Can the government help create jobs?

Expansion of public employment and a nationalskilling programme could boost employment

Published - July 05, 2019 12:15 am IST

A worker cuts metal inside a workshop manufacturing metal pipes in Mumbai, India August 11, 2017. REUTERS/Shailesh Andrade

A worker cuts metal inside a workshop manufacturing metal pipes in Mumbai, India August 11, 2017. REUTERS/Shailesh Andrade

Data released by the Labour Ministry show that the unemployment rate in 2017-18 was 6.1%, arguably the highest in 45 years. The Periodic Labour Force Survey (PLFS) findings have been the subject of intense scrutiny and debate ever since a leaked report in January revealed a surge in joblessness as well as a drop in the labour force participation rate. In a conversation moderated by Suresh Seshadri , Jayati Ghosh and Ajit Ranade discuss the issue. Edited excerpts:

Dr. Ranade, how much confidence do you place in the PLFS data and what do you draw as the key conclusions from it?

Ajit Ranade: This was started as a pilot project about two years ago and the purpose was to get a much more granular and in-depth understanding of the labour market. And there was a change in methodology, from sampling based on expenditure categories, which was done by the National Sample Survey (NSS), to education status. So, of course this is a very welcome initiative, because we need better data on the labour market. As far as how much confidence we have, since this is the best we’ve got, I think we have to use this data. I’m sure it will be fine-tuned and perhaps the numbers will become more reliable, but as such the numbers do tally with other indicators of the labour market conditions or the economy’s condition.

Dr. Ghosh, you had in a blog post pointed to how the PLFS data coheres with other estimates including those of the CMIE. How do you then view opinions that posit that the unemployment rate is painting an inaccurate picture when viewed in the backdrop of rising school and college enrolment?

Jayati Ghosh: Many of the criticisms of the PLFS survey are actually not very well informed because they are suggesting that the results are not comparable with the earlier large sample surveys of the NSS. The sampling method has not changed; it’s never been a stratified sample, it’s always been a random sample of households and it always tries to capture as many different forms and levels of education, occupation and so on and so forth. That’s the point of the sample.

The PLFS is different because it was trying to get quarterly data: that is, how does the employment of the same family vary across every quarter, and that is very important and would have been very useful. However, what the earlier NSS used to do was to take just one quarter for each household and extrapolate to that for the whole year. If you take the same PLFS data and do that, you get completely comparable data. The PLFS will give us slightly better estimates of how the same family, the same household, responds over a period — over four quarters of the year: do they stay in employment, do they lose employment, does it go from casual to regular and so on and so forth. In that sense, it’s a better survey. The trouble is that it was really meant to be continuous. We were not supposed to have any gaps in it at all. So, not only did we get only one year’s data but we then didn’t get that for a very long time because it was suppressed.


But, essentially, what it is showing us fits very well with all the other unfortunate indicators, which are that there is a real problem of divergence of output growth and employment in the country. Unemployment actually reflects those who are in the labour force. If you are in education, you are simply not in the labour force. Those who say, “Oh, it doesn’t capture the fact that more and more people are in education” don’t know what they’re talking about. Because the unemployment rate is the ratio of those who are actually seeking work to all of those who are either employed or seeking work. If you are in education or training, you are not in the labour force. The high unemployment rate, however, does possibly reflect the impact of previous education, which is, and that shows in the data, the more educated you are, the more likely you are to be unemployed. The highest unemployment rates are found among the tertiary educated, that is, those who have done beyond high school, and that reflects the fact that you’re then not willing to take just any job; that you will actually try and wait and hope to get something that, at least, is vaguely related to your qualifications.

If one accepts the premise that improved access to education has led to a more aspirational youth segment, which in turn is loath to work in low remuneration jobs, how do we tackle the problem?

