| The
generation of productive and remunerative employment
is probably the central process in equitable growth.
This is of course a concern that is as old as the study
of economic growth itself, and effectively underlies
all the debates about the possibilities of ''trickle-down''
of growth. But it has acquired particular resonance
in India in the recent past because of the apparent
transformation of the economy and increase in its growth
potential, which has surprisingly (and unfortunately)
not been accompanied by commensurate increases in remunerative
employment.
Thus,
despite annual GDP growth rates of 8 per cent or more
in the past five years, the economy is still not generating
sufficient opportunities for ''decent work'' to meet the
needs of the growing labour force. The disjunction between
output and employment growth has been linked to the
effects of both trade and technology, but the two forces
are increasingly intertwined. And they are also both
crucially related to the economic policy regime, which
has involved a substantial degree of internal and external
liberalisation, especially in terms of more open trade
and capital accounts.
There are plausible reasons to expect that the pattern
of manufacturing growth under an open economic regime
will be such that the responsiveness of employment growth
to the growth in output declines. The most obvious reason
is the impact of trade liberalisation on the pattern
of demand for goods and services within the country.
Openness – and the much greater impact of entertainment
and communications technology – means that the ''demonstration
effect'' of lifestyles in the developed countries is
stronger than ever. So, especially among the elite,
but even among other groups, new products and processes
from developed countries very quickly find their way
to developing countries.
It so happens that such technological progress in the
developed countries is almost inevitably associated
with an increase in labour productivity. And increasingly,
producers in developing countries find that the pressure
of external competition (in both exporting and import-competing
sectors) requires them to adopt such technologies. This
is the probably the primary cause of the growing divergence
between output and employment growth in the case of
Indian industry and some services. Meanwhile, employment
and livelihood in the primary producing sectors, and
particularly agriculture, are hit by the combination
of more open trade and reduced government protection
of inputs and output prices.
These processes generate several paradoxes of recent
development. In recent Indian experience, some of these
paradoxes are: the fact that aggregate output growth
rates have accelerated but not generated much employment;
the fact that falling real wages and falling wage shares
have not led to more labour being demanded by employers;
the increase in petty self-employment not only in agriculture
and services but even in industry, even as the corporate
sector grows apace in share of income.
Indeed, the recent Indian experience makes it abundantly
clear that high economic growth does not necessarily
lead to high employment growth, especially of more desirable
employment forms. Recent Indian experience has involved
significant increases in output per worker in the non-agricultural
sector, where output growth has been particularly high.
This in turn has principally been associated with an
increase in income inequality because of an increase
in managerial salaries and profits, even as average
real wages have stagnated or even declined across most
activities. For the majority of those available for
and seeking work, the result has been a tendency to
fall back on forms of work (including self-employment)
that do not offer a decent wage and involve poor work
conditions.
A common tendency is to blame technological change for
this. But technological change is itself the outcome
of several forces, including not just the incentives
created by relative prices but also the changing structures
of demand which are in turn determined by changing shares
of income. So the pattern of growth is extremely significant
to ensure desirable employment generation. And in this
regard, macroeconomic policies and overall growth strategies
play a crucial role.
Developments over the past decade have changed perceptions
across the world about the nature of desirable macroeconomic
policies, especially in the context for achieving growth
and sustainable employment generation. The Asian financial
crisis of the late 1990s and the meltdown in Argentina
at the turn of the decade showed the possibility of
apparently ''prudent'' fiscal strategies still being associated
with unsustainable macroeconomic processes that created
the possibilities of crises. Increasingly, there is
recognition that macroeconomic management in open developing
economies needs to be developed within a co-ordinated
framework, so that fiscal, monetary, exchange rate and
capital management policies are consistent.
But what still has to be more explicitly recognised
is that economic growth, livelihood stability and employment
generation must be given significance, and should not
be ''crowded out'' by an overly narrow focus on macroeconomic
stability and inflation control. Given that the pattern
of growth is crucial, a moderate but sustainable rate
of growth which involves employment generation and poverty
reduction is preferable to a higher rate of growth that
is based on greater income inequalities and has more
potential for volatility and crisis.
If the primary goal is productive employment generation
providing ''decent work'', this also requires industrial
policies providing carefully considered incentives to
promote desired investment and financial policies including
directed credit will play a role. The significance of
public expenditure in sustaining and expanding the productive
human resource base of the country through social spending
is also important. Macroeconomic policies must ensure
that public expenditure in the social sectors is increased
and maintained at adequate levels. This also has a critical
role in employment generation.
Given these principles, the messages of the past pattern
of growth and employment in India seem to be fairly
obvious. Clearly, for more inclusive growth, the generation
of good quality productive employment is the most critical
variable. Therefore economic policies have to be more
explicitly directed towards this goal, and target ''decent
work'' generation as well as pure growth and macroeconomic
stability.
The relationship between technological progress and
employment generation obviously cannot be forgotten.
The promotion of more employment clearly should not
involve a glorification of drudgery, especially when
newer technological developments open up possibilities
for less arduous and tedious ways of working. It is
no one's case that low productivity employment must
be perpetuated, or that labour-saving technological
change must necessarily be resisted. Rather, the point
is to ensure that jobs are continuously created in the
economy in other activities.
A critical requirement for this is public expenditure,
especially (but obviously not exclusively) in the social
sectors. This is typically much more employment generating
than several other economic activities, and therefore
also has substantial multiplier effects. There is therefore
a strong case for evolving a growth strategy that allows
and encourages labour productivity increases overall
while significantly expanding expenditure – and therefore
income and employment opportunities – in social sectors
that positively affect the conditions of life of most
citizens. This in turn requires a major role for state
intervention, through direct public investment and through
fiscal, monetary and market-based measures that alter
the structure of incentives for private agents.
|
