How to Create Jobs

Bharat Jhunjhunwala

The first cause for increasing unemployment today is technological change. The invention of the motor cars was responsible for the unemployment of horse cart runners. However, in course of time more roads were made for running the cars, more jobs were created in manufacture and repair of cars and this led to higher growth rate and creation of more employment. The total employment in the transport sector in the motor car age would be more than the employment in the horse cart age. Similarly, one can see large number of jobs being lost to robots and artificial intelligence today. Whether these technologies will lead to more generation of employment such as took place in the repair of cars, will depend upon how much increase in growth rate will take place due to these technologies and whether new jobs are created in these new sectors. Unlike the past, it is nevertheless possible that robots and artificial intelligence will lead to less increase in growth and less generation of employment leading to an increase in unemployment.

The second reason for increase in unemployment is that manufacturing is increasingly being undertaken by large industries where production is being undertaken with automatic machines. The Government has said that 70 lakh new persons joined the Employment Provident Fund Organisation (EPFO) in 2018. It is doubtful whether these are new employment. The informal sector was badly hit in 2018 due to demonetisation and implementation of GST and large number of workers joined the EPFO. Thus, there was a shift in employment rather than creation of employment. Be that as it may, even if one assumes that 70 lakh new jobs were created in 2018, that is still far short of what is required. At present 120 lakh new workers are entering the labour force every year. Thus, even if 70 lakh jobs are being created every year, still 50 lakh persons joined the lines of the unemployed.

The first step the government needs to take is to reform the educational system. The difficulty is that at present most youth are interested only in obtaining certificate that would enable them to get a government job. The wages of government employees are so high that a primary teacher with lesser skills but a government job may earn Rs 70,000 per month while a more skilled nurse or a data entry operator without a government job may earn as little as Rs 15,000 per month.

The second step is to loosen the labour laws in the organised sector. There is a huge tendency to use automatic machines and less labour because labour laws are rigid and it becomes very difficult for an employer to remove a worker if she is undisciplined or inefficient or not required.

The third step required is to provide fiscal incentives to the small industries. The cost of production of small industries is higher than the large industries because of economies of scale. They cannot face competition from big industries in a free market. Therefore, the Government should reduce the GST on goods produced by small industries so that they can stand competition from large industries. Then small industries will grow and they will generate more employment.

The present policy of the government is to let the market generate employment spontaneously is not happening and the economists of the Niti Ayog have no solution for providing jobs to the 120 lakh youth entering the labour market every year.

[Formerly Professor of Economics at IIM Bengaluru]

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Frontier
Vol. 54, No. 22, Nov 28 - Dec 4, 2021