Recent rhetoric that Pakistan’s unemployment is lower than India’s, 300 million people have withdrawn from India’s labour force, and youth unemployment is at 45 per cent validates Nobel laureate Angus Deaton’s suggestion that “the pronouncements of economists can now be predicted by their politics”. The only real data in labour markets — everything else is a model — are prices and votes. Both suggest that a massive transformation of India’s labour market is underway.
The noise around unemployment arises from the CMIE Consumer Pyramids Household survey. Thankfully, rigour filters are kicking in, with Ashoka University — now India’s largest economics department — pausing research using this survey because of consistent and fundamental problems. The “is India broken” worldview of Ashoka Mody, that 300 million workers have withdrawn in frustration, ignores high-wage employers’ inability to fill open roles despite lower hiring standards. Finally, for somebody born in J&K like me, the notion that Pakistan’s labour market is more attractive to the youth than India’s is unhelpful at best and illiterate at worst.
Countries are a work in progress, and India’s labour market transformation is far from over. Too many people live on farms, too few work in factories, and too many employers are informal. However, our low 4-8 per cent unemployment rate since 1947 is not a fudge; the poor cannot afford to be unemployed, so they self-exploit in subsistence agriculture, marginal self-employment and informal wage employment. This suggests our problem isn’t unemployment but wages.
This diagnosis matters because fiscal and monetary policy is the three-pronged world of emergency medicine; it treats the patient, not the disease. Needing recurring triage prompts ICU doctors to prescribe losing weight, lowering stress or quitting smoking. Election promises to infinitely grow public sector employment, confiscate wealth, and indefinitely fiscally funded job guarantees’ reflect misdiagnoses the problem, pursues unsustainable solutions, and mocks the ambitions of young Indians who want more from work than money. Pursuing “redistributive” over “contributive” justice does what Kashmiris describe as Moolan droth ta patran sag (watering the leaves while cutting the roots).
Thankfully, the last decade found the policy Madhyam Marg between the 1956 Avadi Resolution to private sector hostility and the 1980s “government is best when absent” notions of Ronald Reagan and Margaret Thatcher. This balance has three vectors: First, an efficiency, effectiveness, and technology revamp of India’s welfare state targeting our bhooka, beghar and beemar (poverty of hunger, shelter and health) financed by higher tax collections so public debt and inflation stayed under control. Second, the non-profit digital public infrastructure that harnessed private innovation for identity, financial inclusion, and e-commerce. Third, raising private employer productivity through formalisation (moving from deals to rules), PLI, NEP, GST, IBC, MPC, FDI, roads, airports, apprentices, decriminalisation, etc.
The Madhyam Marg is working on supply and demand. The latest ASER report and GERs suggest more kids are in school and college and have more years of education than ever before. Investor confidence — 50 per cent of India’s foreign direct investment and 90 per cent of our foreign equity investments since 1947 have come in the last five and 10 years — suggests traditional job creation constraints like infrastructure, skills and regulatory cholesterol are shifting from being a dagger in the heart to a thorn in the flesh. Reform is the work of decades and hardly done; bureaucracy, judiciary, and cities are the new government’s agenda, and the new book Accelerating India’s Development by Karthik Muralidharan offers an excellent roadmap. Nonetheless, thinking about jobs without prices and votes across time is misleading.
In 1890, our thinking about prices — demand and supply — improved when economist Alfred Marshall added time. He suggested four periods: The market period, where demand determines price because there is insufficient time to alter supply; the short-run period, when supply increases in response to demand by spending more money; the long run, during which supply develops new efficiencies; and secular time where generational shifts in demographics, technology, and organisations reconfigure supply and demand dynamics. Marshall’s periods help frame India’s labour markets. The short-run period is suspect because employers can’t manufacture their employees. The long run and secular periods are harder to model because manufacturing employment intensity is declining, artificial intelligence may raise the poorly skilled to average or make the highly skilled unbeatable, ageing prosperous countries may welcome guest workers, high-wage services export employment may explode, and secular global growth that drives exports may return.
However, Marshall’s market period — demand raising the price of labour — has played out despite defying Nobel Laureate Arthur Lewis’s thesis that non-farm wages won’t rise until you run out of farm labour to transition. Over the last 10 years, our annual salary primer details how Rs 18,000 and 28,000 per month have become the base and average for the fastest-growing segment of bottom-of-pyramid jobs in 5,000 plus pin codes: Sales, customer service and logistics. We may be a sampling error for India, but we represent Corporate India. More importantly, we clear the market at market prices and force informal employers, house help, drivers, gig workers, and security guards to benchmark these prices. Finally, elections provide the most critical information about labour markets because it is patronising to believe that massive national unemployment will not manifest itself in our fearless voting and fair counting.
Whenever there is a light at the end of the tunnel for India, somebody intelligent, articulate, and offshore feels obliged to “buy more tunnel”. This competitive negativity about India’s rise is understandable from The Economist, which supported colonial rule in India. But offshore Indian economists dismissing our progress as fluff, hype, and nonsense is baffling. I request they give us more time. Better yet, give us help by moving back. Perhaps they are too far, rationalising their exit or trading a different currency. Or maybe they just haven’t read Nobel Laureate Fredrick Von Hayek’s warning about the “pretence of knowledge” that implies all models are incomplete. Let’s be open but careful about labour market models that ignore prices and votes across time.
The writer is with Teamlease Services