I have done my fair share of Budget forecasting and analysis of the Economic Survey. From today afternoon, the process of post-Budget nitpicking will start. So instead of trying to write yet another piece on the virtues of fiscal discipline, I am adding my two bits to the other big policy challenge that the government has set its sights on — education. I would like to confine myself to two issues — one, the likely shape of the white-collar job market in the next few years and its implications for education policy. Second, I would like to comment on the link and disconnect between education and ‘employability’ in the white-collar job market.
However, let me state this upfront — I am no expert on education or HR practices. My only credentials are the following. I am somewhat peripherally associated with the hiring process at our bank which, with close to 1,500 branches, is a fairly heavyweight employer. I have university degrees from India, the US and UK — that I hope gives me an international perspective. I have taught undergraduate classes in the US for a bit and now teach some postgraduate courses in Delhi part-time.
Let me first turn to the issue of the white-collar job market. Empirical evidence across economies has shown that employment lags economic recovery by a reasonably long span. Employers use economic downturns as an opportunity to trim their workforce. Even if they see signs of recovery, they are careful not to put the flab back on. I suspect that the Indian organised sector employers are following this tack. They have shed some of their workforce and hiring has gone really down. Even if the economy were to, say, recover substantially by 2010, employers are unlikely to return to business schools or engineering colleges in the numbers they did, say, in 2007, before the global downturn.
There is another phenomenon that might delay the recovery in the Indian job market further — that of significant ‘over-employment’ at the peak of the business cycle. As the white-collar labour market began to overheat in 2006 and 2007, so did attrition. Employers facing high employee turnover focused on bench strength rather than productivity. In short, more employees were hired for a particular function than was efficient or optimal — this is the ‘over-employment’ or excess hiring that I refer to.
Most companies that I speak to now want to follow a completely different hiring strategy in the wake of the slowdown. For one, they realise that even if their business picks up sharply, they can ramp up their operations without hiring much. The existence of ‘over-employment’ also means that companies wanting to expand capacity over the medium to long term can do so without adding to their workforce substantially. I am aware that a number of banks, for instance, find themselves able to expand their branch networks considerably over the next few years without taking on too many new employees.
Is this likely to continue? If one assumes that the supply of graduates or professional degrees is somewhat elastic, the new hiring strategy (and the resulting demand for jobs) is likely to create long-term slack or excess supply in the organised labour market. The slack will be reinforced by what economists call a feedback loop — excess supply in the labour market will keep attrition risk low and that in turn will mean that companies will not ‘over-hire’ to build bench strength. What does this have to do with education policy? Well, any policy that wishes to impact on the supply of skilled labour will have to build in the fact that employment per unit of output (this is the critical bit) is likely to remain much lower than the levels seen earlier. This should have implications for both public and private resources allocated to higher education.
Second, a new education policy has to clearly assess the role of different academic institutions in the context of the job market. Let me turn to the area of business or managerial education and the phenomenon of the ubiquitous MBA programme. I would argue that companies end up hiring from the third- and fourth-tier business schools for functions that a college graduate or even someone with a high school degree can efficiently execute. Banks, for instance, do not need business school graduates for a number of critical back-office or front-office operations.These are incidentally the bulk of jobs that students from non-premier business schools can aspire for at least in our industry.
The question then is obvious. Why do they end up hiring MBAs for these tasks? The answer according to me is simple. It is convenient to hire from these schools because they run a placement service that ordinary degree colleges do not offer. That is, these schools provide the basic institutional structure of a labour market. They match demand and supply for which they charge an intermediation fee. This cost of intermediation for a student both in terms of time and money is preposterously high; for society as a whole it is a deadweight loss.
The way around this quite obviously is not to create more business schools or specialist business programmes. Policy has to focus more on creating more placement facilities for existing degrees and incentivising in-house training by companies. This requires budgetary support. For those who want greater mobility (a problem that plagues the BPO industry, for instance) the option of going to the better business schools after a few years of work experience remains.
Besides I am a great supporter of industry-specific, examination-based certificate programmes that can be done on the job. (An example: The Institute of Bankers used to run a highly regarded programme for bankers that lost its sheen because of the MBA craze.) The human resource ministry should encourage more of these programmes. The bottom-line is clear — there is no doubt that we need more and better quality degree colleges. Both the private and public sector need to participate in this effort. However, over-education and overspecialisation help neither the employee nor the employer. It is a waste of resources and should be discouraged.
The author is chief economist, HDFC Bank. The views here are personal
Very good article, just read it (will circulate it) and mostly agree. A slightly different title "overeducation without specialisation help neither the employee nor the employer" may have been more apt.
Dear Sir,
I am not sure if this comment reaches you (as many of my comments on edit are filtered), but I will try.
You are right.
In India, the burden of learning, shifts from student to primary school to high school to college to MBA and finally to companies. So much so that many of the students openly say that we go to college only to pass exams and will learn when our company teaches us.
The only way to shift this burden back to student is by companies and B'schools accepting only the experienced people. This will force students to learn at college level, which in turn will like to shift the burden back to school.
Hope it helps.
Hope it passes the filters.
hello sir,
plz provide me the satatus, how long will be the crisis is going on
how the market condition in india .
how many companies is in good positions to provide the job opurtunities to the aspirants
Thanking you,
Rajender
Dear Abheek,
We can not assess the role of B-Schools in isolation. Your point about MBAs from third or fourth rung b-schools being not quite up-to-the-mark is well taken.But, what about the quality of an engineering or a commerce graduate from even a second tier institute? It is the entire educational framework in India that has somehow been completely disconnected with the industry. At least an MBA program -(due to its market orientation), provides some idea to the student about what is required out of them in the Industry.
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