Skilled and unemployed: The world is staring at a huge structural problem

While the world can do something about the other big problem of global warming, there's nothing it can do about structural unemployment

Two American companies, known to employ a few thousand people, have sacked, or are sacking, around 10,000 employees each. The important thing here is not their number; it is that these employees are highly qualified individuals.

If you think about it, these removals from work are no different from when a restaurant, movie theatre, or something similar shuts down. The closure happens either because technology has changed hugely or demand has fallen hugely. Or both.

This sort of thing has been happening since the beginning of organised human settlements. So there's nothing particularly noteworthy about it.

What is noteworthy, however, is the macro picture wherein the world will be witnessing two types of unemployed people. One type will be those who can't be employed in economies that require a fairly high level of skills. The other type will be those who can't be employed even though they have the skills.

In other words, the scope and extent of what economics calls structural unemployment will be massive. Earlier, it used to be caused by a mismatch between the skills an economy could absorb and what was on offer. But skills were essential.

Now that definition has to be changed to include a massive substitution of employees by machines. That is, we are going back to the situation that prevailed in the 100 years between 1850 and 1950.

However, there is a difference this time in the sheer mind-numbing size of the problem. Then, the number of structurally unemployed was probably at most 150 million. In the coming decades, this number could well be 5 billion because the world population is now 8 billion and increasing. According to some new estimates, it is expected to peak between 9.5 and 11.5 billion by the end of this century.

Simultaneously, there is also a massive increase in job destruction by artificial intelligence and other things that cause labour displacement. Of course, this displacement has always been there, but never on this scale.

In this sense, this is no longer a problem for only economists to analyse. The social and political ramifications are mind-boggling, and every government in the world will have to cope with them. Obviously, the greater a country's population, the more acute the problem will be. India should prepare for it.

The correct way of understanding the nature of the coming calamity is via the dependency ratio. This measure puts those earning in the denominator and those not earning in the numerator. Currently, this ratio is restricted to sections of the population below 15 and above 65 years of age.

What I am saying is that in this century, it will have to include all ages. The number of dependents will be close to two-thirds of the population.

The truly alarming question is who will pay for these dependents and how. Traditionally, the needs of dependents were paid for within the family. But that model is now broken for a variety of reasons. Worse, it's entirely possible that even within the family, there isn't a single earning member.

Everyone is dependent, for example, in the case of landless labour in India. At last count in 2011, there were nearly 145 million of them. Now that number could be close to 200 million. Who is going to pay for their basic needs?

Scale this up a few billion times, and you get the magnitude of the problem. What's worse, while the world can do something about the other big problem of global warming, there's nothing it can do about this one.