Youth of the country have supported Narendra Modi with the expectation that he will put in place employment-generating policies. This will not be easy though. Actually workers are becoming increasingly irrelevant in the modern economy. Machines are producing goods in large quantities with few workers. Businessmen find it profitable to employ more machines and less labour because the cost of capital is declining. It is cheaper to borrow money from banks and buy machines. On the other hand, the cost of labour is increasing by the day. Economic development has become its own enemy.
Indeed a number of high-skill jobs are being created in the modern factories such as in designing, computerization, etc. But number of these jobs are small in relation to the population. More-over, these jobs are concentrated in big cities. Weavers are losing jobs in Varanasi while engineers are being employed in Gurgaon. Modi had no words to bankrupt and jobless weavers of Varanasi from where he has won comfortably. Nearly one-half of youth are unemployed at the national level. Such would not have happened if large number of jobs were being created in IT and other sunrise sectors.
The only way to create jobs in large numbers is to make it profitable for businesses to employ labour instead of machines to undertake production. This requires that the cost of labour be brought down. Governments across world are moving in this direction. Labour reforms in the country are aimed to achieve this objective. Allowing businesses to lay off workers when not required, to employ them through contractors and to give them right to hire and fire as per their choice-all such measures lead to a reduction in the cost of labour.
No doubt imparting of better skills and better matching of applicants with available jobs can help solve the problem of unemployment. Some positive impact will indeed take place but this may be like a drop in the ocean. Problem is that skill development means less employment. Better skills will enable the workers to produce more goods.
The experience of both developed- and developing countries across the world indicates that skill development has not led to increase in employment. Unemployment is rising across the world despite a huge improvement in skills.
Improvement in infrastructure will have a similarly small impact on job creation. Better roads, banking and communications will lead to a reduction in the cost of transaction. These will lead to a reduction in the cost and some increase in demand. But these improvements will simultaneously lead to a reduction in employment. Previously there were large number of workers in making paper, making envelopes and sorting the letters and marking from the post office. Now the same communication takes place with a click of the mouse. The paper and envelope makers and sorters in the post office have lost their jobs. The fact that infrastructure and good governance does not lead to creation of jobs is easily verified by comparing developing countries like India and developed countries like Japan. Unemployment remains at high levels in both these countries. Better infrastructure has not yielded results. This is not to decry the benefits of modern technologies but only to point out that solution to the problem of unemployment will not come from this route.
The culprit is technology. The modern production process simply does not require large number of workers. Existence of the humankind is becoming increasingly irrelevant to the workings of the economy. It is wrong to assume that economic growth will automatically lead to an increase in number of jobs. It may be necessary to move towards lower rates of growth in order to generate employment. For example, an 'unemployment tax' can be imposed on modern textile mills. This will lead to an increase in cost of cloth. It will lead to lower rate of economic growth. High cost of cloth will lead to lesser demand and overall economy will slow down. But it will also lead to restart of handloom industry. Large number of jobs will be created in weaving. Hence there can exist an opposite relation between economic growth and employment. High economic growth secured by the use of automatic machines will lead to less employment, not more as conventionally held.
Vol. 46, No. 47, Jun 1 - 7, 2014