AR: This is a very big key challenge to having adequate, good-quality, well-paying jobs and this is a very large agenda. But since you asked me what would help, then one can think of multiple things, each of which is probably a small step but it does help. For example, setting up an enterprise. As you know, in India there are perhaps 60 million odd enterprises, and mostly in the unregistered sector. And out of the 60 million only about one, one-and-a-half million, 1.2 million actually contribute towards Provident Fund or ESI [Employees’ State Insurance]. So, a very large proportion is in the unregistered or informal sector. So, as a first step, perhaps we can make it easy for these firms to get registered, or to comply. So, the big, big challenge is in the ease of doing business, setting up businesses, getting them registered. You have multiple registrations — you need to register for GST, for ESIC [ESI Corporation], for Provident Fund. There are probably dozens and dozens of registrations. This just makes it very hard for the whole process, to set up and start employing people. Then, you have this thing about on-the-job training, that workers need to be skilled but employers don’t want to invest in skilling. We need a portable national programme where you acquire apprenticeships in one firm, you solve this problem of underinvestment in skilling by individual firms, so that is a very big agenda. But this is a huge challenge, how to get firms to hire in bigger numbers and how to get them a little more into the formal, registered sector.

Dr. Ghosh, is the situation of decades-high joblessness more a result of the economy’s trajectory or an outcome of government policies?

JG: It’s clearly both. This is a process that’s been ongoing for about 15 years, this separation of economic activity and job creation. So, I think it’s a deeper structural problem and part of the difficulty that I am having with the current government is that whenever you talk about joblessness, they seem to see this as a political attack, whereas this is really an issue of economic policy that has deeper roots.

Now, in terms of what you do about it, I think some of the issues that Dr. Ranade mentioned are certainly valid, but I would argue that you also need a very large push in terms of the expansion of public employment. And there are two reasons for this. One, public employment has very obvious, standard multiplier effects, which are fairly pronounced in a country like India, and we know that we are hugely lacking in terms of the public services that we provide our people.

If you look at the average of public employees per population, which is a kind of indicator of what public services you’re providing: globally the average is 3.5 per 100 people, in Europe it’s more like 6 per 100, in Scandinavia it’s as high as 8 per 100, in India it’s less than 2 per 100. We are under-providing public services. It’s not just in health and education. If you actually bring public services up to a minimum level that is required of, let us say, even a lower middle-income country, Kenya, you would require a tripling of public employment. That, in turn, has massive multiplier effects. All these people who you pay will get incomes that they will go out and spend, and when they spend they will create demand; there’s a huge paucity of demand in the economy. With that demand, you will get the emergence of new activities, which will then generate the kind of entrepreneurs that Dr. Ranade was talking about and then if there are start-ups, if there are micro entrepreneurs, they will have a market to cater to. In other words, you really have to have a big employment push from the government.

Dr. Ghosh, this talk about the need for reforms to labour legislation, has it been a little wrong-headed? Instead of focusing on easing restrictions on hire and fire and contractual hiring norms, should we move towards ensuring more formalisation, say of high-volume job-creating sectors like construction, with more supportive laws? There are some laws, but I think it’s at the State level and not all of them have been implemented well.

JG: You put your finger on it. None of them is enforced. We have actually pretty good legislation for construction workers; we have a number of laws and regulation for various other workers. Mostly they are not implemented. On the other hand, you do have inspector raj of a most terrible kind for small and micro-entrepreneurs. It’s a peculiar combination of the worst of all possible worlds, whereby the legislation and things that would actually protect workers are simply not enforced, and all the kinds of things, the flexibilities that small producers do need are not allowed to them or rather they’d have to pay massive bribes to be able to take advantage of any kind of flexibility.

Whether it is your street vendor or it is a small person running a small factory or a small service provider, all of them have to face the rather oppressive hand of the state in different ways, which doesn’t really help them in terms of improving their productivity. Now, does that mean that we should just allow the freedom to hire and fire? I frankly think that’s a red herring. I mean, factories do what they want anyway, this is all nonsense that they cannot expand. I will take you to factories in the National Capital Region where more than half of their workforce are actually daily wagers and do not have a permanent contract. So, this notion that factories can’t expand, or employers can’t expand because of labour laws, I think it’s completely off track.

AR: On labour laws, I think we have to move towards a system where the laws protect the worker but not the job. So, worker protection is paramount but not job protection.

JG: I would argue that at the moment they protect neither.

Lastly, if there’s one single key intervention that the government can do to create jobs, what would be your prescription?

JG: Fill the vacancies [in the government sector], but expand good quality public employment.

AR: I would support filling up the vacancies, which are more than two million. But also, a national-level apprenticeship programme with portability, subsidised and well-defined accreditation, which you can take to any part of India.

Ajit Ranade is Chief Economist with the Aditya Birla Group. Jayati Ghosh is Professor of Economics at Jawaharlal Nehru University

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