Jobs Growth: Modi May Be On The Right Track But He Could Trip On Execution

It does not need an economic genius to tell us that India has a jobs crisis on its hands. Some 12 million Indians enter the job market every year, but we know that even half the numbers are not being absorbed gainfully. Adding to the low job creating potential of fresh investment and growth, we have growing automation and globalisation chipping away at even the jobs that we once considered secure.

Does this mean we face a jobless future? Yes and no. The problem is not that investment, automation, globalisation and higher productivity destroy jobs, but that the gains that accrue from these changes are difficult to gauge and capture in normal data. While job losses are easy to count, job gains are not, for they could happen someplace else, sometime else and to someone else.

Take an example: If Maruti replaces 500 contract workers with 100 robots on its assembly line, the job losses are immediate and visible. But the job gains as a result of productivity improvements take a long time to surface. The gains may show up in cheaper cars, higher production, and better quality cars, which, in due course, may create jobs in dealerships, auto garages, and in demand for drivers. Then there will be further demand for car components – with their own add-on effects. So 500 job losses may well be made up (but we need validation for this through long-term longitudinal studies, and not through glib assumptions), but the gains may happen over years, and the jobs created may accrue to salesmen and mechanics. The jobs may also happen in new towns where car demand in growing.

The same applies to globalisation. Cheap Chinese products may kill off entire industries, but jobs lost on the shopfloor may be compensated with jobs in packaging, screw-driver assembly outfits, dealerships, retail chains, and repair shops.

The jobs problem is thus not just about job losses, but lack of knowledge, information and skilling gaps that prevent job gains from either accruing altogether, or from being effectively filled.

The Modi government is broadly on the right track policy-wise with its emphasis on Start-up India (promoting new ventures), Stand-up India (to help self-employment among the poor), Mudra Bank (to lend more money to the job-creating small sector), Digital India (to take digital opportunities to every village), and Skill India. But it is likely to trip on implementation. Many initiatives that look good from the sky may fail the last-mile test as both local and state governments tend to be lax in how they execute top-down initiatives. But the way forward is clear: we have to address the gaps that magnify job losses.

The six gaps that make job losses real are the following: the information gap about job losses and gains (we don’t know when and where these will happen); the skill gap, where a low-skill job that is redundant due to automation is replaced with a different/higher skill new job, which may be difficult for the same person to learn; the time gap between job loss and reskilling for another productive job; the mobility gap, where a Maruti worker losing a job in Manesar may get an offer in a Tamil Nadu dealership or a Meerut garage, but is unable to physically move for lack of social and public infrastructure; and the wage/quality gap, where the job lost may be a stable one, but the one offered instead is contractual, or offers lower wages.

The sixth, and biggest, gap is about reforms and governance. If job losses and gains are going to come about very fast in a technology-driven world, you need flexible labour laws, modern land and property laws, lower corruption, good social infrastructure, and a responsive government and corporate sector that responds to signals from the job market quickly and effectively.

For example, flexible labour laws could conceivably make managements more responsible for worker reskilling. Currently, an automobile company may know it will replace 500 workers with robots, but usually does not share this information early in order to avoid union trouble or even violence. So the decision is handed down at the last minute, leaving workers stranded, when any responsible management should be discussing the event in advance, and investing in reskilling the workers to be made redundant due to automation. At the very least, companies should be offering placement services to workers losing jobs.

So what should we be doing to ensure that we create more jobs without trying to protect those that will become redundant? Ned Ludd identified the problem, but did not have a sensible solution. Here are some approaches.

First, information. Information about job losses, competitive changes, future jobs, skilling opportunities, etc, should be frequently collected and widely disseminated. A public-private information portal, possibly run under the aegis of Niti Aayog or the labour ministry, is an absolutely essential first step. Companies should be encouraged to feed information about potential job losses and opportunities, and experts should be predicting the direction of future jobs and skill requirements.

Second, skilling. Universities, skilling centres, vocational training institutes and other teaching institutions should not only be plugged into this information system, but also be developing backward linkages to companies where trainees can be placed. Skill courses have to be constantly reworked based on new job requirements. The most important skill training and teaching institutions need to develop is the ability to teach themselves about what needs to be taught. If Java programmers are becoming redundant, and if the software institutes are still taking in many students for such courses, it means they are losing out on future direction.

If driverless cars start replacing chauffeurs, driving schools will become redundant; they should be training themselves to develop more car salesmen, or auto mechanics. Or whatever. If vocationalisation of jobs gathers pace, as it should, universities themselves cannot offer plain-vanilla degree courses. They too have to invest. The very fact that eight lakh engineering seats out of the 16 lakh on offer were not taken in 2015 means half these colleges are redundant. They have to teach something else, and before that they have to teach themselves on what is needed. Companies themselves may have to become partial teaching institutions, for who knows what skills are needed better than themselves? The IT sector demonstrated that by creating internal training capabilities; more companies and industries need to do this.

Third, social infrastructure. A key requirement in jobs of the 21st century is mobility, especially labour mobility. Barring unskilled or semi-skilled manual labour, mobility is hampered by the lack of social infrastructure: if there are no good schools or hospitals in places where jobs are being created, even people with the right skills will not move. This is where public and private investments are most needed. Investment in social infrastructure will, by itself, create jobs, and should not be seen as a drain.

Fourth, regulation. One of the key principles of the Hippocratic oath is that the physician should do no harm. But governments forget this advice when it comes to doing good: they ban and regulate with a heavy before asking themselves what they are trying to achieve. The relevance of this dictum for jobs is simple: jobs get created when entrepreneurs spot an unmet need and start providing a product or a service. But governments, often driven by the need to protect existing jobs or vested interests, rush in to regulate what may not need regulation, or what may need light supervision. When governments regulate too much, they actually kill jobs.

Take the case of app-based taxi services. The likes of Ola and Uber have been growing like gangbusters and creating new jobs and expanding the market for private taxi services. In due course, if more people use these services, it could impact demand for private car ownership, and reduce daily car traffic on city roads, leading to positive externalities like less pollution and improved public health.

But state governments have been using occasional public angst about “surge pricing” to put stronger regulations in place – regulations that will only slow down the market and kill jobs. Exhibit A on how not to regulate comes from the Karnataka On-demand Transportation Technology Aggregators Rules, 2016. The Rules prescribe a fare ceiling, limits hours of work for drivers, and makes the use of GPS/GPRS devices compulsory. Yesterday (31 May), when the state transport department started impounding taxis that didn’t meet the regulatory norms, the drivers struck back and jammed the roads. Users were the worst affected.

Why screw around with an idea that has worked, and was actually creating jobs?

Fifth, reform. The economy’s biggest job creator will be real estate, construction and infrastructure. But our laws destroy the land market, and also allow politicians to make unreasonable regulations that curb land supplies. Laws like the UPA-imposed Land Acquisition Act actually mandate the payment of four times the market price for land that is compulsorily acquired in rural areas. It is a market distorting law. Real estate prices in cities have gone sky-high because building regulations, floor-space indices, and municipal laws are used by crooks to extract bribes and rents from builders. When housing availability is limited to a small customer base due to unaffordable pricing, how can we create jobs? A roof over one’s head is a basic human requirement, and the demand for homes runs into millions – making this the biggest potential job creator in India. But lack of land reforms, and rent-seeking behaviour has killed off jobs even before they can be created.

We need to fix these basics before we can really create jobs for our millions.