The link between GDP growth and jobs is getting weaker. Jobs and livelihoods need to be our focus more than growth. Growth is good to have, but a focus on jobs as the overarching goal of public policy will deliver higher growth than a reverse focus on growth followed by jobs.
In 1999-04, despite under 7% growth, we saw jobs growing robustly. In 2004-9, despite very high growth, jobs grew at less than the previous low-growth years of the NDA. In 2009-11, jobs again grew fast, but after that it collapsed.
Point 1: Jobs are not growing steadily; they are going in fits and starts.
Point 2: We must not measure jobs growth after long intervals; without high-frequency data, we can’t even understand the jobs challenge. Most probably, the jobs rise in 2009-12 came after a freeze during 2008-09, when the world got shocked by the Lehman crisis. The 2009-12 jobs rise was also backed by a massive economic stimulus
Growth itself is slowing due to a drop in working age populations. Worldwide, the growth in working age population is down from 2% a decade ago to 1%
Even in India, this figure is coming down to 1.5 % in the next five years, according to Ruchir Sharma of Morgan Stanley.
Growth miracles are associated with growth in working age populations of 2% or more, not 1-1.5%.
Conclusion 1. Growth itself is under threat, and global growth could fall by 1 % due to the drop in working age population growth
Conclusion 2: With deglobalisation and trade wars looming in the Trump era, chances of growth zooming are low in the next two years
Growth creates fewer jobs than before. Even 10% growth gives us only 1% rise in jobs (Source: State of Working in India, 2018, Azim Premji University)
Are jobs declining? The answer is maybe.
The Azim Premji study says between 2013 and 2015, jobs declined and total employment shrank by seven million.
The CMIE data shows jobs grew nearly by 6 million in 2016, but shrank again in 2017 and this year. Jobs peaked in September-December 2016 at 405.96 million, and by May-Aug 2018, they fell to 398.2 million. That’s a job loss of nearly 8 million.
Anecdotally, since we saw the demonetisation and GST disruptions in 2016-17, and greater pressures for tax compliance and formalisation, this result is not unreasonable. The Azim Premji and CMIE data seem to converge on jobs destruction till recently.
Power is shifting from manufacturing to tech companies, and the biggest capital surpluses are with tech companies. GE has crashed by $500 billion in market cap while Apple, Facebook, Google, Microsoft and Amazon have been soaring. Apple alone has $280 billion in cash.
When tech companies are surplussing capital, logically they will invest more in technology and automation, for that is what they are good at.
New technologies are both creating jobs, and destroying old ones. AI, machine learning, blockchain, 3D printing, mobile internet, digitisation, cloud, IoT – are the technologies that are creating new jobs and destroying old ones.
These are leading to concepts like driverless cars, EVs, workerless factories (Adidas), branchless banking, etc.
Their greatest impact is in the financial sector, manufacturing, IT, telecom.
Conclusion1: Jobs are being hollowed out in manufacturing, and even services
Conclusion 2: New jobs that we didn’t know about earlier, Ola and Uber, logistics, etc, are surfacing all of a sudden
What is different is not tech displacing jobs, but speed of change in technology: The telephone took 75 years to reach 50 million users, air travel took 68 years, automobiles took 62 years, Radio transistors 38 years, TV and internet took 14 years to reach 50 million users. Facebook took just 2 years to reach 50 million, one version of Angry Birds took 35 days.
Conclusion: The pace of change in technology is accelerating
The question is how fast can the economy and policy and people adapt to this pace of tech change?
Implications of the speed of technological change
Technology has impacted jobs even in the past. The automobile impacted the horse-carriage industry. But complete replacement took nearly 30 years. People had time to adjust. Now the adjustment time is getting shorter and shorter
In India, it took us decades to scale up banking with branches, tech and computerisation; today, you can add 200-300 million customers in a matter of one or two years, and all without branches and touchpoints, e.g. Paytm
Reliance Jio scaled up from zero to 250 million and could be a market leader in revenue in another year. Industry shrank from over 8 private players to just three in two years. Consider the impact of jobs
We have 40 insurance players, but tech will increasingly make hundreds of agents redundant, as more insurance is sold online.
