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What if you lose your job, but not health insurance? What if you lose your monthly income but get paid unemployment insurance? What if your livelihood collapses, but there is a social security safety net. Does all this sound utopian? This indeed is the state of labour markets in most developed countries. The benefits to the unemployed are funded by a social security tax paid by all employers and employees. With safety nets in place in those countries, the labour laws themselves are less burdensome on the employers. So effectively there is protection for the worker, not the job. In a hire and fire framework, people lose jobs but not some basic protection.
A worker may be jobless for as long as six or even nine months but is covered by some social protection. Presumably this is the time it takes for him to find a new job. It is not seen as an incentive to be “lazy” and just depend on unemployment dole for temporary survival. The lax labour laws, also do not mean that there aren’t laws for workplace safety and hygiene, or against sexual and other harassment, and in some cases, also for assurance of bargaining power for unions.
Since ninety percent of the labour force is in the informal sector, not covered by any employment contract, nor any health or retirement benefits, the relaxation of labour laws at the State level will not really affect them directly.
As many States of India experiment with dismantling so-called draconian labour laws (which are a State subject as per the constitution), it is worth pointing out that less regulation has to be accompanied by greater social protection. Without the latter, workers are left more vulnerable. In any case in India, since ninety percent of the labour force is in the informal sector, not covered by any employment contract, nor any health or retirement benefits, the relaxation of labour laws at the State level will not really affect them directly. They might benefit indirectly to the extent the less regulation leads to increase in overall hiring and employment. That remains to be seen.
The challenge of job creation was daunting even before the Covid pandemic. Since 2004-05 India has added roughly 11 million job seekers into the workforce every year. This is after subtracting those who seek college education, and hence are not counted in the labour force. To this 11 million number should be added those who are leaving agriculture and allied activities permanently, every year. That’s another 4 million or so. Thus, annually the jobs challenge is to create 15 million jobs or livelihoods every year. This number needs to be reduced due to an embarrassing fact. That relates to female labour force participation rate, which has been falling, and is at an abysmal low of 20 percent. Which means only one in five women of working age are in a paid job or seeking work. So, if you net that out (although we must strive to increase women’s participation in the workforce), then the annual jobs challenge is reduced to around 7 million jobs (assuming not all 100 percent of males are seeking jobs).
Since 2004-5 in the past sixteen years, despite a low female participation, India should have generated 112 million jobs. But the actual record is lower. And the quality of jobs thus generated is quite low, which is an entirely different matter. The increase in organised sector employment has not even grown at 0.5 percent per year. Based on data from the Employee Provident Fund Organisation and the Employees’ State Insurance Corporation, the Prime Minister had said last year, that the country had created 12 million jobs in the previous year. This is certainly an over estimate, and there was much debate about the data discrepancy, overlap, duplication and fictitious entries. The fact is that a large proportion of India’s labour force, especially the youth in the age bracket of 16 to 24, are Not (N) in Employment (E), in Education (E), or Training (T). These are called the NEET cohort. So, what are they doing? This is a global problem of youth unemployment. The World Bank had estimated that the NEET cohort for youth, globally is 2 billion. Most of these are concentrated in South Asia.
Since 2004-5 in the past sixteen years, despite a low female participation, India should have generated 112 million jobs. But the actual record is lower.
Now jump to Covid data. During normal times, the United States adds roughly 0.8 million new jobs every month. This is a gross number since some jobs are also lost, and have to be netted out. Due to the pandemic, in the month of April, the U.S. lost 21 million jobs! Hence the unemployment rate has shot up to 15 percent, which has never happened since the Second World War. In the same month, as per the estimate of the Centre for Monitoring Indian Economy, India lost 122 million jobs, and the unemployment rate shot up to 27 percent. It is higher than 30 percent in urban India. Just the plight of the migrant workers, and images of them trudging on highways and railway tracks offer some confirmation of this.
Many jobs in hospitality, restaurants and airlines are lost forever. Even some of the frontline jobs in retail, malls and cinemas will be lost. As international firms move out of China, many are going back to America and developed countries, and are not moving to India or Vietnam. This is because of the trend in automation and also due to American tax incentives. Even erstwhile labour intensive jobs such as making garments or shoes are not immune to automation. A World Bank report from 2016 had predicted that 69 percent of India’s manufacturing jobs are vulnerable to the threat of automation. The demand for jobs like driving Uber and Ola cabs may be adversely affected by post Covid cautious behavior. As the work-from-home trend intensifies, even the demand for new commercial real estate construction might be badly affected. Which means construction jobs, a strong driver of employment growth have a cloudy outlook.
As the work-from-home trend intensifies, even the demand for new commercial real estate construction might be badly affected.
Addressing this jobs challenge will need a Herculean effort. Innovative approaches such as introducing an urban counterpart to the rural employment guarantee (NREGA), allowing flexible contracts exempt from harsh labour laws, or enhancing credit of working capital loans to the self-employed and SME’s are some measures. In the medium term, large scale job creation (and destruction) needs a much more flexible and frictionless labour market, for which a strong social safety net is a must, as pointed out in the beginning of this column.
(Dr.Ajit Ranade is an economist and Senior Fellow, Takshashila Institution)