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P2J or J2P? The job market dilemma

Subir Gokarn

Here are a few propositions that, I believe, are unexceptionable. The critical linkage between economic growth and the spread of its benefits is employment. Sustainable growth in livelihood is the most effective means of poverty alleviation; while other, targeted, measures may be required to supplement it, nothing can substitute for it.

And finally, India's record of poverty alleviation, which is really the most striking comment on the success of its development strategy, is largely based on its overall inability to generate enough jobs with prospects of productivity growth, which is essential for growth in incomes.

Two recent reports coming out of the Planning Commission highlight the dismal record that the Indian economy has in putting its most abundant resource to good use. The Task Force on Employment Opportunities, in its report published in July 2001, demonstrated that employment growth was persistently below the growth in labour force, leading to an ever-widening wedge between those wanting work and the jobs available for them.

More strikingly, it showed that the number of people actually unemployed was 7 per cent of the workforce, itself a cause for concern, but poverty incidence was 26 per cent (in 2000).

The clear implication of this is that there are a lot of jobs that do not offer the incumbent a way out of poverty, even in terms of the relatively minimalist criteria that we use in this country to measure it.

This highlights the fact that many jobs are at extremely low levels of productivity and do not offer the prospects of growth that is so vital to increasing incomes. The Report of the Steering Committee on Labour and Employment uses different measures of unemployment, but broadly makes the same point.

That is where the similarity appears to end. The Task Force was quite categorical in stressing reforming of labour laws to eliminate the blanket job security regulations that now exist.

The government has already gone some way towards achieving that by virtue of cabinet approval to the proposed amendment to the Industrial Disputes Act.

Clearly, this by itself is not a solution, but just as clearly, nothing else will work without it. The Steering Committee recognises the need for "modernising" obsolete aspects of the prevailing labour laws, but wants to leave it to the governments concerned to decide what their tolerance limits for change might be.

It puts far more emphasis on the generation of employment through what can be called a "rising tide" effect. This is the promotion of activity in various sectors that are known to be employment-friendly, like food processing, construction and tourism.

My sympathies lie with the recommendations of the Task Force. I do not believe that we can ever solve the growth-employment-livelihood linkage problem without first making labour markets work. Other measures may be required as well, but this one is central to the process.

However, it is clear that political resistance, which can only be strengthened by the divergence of views within the bureaucracy itself, is going to prove a massive impediment to achieving this. This obviously does not absolve the government of its responsibility to facilitate employment growth.

The significant policy question in this scenario is: can a viable employment generation strategy be designed within the existing regulatory constraints?

In addressing this question, a fundamental issue has to be addressed, which is stated in the title of this article: is the priority to move people to where the jobs are (P2J) or to move jobs to where the people are (J2P)? This clearly does not pose any kind of dilemma in circumstances where resource allocation (both sectorally and geographically) has been driven predominantly by markets.

The US, Europe, Japan, and the more recent East Asian success stories were driven by their industrial sectors, in which competitiveness emerged from agglomeration, a clear manifestation of P2J.

There are, of course, exceptions to this general rule, for example, where natural resources are concerned, but the overall pattern of development in all of these countries shows a clear correlation between industrialisation and the concentration of people around industrial centres.

Services, particularly those driven by human capital, have also tended to grow in clusters, which also points to the relative efficiency of the P2J route.

In India, over the past ten years, the usual indicators (urban population, city size and so on) point to a significant movement of people to the cities. Also, the information on migration compiled by the 2001 Census will, in all probability, confirm the general impression of a significant increase in inter-state movement.

These signs point to the predominance of the P2J process in India, but the record on employment generation suggests that the majority of jobs are at subsistence levels without significant prospects of quick upward mobility.

Urban slum populations are increasing significantly, putting enormous pressure on the demand for services while not proportionately contributing to the city's revenues. Urban systems everywhere in the country are in a state of enormous stress, which further weakens any prospects they might have had to support the P2J model.

So, does the priority on employment at the national level require a re-orientation towards J2P? There is little question that, from the perspective of sustainability, the emphasis has to move in that direction.

The problem is, of course, that a different set of constraints has to be addressed. Activities that are economically viable in the absence of high agglomeration and that can efficiently utilise locally available resources need to be identified.

Infrastructure investments that facilitate both production processes and access to markets are necessary.

Food processing and tourism, in their own ways, reflect the constraints imposed by these requirements. The old questions about the respective roles of the public and private sectors need to be resolved, not just at the macro level, but in concrete terms in a wide variety of local conditions.

Collectively, these issues pose an enormous set of challenges to the policy-making and administrative institutions that are interested in dealing with the employment problem. In short, the Indian economy is at a rather unenviable crossroads.

The P2J model, which has historically been the concomitant of an industry-led growth process, does not appear to be working very well in stimulating rapid income mobility. Because of this, one has to be concerned about its sustainability.

On the other hand, the J2P approach has many attractions on paper.

In reality, however, it comes up against a wide variety of constraints; worse, these may differ significantly across locations, making them difficult to address through a centralised strategy and decision-making structure.

This may pose significant dilemmas to the policymakers, but that does not absolve them of the responsibility for taking a quick decision on their preferred direction and orienting resources and institutions towards it. Continued dithering on this critical issue will simply reinforce the growing perception that the Indian economy is on the R2N - the road to nowhere.

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