Bold bets on job creation can come good in times of flux
PremiumThe US ran its economy hot but India could revise its trade approach to generate many more local jobs
The Great Resignation, the fabled economic theory of the pandemic that workers in the US were quitting their jobs in large numbers, turns out to be something closer to a Great Hoax. While it is true that many workers at the frontline of such demanding service industries as restaurants and retail have been resigning, and that these industries face labour shortages, it turns out that many of these workers have been upskilling and moving to better jobs in low-tech firms or logistics. Others have been taking advantage of labour shortages to switch jobs while remaining in the same industry.
In an article in The New York Times, Paul Krugman credited the University of Massachusetts labour economist Arindrajit Dube with calling attention to this trend, which Dube calls the “Great Reshuffling". Krugman pointed out that the labour participation rate for Americans between 25 and 54 has surged recently, but also that many workers have started their own businesses, possibly buoyed by generous income support in the US during the pandemic. The US reached pre-pandemic levels of employment last year, marking a rebound that in the past has taken five years after more typical recessions.
All of this suggests that the Biden administration’s bold experiment to “run the economy hot", i.e. to push wages at the bottom of the pyramid up by allowing the economy to grow rapidly, can be considered at least a mixed success. Of course, there is a very high risk that high US inflation of the past several months and higher interest rates are eating into these income gains. The ‘running hot’ idea has also been undermined by covid-related supply chain disruptions, which look set to get worse with rolling lockdowns in China as Beijing wrestles with Omicron.
But, this weekend, The Wall Street Journal reported a surprising development that reinforces Dube’s thesis of a reshuffling in jobs: “More than a tenth of Americans in low-paying roles in warehouses, manufacturing, hospitality and other hourly positions" switched from what it calls “blue-collar to new collar". These new jobs include junior roles in tech, finance and healthcare, where employers, seeking workarounds from shortages, have decided to do away with requirements such as a college degree and train people on the job instead. Many American workers, in turn, have used the pandemic to learn new skills via free courses online or paid courses such as those available on Coursera. The Journal’s report documented a former cable TV salesperson transitioning to a job as an associate selling secure access via identity-verification for business applications.
As it happens, I am in the US this week visiting family and the blizzard of “Help Wanted" signs outside retailers and restaurants made me briefly hopeful about how India’s huge employment challenges might be reduced with similarly bold initiatives. Speeding up and widening our negotiations on free trade agreements with entities such as the EU in particular could create hundreds of thousands of jobs in labour-intensive industries such as garments and leather.
Exciting as the prospect of single-country deals such as the one announced last week with Australia is, it is hard to understand what these one-offs add to the competitiveness of India’s labour-intensive industries, given that so much work in low-tech electronics assembly and auto components is done through intricate supply chains that are regional rather than national. Revisiting membership of the Regional Comprehensive Economic Partnership should be a top priority instead. Turning our back on it, as New Delhi did a couple of years ago, must count as one of the most baffling own goals in economic history, especially given that Japan and Australia were determined that India join to balance China’s heft in that trade pact.
The only comparable act of wilful ignorance over the importance of regional supply chains in global trade has been the UK’s exit from the huge market and source of labour that was the EU. Of late, concern has arisen in the UK that labour shortages might lead to a downsizing of agricultural industries and higher food inflation. While some celebration is warranted by India’s exports of more than $400 billion in 2021-22, that number was boosted by significantly higher tradable goods prices worldwide. Vietnam’s exports rose by 19% in 2021 to $336 billion and grew by 14% in the first quarter of this year.
If it were not problematic enough that the previous Congress-led administration and the current government have given India a reputation for obstinacy in trade negotiations that has hurt our labour-intensive sectors and resulted in relatively jobless growth, the recent deal with Australia includes clauses that insist on data being stored in India, our current obsession. As a couple of thoughtful international trade writers have observed, this promises to handicap our booming information technology services exports. Australia and the UK’s political leadership may give in on such important details for geostrategic reasons, such as strengthening an alliance against Beijing, but companies, especially financial firms that outsource work to our IT majors, will likely look for alternatives. The hefty size and capabilities of our IT workforce may yet win the day, but as the Financial Times’ Alan Beattie sarcastically observes, “India’s determination not to do any favours for its highly competitive IT industries by restricting free data flow is a marvel of comparative disadvantage."
As any garment exporter will tell you, when it comes to trade negotiations, India has elevated own goals to an Olympian sport.
Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.