Welfarism is not the solution for India’s job problem, skill creation is

Most economists agree that a lack of good-quality jobs, particularly for India’s burgeoning young population, is one of the urgent priorities to address. It is also generally perceived that in the recent elections, joblessness was a critical issue. Election results in some states show that welfarism is not enough to placate large sections of the electorate. Although the pre-election Congress manifesto had shown a bit more sensitivity to the job issue than that of other parties and came up with some concrete suggestions (though not fully worked out), it is well-known that joblessness has been a persistent problem over many decades and across all regimes. Those who think growth will automatically solve the job problem overlook that 50 years of national surveys on employment and unemployment have made it clear that India’s job availability has not, in general, kept pace with the rate of economic growth. If left unattended, this is a socially explosive problem. It is high time that all political parties, both at the Centre and the states, give concentrated attention to details of design, cost-effectiveness and implementation issues for different types of job-promoting policies. I shall give some examples of possible policies and draw attention to the experience available in India and other developing countries.

Of course, we now have some accumulated experience of running rural employment guarantee schemes introduced at the central level in 2005. These schemes are for manual, often back-breaking, work, under a scorching sun for the very poor. But even here, parts of the original law remain as yet largely unimplemented — such as the worker rarely receiving unemployment benefits if the job is not provided within 15 days, or the inordinate delays in wage payments; in most cases, work has been provided on average for much less than the stipulated 100 days per household, and so on.

There has been talk of having such a central programme of employment guarantee in the urban sector (beyond scattered attempts in some states). This requires serious consideration — there has been some discussion around a proposal on this by Jean Dreze titled “Decentralised Urban Employment and Training” (DUET) scheme. One may particularly think of ways of putting people to work on improving urban infrastructure, water and other environmental resources. It’ll be, of course, costly; estimates for giving jobs to 20 million urban casual workers easily run to above Rs 1 trillion. (But to get an idea of comparative magnitude, in September 2019, the Ministry of Finance, in a single stroke, substantially reduced the corporate tax rate that amounted to a revenue loss of Rs 1.84 trillion over the next two years).

But such rural and urban employment guarantee schemes are mainly concerned with relief or “distress” employment, however necessary, for the poor. We actually need, on a long-term basis, an array of sustainable programmes of reasonably good jobs which go beyond short-run relief. Let me suggest four such areas which may have a lot of potential.

A part of our unemployment problem is really a problem of employability at the current level of low skills and training. A mass-scale vocational educational programme with links to apprenticeship in business firms needs to be started on a war footing to make up for decades of negligence. There are a great deal of successful cases to learn from: The German case, where potential employers contribute to vocational programmes into which school-leavers stream, saving worker-screening costs for those employers, or the California community college-cum-vocational system working in partnership with local firms. Even in developing countries, there are now relatively successful cases like the Kenya Youth Employment and Opportunities Project, Generation India programme, Youth Building the Future Programme in Colombia, the Harambee Youth Employment Accelerator projects in several African countries, etc. Coordination between firms, local governments, business associations and civic organisations are essential in most cases.

In India, there is a plethora of capital subsidies in different sectors in the name of encouraging investment. They distort investment in a labour-replacing capital-intensive direction. We should take stock of these capital subsidies and replace many of them with wage subsidies, particularly for large firms in the organised sectors on the condition that they create new regular jobs.

We are familiar with agricultural extension services, but now we should pay equal attention to technical assistance and extension services (including management training) to non-farm household enterprises to help them in productive job-creating directions. There have been similar cases of helping community health and caregiving workers (like the case of software aid to ASHA workers in some districts of UP).

Finally, much of the usual discussion on job promotion seriously ignores the demand deficiency problem that our private investors face in the mass consumer market. This problem has been accentuated by our large income and wealth inequality, where the benefits of growth are concentrated at the top and people at the bottom suffer from stagnant wages and employment. Raising incomes of these latter sections will boost demand and thus create more jobs on a large scale, and one relatively efficient way to do it is to give all such groups (not just the farmers) a basic income supplement. A minimum income also gives a poor worker trapped in a “bad” job the means to seek better jobs.

Where will the money come from? A modest basic income supplement can be funded by drastically reducing the direct and indirect subsidies that the government currently gives to the better-off. This can be supplemented by more taxation of the rich. In India, a land of hereditary plutocracy, where data shows that wealth inequality is galloping, inheritance and wealth taxes are zero and the capital gains tax rate is much lower than in the US. Of course, action here will require political courage and imagination.

The writer is Distinguished Professor Emeritus of Economics at University of California, Berkeley

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Welfarism is not the solution for India’s job problem, skill creation is:

Most economists agree that a lack of good-quality jobs, particularly for India’s burgeoning young po…