Technology is polarising jobs – there is very high demand for highly skilled workers, and also for very low-skilled workers at the bottom end. The middle skilled jobs are under threat. Telecom, IT, BFSI, etc.
The Azim Premji study shows that 30 per cent of all manufacturing jobs are contract workers; this will happen even faster in services, as labour protections are lower.
In India, we could see two contrasting trends – an increase in formalisation of jobs due to pressures on tax compliance, and an increase in short-term jobs and gigs as regular employment becomes costly for formal sector
The crisis in agriculture and impact on jobs demands
In recent years we have seen agrarian and landed communities demanding jobs and reservations. This has a very simple explanation: agriculture provided 15% of GDP, but supports more than 45% of the population. Aspirations will drive more farm youths to cities for jobs.
Agriculture needs big investment, but election cycles are ensuring that big money is spent on loan waivers and MSPs which prevent large scale investments in agriculture and related industries like cold chains and warehouses.
We need proper urbanisation, but our urbanisation is spatially spread out, and needs to be concentrated. 4.6% of India lives in NCR, which is so spatially spread out that it worsens infrastructural bottlenecks.
Urbanisation can provide many high-quality jobs, but this needs land reforms urban governance, and concentration of populations over smaller land areas
The skilling challenge
The Modi government started out with the idea of skilling 500 million people over its term, but idea had to be abandoned midway. Reason: jobs depend on demand for skills, not only supply.
Skilling needs to be demand based, which means skill developers, certifying agencies, and universities must develop new agility based on demand.
Policies at state and district levels must also be more focused and respond faster to job requirements.
Barring the IITs, NIITs, IIMs and high quality national institutions, most undergraduate programmes are a waste of time, and unrelated to jobs.
The University model of 2+3 years is flawed, as job skilling needs a different approach, more focused on shorter-term courses
The right moves – and some improvements
Changing the Apprentices Act to make it easier for employers to take on apprentices is good. More employers must be asked to take advantage
Allowing more fixed-term contracts for all industries is also a good move, but the pace of absorption under these new contracts is slow, as employers are still struggling with larger issues like deleveraging and IBC
Reducing regulatory cholesterol – to use Manish Sabharwal’s expression – is vital. This means total deductions from workers’ CTC must not exceed 15% at any point, till wages cross Rs 25,000. For young workers, the need is higher take-home, not higher social security. Cheap, subsidised, social security may be offered as optional to new workers.
A labour market information system with granular detail at the district level is vital for job information and skill development
The coming pressure on industry and services – and what needs doing
Given electoral pressures for jobs, governments will increasingly pressure the private sector for job reservations. Companies should start looking at their current caste compositions and work on affirmative actions
Governments have no clue on skilling; it is best if clusters of business focus on investing in skilling of the right kind, and this can be done at undergraduate level
Businesses need to invest, in partnership with online course providers and universities, to create good job-oriented short-term courses
Financial products innovations that allow young people to save for periods of short unemployment and medial and insurance needs are vital
Fintech industry can focus on creating credit opportunities for micro-credit and other products for self-employment
We do have a problem of shrinking full-time jobs, and an expansion of part-time and gigs.
Many people are dropping out of the job market, as the gap between expected wages and offered wages are small. Hence the fall in Labour Force Participation Rate (LFPR).
The quality of jobs is also dropping at the bottom end of the market, especially when the growth is in backbreaking or mind-numbing ones like deliveries, warehousing, retailing, etc.
We need a more agile skilling system, and the lower down the government ladder this process is organised, the better. Jobs can’t be planned in Delhi
Labour, land laws and regulations need to be lowered dramatically, so that hiring is easier and painless.
Start-ups will create more jobs than large companies, and this means regulation must be light and credit and other support maximised.
R Jagannathan is Editorial Director of Swarajya Magazine. This presentation was made recently to FICCI members.