There was an innocuous news item on page 5 of the Kolkata edition of The Statesman on 17 September under the headline, “UP doctorates lining up for peon’s job.” The report mentioned that the UP government received 23 lakh applications in response to an advertisement for 368 vacancies for the job of a peon. There were 255 Ph.D. degree-holders and 152,000 graduates among the applicants. The job requirements were primary school qualification and ability to ride a bicycle. Only applications through Internet were accepted. This meant some extra income for Internet-savvy youth on the side, replacing the old-time typists sitting on pavements. The difference in scale between the available peon’s job and the number of applicants is truly Kafkaesque. No wonder this news made it to the international media. It is amazing that this did not become headline news in India. We have become immune to our horrific level of unemployment.
In the United States, the weekly unemployment rate is the only important economic indictor ordinary Americans follow on a consistent basis. All over the West, the unemployment rate is far more important than the GDP figure. If you ask an Indian about our unemployment rate, the smartest ones would reply, “Put any percentage you want.” This is just not pure cynicism. Government statistics on unemployment is also mystifying. There are multiple government agencies that survey the country’s employment scenario. The National Sample Survey Office (NSSO) of the Ministry of Statistics and Plan Implementation and the Labour Bureau of the Ministry of Labour and Employment provide the most important information. NSSO gives its survey-based unemployment percentage every five years. Labour Bureau releases the annual survey of employment in the organised sector, as well as the report on changes in employment in select sectors on a quarterly basis. The latest NSSO report based on the survey in 2010 and released in 2012 put India’s unemployment rate then at 3.5 per cent! By contrast, according to the Labour Bureau, India’s unemployment rate was 6.3 per cent in 2012, followed by 5.2 per cent in 2013 and 4.9 per cent in 2014.
The surprising fact is that our economy was supposed to be decelerating with political paralysis in 2013-14, while our unemployment went down during the same period (source: www.tradingeconomics.com/india/unemployment-rate). By contrast, NDTV news had a report from the Press Trust of India on 7 January 2015, quoting from the “latest survey report by the (same) Labour Bureau,” stating that “the unemployment rate inched up to 4.9 per cent at the all-India level last fiscal year, from 4.7 per cent in 2012 -13.” Without measuring this crucial macroeconomic variable correctly, how could our government devise appropriate economic policies?
We are also told that an estimated one million new job-seekers are entering our labour market every month due to our burgeoning youth population. That seems to have no negative effect on our unemployment rate. In fact, our American trained economists, in India and abroad, are telling us that we are at the threshold of a spectacular period of growth because of this demographic dividend. World Bank projection shows that the population in India between 15 and 59 years is going to increase significantly from 757 million in 2010 to 972 million in 2030, a potential increase of more than 200 million workers over twenty years. Now that the output of an economy grows with the labour force is a fact that even a layman like me understands. The problem arises when we look at the per capita GDP, the only true measure of the welfare of the citizens if we ignore the distributional aspect of that growth. Suppose that the actual labour force increases far less than the available pool of available workers. Then the per capita GDP of an economy may not increase at all, and it may even decrease in the most unfavourable scenario.
There is also another problem. Economists often split the single independent variable ‘L’ denoting the labour force in the production function into several variables by defining multiple categories depending on the years of schooling received. The idea is that the productivity of labour increases with increasing years of schooling. There are two problems with this general approach in India. Firstly, Class 8 dropouts often have the same effective knowledge as many graduates in India. Secondly, an increasing number of potential workers are going to colleges reducing the labour force in the economy and, furthermore, college graduates have much higher unemployment rate than unskilled workers. According to a report published by the US Bureau of Labour Statistics, India ranked fifth from bottom among the world’s 35 major economies in labour force participation, way below those of China and Brazil. More detailed studies show that the percentage of unemployment is extremely high among the age-group of 15 to 30 year-olds and labour force participation of women is even worse. The unemployment rate among women graduates is 60 per cent at present. After a decade, 40 per cent of our girls would finish their high school. Their unemployment rate would be staggering indeed. This may be a ticking time bomb, rather than a demographic dividend, for our economy.
The peon’s job is an anachronism in any modern economy. It leads to no economic output whatsoever. Counting them in the labour force does not fit with standard economic theory of growth. What we need are large-scale meaningful job creation and imparting useful knowledge to students as they study for longer periods in schools and colleges. For the first time the share of employment in agriculture in our country is going down. This excess potential labour force needs to be productively absorbed in our economy. While we had the highest rate of GDP growth of 8.5 per cent per year on an average from 2004-05 to 2011-12, the average employment growth was only 0.5 per cent per year during that period.
This was clearly the motive behind our Prime Minister’s ‘Make in India’ and ‘skill development’ campaigns. The idea is to mimic China’s strategy of development as she moves up higher in the level of economic activities. This means a complete overhaul of our development strategy that was until recently heavily skewed towards the services sector. The services sector contributes 58 per cent of our GDP, while employing only 26 per cent of our labour force. Our share of manufacturing is only 16 per cent of the GDP, while the share of China, Korea and Indonesia are in the 40-50 per cent range. The shift of focus to the manufacturing sector is a herculean task indeed. It must be high time for our Prime Minister to take a break from acting as our ‘global travelling salesman’, and concentrate on the real task ahead of him. It may be better to mimic Chinese Presidents in this regard. Our RBI Governor, Raghuram Rajan, politely pointed that out in a recent television interview.
The West witnessed a demographic dividend from the early 1970s as the baby boom generation after the Second World War started joining the labour force. The percentage of the working age population relative to the dependents (children and old people) rose from 55 per cent in the mid-1960s to 65 per cent at the turn of the millennium. As this percentage started going down, China’s integration in the world market and the additional labour force released by the fall of the Soviet Union helped the West to continue enjoying the demographic dividend, until the supply of labour force from China and East Europe started tapering off recently. This relative glut in the labour market led the West to enjoy the benefit of wage restraint and low interest rates for decades.
Our economic policy-makers believe that India should be able to provide at least part of this ‘lost’ labour force to the global economy. There is, however, one serious concern here for us. Anticipating drastic reduction of cheap labour in the future, the West is busy rapidly developing labour-saving devices. The digital age, with corresponding advances in robotics, 3D manufacturing and artificial intelligence, attests to this adjustment. There might be lesser and lesser need in the West in the future for the global supply of cheap labour that propelled China’s fabulous growth in the recent past. We should be wary of being too much carried away with “digital India” or “smart cities” initiatives, as they might benefit the West far more than us.
http://www.thestatesman.com/news/opinion/peon-with-a-phd/99070.html