Frightening Demon of Unemployment

The demon of rising unemployment has been increasingly terrorizing Asia in general and India in particular ever since the Washington consensus-based globalisation has become the guiding star. The Asian Development Bank (ADB) in a recently released report underlines this. It warns that Asia is going to face an employment crisis that is sure to lead to a social breakdown and a rapid collapse of growth rates. To quote what Ifzal Ali, the chief economist of ADB said the other day in New Delhi, “The outlines of an Asian employment crisis are already taking shape. Strong economic growth alone will not solve the problem. Even in countries that have achieved relatively high growth rates of output, employment growth has been disappointing. Governments must focus on achieving full, productive, and decent employment for their people if their economies are to provide equitable growth and development.”

Ever since the beginning of the present era of globalisation, the volume of employment opportunities has become inversely related to the rate of economic growth. During the 1980s, a three per cent rate of economic growth in China brought a one per cent rise in the volume of employment opportunities, but, in the 1990s, a growth rate of around 8 per cent was needed to bring about a one per cent increase in employment opportunities. What is true of China is true for almost all regions of Asia. In the 1990s, in most countries of Asia, each percentage point of economic growth could create fewer jobs than in the earlier decade. It means two things. First, the danger of jobless economic growth is soon going to be a reality if appropriate steps are not taken. Second, with fewer labour, more output is produced. It means, in the name of rising productivity, exploitation of labour has increased.

Another important thing is the declining share of formal sector in the total volume of employment opportunities. For example, in India, formal sector employment grew at about 1.4 per cent per annum in the 1980s and at less than 1 per cent in the 1990s while the labour force has been growing at about 2 per cent per annum for much of this period. This indicates two things. First, agricultural employment, which constitutes the bulk of informal sector job opportunities, has not shown any appreciable decline as happened in the countries that industrialized themselves in the West. The share of agriculture in the GDP has been going down in most Asian countries, but the people dependent on it has not shown any significant change. The per capita earning in agricultural sector has not indicated any increase. Second, most of the new jobs created outside agriculture have also been in informal sector. To give the example of India, notwithstanding the fact that the average annual economic growth came to around 5 per cent during 1993-99, the share of the informal sector in the total non-agricultural employment opportunities increased from 80.5 per cent to 83.2 per cent. Those engaged in the informal sector face the worst kind of exploitation. Their jobs are irregular, and low-paid with no holidays and social security. Most of them live in the slums with extremely deplorable living conditions. Mike Davis in his recently published Planet of Slums (Verso, 2006) has described Mumbai as the global slum capital whose most of the 12 million inhabitants have come from the rural areas in the recent decades. Davis has underlined that the curtailment of the role of state in the economy has led to the decimation of the public sector resulting in the decline of the share of formal sector in employment. This has given rise to a feeling of hopelessness among the young entrants (mostly in the age group 15-24) to the labour market. In the case of India, it has given rise to a further complication, that is, the reservation in jobs available to the socially weaker sections of the society has been fast becoming meaningless.

The ADB has underlined that the thrust under globalisation is to make domestic firms more and more competitive so that they are able to sell their wares successfully in the world market. This requires, in turn, adoption of technologies that are labour saving and capital intensive so that more and more value is added by less and less quantum of labour. In Marxian terminology the attempt is to increase the degree of exploitation. Moreover, the army of the unemployed goes to weaken the bargaining position of trade unions and the labour already in jobs, helping the employers to keep the wages depressed.

Following the neo-liberal principles, it is argued that inflexible labour laws stand in the way of rapid uninterrupted creation of jobs. Neo-liberals contend that, once market forces are allowed to operate without any let or hindrance, they will clear the market. If the government scraps labour laws regulating wages, conditions of work and collective bargaining, wages will fall to the point where the demand for labour will equal its supply and the state of full employment will prevail. Of course, there may be some seasonal, cyclical or frictional unemployment, but that will be a temporary affair. This is the very core of the Chicago School whose great messiah, Milton Friedman, asserts that wage adjustment generates an automatic tendency towards full employment. If this assertion is accepted, the state intervention to increase employment leads either to inflation or destabilization of market process. This formulation has been the basis of the opposition to the recently initiated National Rural Employment Guarantee Scheme in India.

Here it must be mentioned that labour cannot be kept on par with other factors of production. It is not only a factor of production but as citizens, workers are consumers who buy goods and services with their earnings. If they are not employed or are paid miserable wages, the volume of effective demand, to use the Keynesian terminology, will fall and the market will not get cleared, leading to a crisis.  To quote Prof. Paul Krugman, “A merchant may sell many things, but a worker usually has only one job, which supplies not only his livelihood but often much of his sense of identity. An unsold commodity is a nuisance, an unemployed worker a tragedy.” ( The Accidental Theorist, p.15) In countries like India, the unemployed are also voters that can overthrow the government through ballot box. A young man when goes to labour market and is told that he with all his skills he has acquired is not wanted, it is a great shock to him and can lead to consequences that may be disastrous not only to him but to the society at large also. One needs to look up the recently published novel Seeing by the Nobel laureate Jose Saramago in which a very pertinent question as to the meaning and relevance of democracy for the people at large has  been raised.

If one takes $2-a-day as the poverty line, as much as 60 per cent of Asia’s population is poor. The main reason for this incidence of poverty is the lack of employment opportunities with decent earnings. The ADB is not wrong when it says: “Regardless of whether they are self-employed, helping on the family farm or enterprise, or working for wages, most of the Asia’s workers derive their incomes, and therefore sustain themselves and their families, by using their labour. From this point of view, improving labour market opportunities for workers is the key to reducing poverty and improving standards of living for the large majority of Asia’s workers and their families.”

The problem in Asia is much more complicated. Besides open unemployment, there is the problem of underemployment that manifests itself in four forms. First, people do not get full time employment; second, they do not get jobs according to their skills and abilities; third, workers remain underutilized owing to overstaffing (a form of disguised unemployment); and, last, underemployment due to lack of complementary inputs.

Over the next 10 years the size of labour force in Asia is likely to grow by 14 per cent and during the next quarter century, it will increase by 24 per cent. The overwhelming majority of job seekers will be in the age group 15-24. If no serious attempt is made to exorcise the demon of unemployment by increasing substantially the quantum of job opportunities, which are full time, according to the skills and capabilities of workers and at decent wages, disastrous consequences are sure to follow.

      Girish Mishra,
      M-112 Saket, New Delhi-110017
      Tel.: 29563211
      E-mail: [email protected]    


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