May Day reflections

India's public policy has failed its job seekers

Today is Labour Day. India's first recorded observance of a tradition that began in the late 19th century in the West was in 1923. More than 90 years later, it is safe to say that amongst the country's most pressing problems is its inability to generate anywhere close to the massive number of jobs that it needs to accommodate its very large and growing working-age population. More than half the workforce is still dependent on agriculture, when that sector has shrunk to less than 15 per cent of gross domestic product (GDP). Of the rest, close to 60 per cent are either in the informal sector or self-employed, both segments that offer the worker no protection against hazards or unemployment. An estimated 10 million people enter the workforce every year, but let alone the new entrants, the system is hard-pressed to make a dent in the backlog. For a country that claims to put the welfare of its citizens foremost in its public policy objectives, this is a shameful record, particularly in comparison with many of the neighbours to the east, whose development strategies over decades were founded on rapid employment growth. This should be a day of introspection on how to deal with a challenge that is as politically threatening as it is economically wasteful.

Three factors need to be considered in shaping an effective employment strategy over the next several years. First, as much resistance as it has faced politically, the stark fact is that the various regulatory mechanisms that are ostensibly in place to protect workers' interests actually come in the way of employment growth. These have to be changed, and quickly. The one time a finance minister - the National Democratic Alliance's Yashwant Sinha - made an effort to ease the restrictions imposed by the Industrial Disputes Act against laying off workers, he was forced to roll it back for political reasons. This issue will undoubtedly have to be revisited along with the creation of necessary safety nets by way of adequate compensation for those who lose jobs due to retrenchment. The restrictions on lay-offs are an important reason why the manufacturing sector has failed to serve as the country's engine of growth and also explain why organised employment in the private sector is minuscule and shrinking. Second, competitiveness in virtually every sector now is a function of effective technology assimilation. This requires not just workers, but workers with very specific skills - even in the most mundane jobs. Third, the persistent dependence on the agricultural sector for jobs - one out of two, even if the disguised unemployment is ignored - simply cannot deal with the rising aspirations of an increasing proportion of young people who are finishing secondary school and are looking for something more modern and sophisticated.

Of all the items on the unfinished reform agenda dating back to 1991, labour markets, employment generation and skill formation are the most important. Jobs are the best way to transmit the benefits of economic growth to the largest number of people. To deal with the challenge both quickly and in a sustainable manner, the new government must adopt a two-pronged strategy. Having reformed the regulatory framework, it needs to create infrastructure that facilitates labour-intensive activity that can use skills already available. Beyond that, it needs to broad-base the delivery of a minimum level of technical skills, so that people are prepared to take advantage of opportunities as they emerge. There is simply no time to lose.