In the previous post, this blog posited that India’s nascent but burgeoning tech sector could have repercussions on employment patterns in the economy. Given that we have an excess of labour, economic logic dictates that we build our comparative advantage by being labour intensive. However, the recent onslaught of tech startups in India is geared towards making our most abundant factor of production redundant.
In an ideal scenario, a change in the demand for labour effects a change in its supply. If a certain type of labour - say, computerized inventory and sales management in Big Bazaar retail outlets in urban areas or providing IT-enabled logistics services of Flipkart and Amazon - is more in demand, the supply would realign itself in such a manner so as to satiate that particular demand.
What happens, in a not-so-ideal a scenario, when this labour supply-demand mismatch is too high? A market failure: employers, on the one hand, complain of a lack of skilled manpower, while, on the other, millions of youth with poor education and negligible work skills enter the labour force.
From the supply side, the labour force can be differentiated by qualification. In an ideal economy, you could expect demand for each kind of labour to be reflected, perfectly, in the kinds of education sought by the ones willing to work. Typically, you’d find a structure which has few highly qualified people (engineers, doctors, scientists etc.) because an economy would only need so much of them, and many less qualified people who form the major workforce.
Say, in the Indian economy of 1950s, the latter would have been mostly employed in farming. However, for the digital transformation that our current economy yearns for, this bulge of the workforce today needs to be qualified enough to use computers in day-to-day operations, but also not as qualified as to invent them.
Clearly, engineers are overqualified to work in call centres and BPOs, whereas high school pass-outs are underqualified. Where is the middle ground that is supposed to breed the bulge of our workforce? Due to a serious dearth of appropriate vocational training, our economy does not have enough new-age blue-collar employees.
The ones at the top, who are also the owners of capital, then look to fill this dearth of labour by replacing it with innovation altogether. And rightly so, the technological progress will have an inherent bias: it will favour the more educated and replace tasks performed by the unskilled. The economy gets divided into two sections with high inequality, and the demographic dividend rots into a demographic wasteland, breeding unrequired competition, animosity and social unrest.
Amidst such disparity, a skilled manpower base becomes a public good. The onus of providing it falls squarely on the government: employers (funders of political parties) blame the government for the dearth of it, and employees (the vote-bank) protest for lacking employability.
Readers would have perhaps made the connection between what this post posits and the NDA government’s recently renewed emphasis on the Skill India programme. With a whopping INR 5,040 crores being allocated for skill development across various ministries in the 2015 budget, the government has recognized the gap and is willing to fund programmes to bridge it. But beyond that, nothing really is clear.
Firstly, the idea of government funded vocational programmes is pointless. Why should the government take on the responsibility of providing free lunch to both the employers and employees, which they don’t even want to eat because it is undercooked?
Instead of participating by pumping money, the government’s motive should be to create a sustainable environment where the employers can directly tap into the labour resource pool. By mandating compulsory funding from the employers, the government can make them more invested in the programme. The employers should provide customized lengthy internship programmes which could then be converted into permanent employment once the employee matches required standards. This would also remove the supply-demand mismatch in the labour market: there would be more opportunities in the in-demand sectors and fewer ones elsewhere. Germany (and many European countries) has had a similar successfully running vocational skilling programme for many years now.
There is no point in curing a market failure by pumping money in channels which don’t even manage to reach the bottom of the pyramid. What is instead needed is an enabling framework. If there’s anything that really needs to be made in India, it’s an efficient labour force that can take charge of the digital future that our economy yearns to be in. If you want to ‘Make in India’, then start by first making labour ‘right’.
Saahil Parekh is an economist writing about the changing face of India’s economy on his blog, Arthashastra, a part of Business Standard’s platform Punditry. He works in areas of sustainability and climate change at The Energy & Resources Institute in New Delhi.
He tweets as @saahilparekh