Budget must open a pathway to an employment policy

A national employment policy can enable better coordination across levels of government.

It is time to think seriously about having a comprehensive employment policy at the national level. Over the next 15 years or so - by 2040 - our demographic dividend will end and India will become an ageing society. Before this comes to pass, we need to create productive, remunerative, and secure employment for all those who wish to work - thereby enabling structural transformation and entry into upper middle or even upper income status.

Employment is not only a social issue. It is also a critical issue from a macroeconomic or growth perspective. Structural change will need to be deeper and faster if we want sustainable, inclusive, and consistent growth over the next few decades; rather than brief periods of high growth we have had so far. Focusing on growth has not gotten us good jobs, but focusing on good jobs can get us growth.

Employment policy needs a coordinated approach 

A national employment policy can enable better coordination across levels of government and across functions such as trade, commerce, industry, finance, labour, entrepreneurship, and human resources. The International Labour Organisation reports that more than 30 countries, large and small, now have a National Employment Policy covering a range of policy areas such as monetary and fiscal policies, sectoral and industrial strategies, skills development, and social security. It can be the aim of such an employment policy to at least double the proportion of full-time regular salaried workers in the Indian economy from its current level of around 20-25% to 50% by 2040.

Who needs these jobs? Workers who continue to leave agriculture, including the millions who returned to agriculture during the reverse migrations of 2020–21, workers in petty informal work, individuals outside the labour force who are likely to work if provided the opportunity (mainly women) and the openly unemployed.

10 million jobs a year needed

Though estimates will vary depending on assumptions, it is safe to say that the Indian economy needs to create at least 10 million new regular wage jobs each year. Note the emphasis on regular wage or salaried employment. Creating opportunities for self-employment is not sufficient unless we also create an ecosystem that enables growth of enterprises which in turn creates demand for more workers.

Who will create jobs? We often get drawn into a debate over whether the government should be responsible for employing everyone. Private firms will always employ the majority of the workforce. But public goods and services are key to stimulating private sector job creation. Providing these goods and services requires public employment.

India’s historical underinvestment in key public goods like health, education, R&D, public transport and safety, and basic infrastructure (roads, electricity, water, gas) is a key reason for our lack of global competitiveness. Despite the recent focus on infrastructure, such public goods and services remain a key bottleneck on the supply-side of the product market particularly at the local and regional levels (think local roads as opposed to national highways, power in block towns rather than state capitals).

MSME entrepreneurs, in particular, often emphasise that if quality infrastructure were to be made available, the need for subsidies would be considerably reduced. Furthermore, firms attracted by subsidies and tax holidays can just as easily leave after these have run out, while those attracted by good infrastructure are more likely to stay. So, in summary, the public versus private debate is unproductive. Public employment needs to be expanded significantly and so does private. They both reinforce each other - they can be complements not substitutes.

Every segment, including agriculture, counts 

Where will these jobs come from? Much ink has been spilled over the question of manufacturing or services-led growth. But this is also an unproductive debate. Even today China has around 20% of its workforce in agriculture. With a workforce as large as China’s or India’s, all sectors play an important role in providing work.

As of today roughly 45% of the Indian workforce has some stake in agriculture. Over the next 15 to 20 years we expect to reduce this to 20-25%. This will mean pulling around 100 million workers out of agriculture over 2 decades. But it also means that one-fifth to one- quarter of the workforce will continue to derive its livelihood from agriculture which highlights the importance of treating agriculture as a dynamic sector diversifying into agri-allied output and increasing farm productivity.

Where will demand come from? Employment growth requires firm growth. Firm growth requires growth in demand. Will this come from exports or the domestic market?

Once again, both are important in the overall strategy of structural transformation. In the short-run global demand is vital since purchasing power is still low on average in India. A key precondition for this to occur is improvement in global competitiveness for Indian firms. But this global demand will need to be leveraged to create domestic jobs and raise local incomes that enable the domestic market to grow. But note that we cannot close the economy and hope to focus on the domestic market because this is a route to inefficient and uncompetitive firms.

Protectionism can’t be an end

The question is - what is the nature of openness or closedness -which markets are protected, how, how much, for how long, under what conditions and so on. Internationally, only an informed and strategic mix of trade policy has been historically effective in delivering sustained growth with jobs. Keeping the economy closed protects domestic firms from imports. But unless we use this time bought with protectionism to improve the competitiveness of domestic firms, not much is gained by the protectionism.

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All the foregoing dimensions can be brought together in a national employment policy. Such a policy can also coordinately intervene on both the supply and the demand side of the labour market.

Public employment can be a force multiplier

Let me illustrate with an example. Factors such as continued asymmetric burden of housework as well as unsafe working environment and lack of mobility are key factors that act as barriers to women working outside the home. At the same time, there are not enough regular wage jobs for everyone who wants them. It is worth stressing this last point, because, in the absence of a strong increase in labour demand, an increased supply of labour in the form of women entering the labour force will only increase unemployment and/or drive down wages.

Public employment has a key role to play in all of the above - delivering childcare and old-age care services, ensuring public safety, lowering the cost of public transport, and in the process creating jobs. Such examples can be multiplied.

Finally, note that such a national-level policy does not necessarily entail large new public expenditures. But it does require coordination across many existing efforts so that policies do not work as cross-purposes. If we do this now, we will be better prepared for the next stage of our demographic journey and the majority of households will enjoy a much higher standard of living when the republic turns 100 years old.