Manish Sabharwal: India’s Problem Is Not Unemployment But Low Wages. Here’s How To Fix This.

Our official unemployment rate of 5 per cent is not a fudge and anybody who wants a job has one; they just don’t get the wages they want or need.

One, government vs private wages: People at the top of the government get paid too little but people at the bottom of the government get paid too much. Unfortunately people at the bottom are 85 per cent of the numbers and greatly distort the labour market because Class 3 and 4 employees get paid more than 200 per cent of their private sector counterparts for the same job not including low performance accountability and high job security.

Two, nominal vs real wages: Since we cannot take jobs to people in the short run, we need to take people to jobs. But the migration to cities is being retarded by the huge mispricing of land that directly affects living, eating and commuting costs in India’s few job magnets (we only have 50 cities with more than a million people versus China’s 375).

Three, gross vs net wages: A monthly salary of Rs 15,000 per month in a cost-to-company salary world only ends up as a Rs 8,000 bank credit because employers are required to make mandatory deductions of 45 per cent of salary for poor value programmes like provident fund, ESI, LWF, EPS, and much else.

Faster urbanisation means an increase to the number of Indian cities with more than a million people from 50 to 200; bad urbanisation is better than no urbanisation but high quality urbanisation like having real mayors, robust city finances, etc could create the virtuous cycle of higher formalisation, higher productivity and higher wages.

Lower regulatory cholesterol for job creation is important because most of our workers work in low-productivity enterprises that are not productive enough to pay the wage premium; our 6.3 crore enterprises only translate to 18,000 companies with a paid-up capital of more than Rs 10 crore.

Human capital is key; neglecting primary school education for decades after Independence is a mistake being amplified by the new world of work that disproportionately values reading, writing, arithmetic and soft skills.