start creating new jobs. Anything lower, in a rising automation ecosystem, will subtract jobs.

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