Editorial: Spectre of unemployment

Ever since the prime minister’s admonition to the business community to refrain from laying off employees during these troubled times, there has been a spate of reports about how things are turning out to be just the opposite. Notwithstanding Jet Airways’ reversal of its decision to lay off almost 2,000 employees, many other instances of employees being let go are now coming to light. IT and financial services figure prominently, as might be expected. While these sectors are predominantly white-collar, the textile and garment sector also appears to have been adversely affected by slowing exports and rising costs of capital and raw materials. There are reports of very large job losses, obviously affecting blue-collar workers. If these early tendencies escalate to more sectors, there is bound to be a clamour for the government to go beyond moral suasion and take more concrete steps to deal with the problem.

 

Notwithstanding the good intentions of the government in preventing widespread job losses, the reality is that it simply does not have any ground to do so. The compulsions of survival are simply too strong and any employer dealing with such hostile market conditions must make a choice between cutting costs by laying off some employees or going bankrupt, with all his employees being thrown out of work. From a policy perspective, the priorities are straightforward. The principle of the “greatest good” must apply if the loss of some jobs helps prevent the loss of many more.

However, this does not mean that the state does not have a responsibility in mitigating the impact of unemployment on households. The ultimate objective of the prime minister’s demand was to prevent the distress that comes with the loss of a job. But, as is well recognised in the developed market economies, income security is not the same thing as job security and there are ways to achieve the former without insisting on the latter. An efficient and equitable way to provide income security is through a public safety net or unemployment insurance programme, which is financed by contributions from the employee, the employer and the state. A model similar to the existing Provident Fund, which mandates contributions by the employee and employer, but with a contribution from the state and greatly expanded coverage, is needed. While it is too late to put such a programme in place to deal with the impact of the current crisis, it must become a policy priority to enable the country to deal more effectively with the next one. Meanwhile, to provide whatever relief it can in the current situation, the government should amend the conditions for early access to Provident Fund accounts to include job loss.