Jobs, Jobs, More Jobs!

Jobs, Jobs, More Jobs!


Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


No matter which part of the world you are in, you hear the same refrain from politicians – Creating and sustaining employment. That they focus on jobs almost to the exclusion of anything else is understandable. Sustained employment is the source of livelihood of the masses. And the masses can be very rude at the polls if their purse is thin or they don't have a job on voting day! But much as jobs are today the visible sign of economic prosperity, should they be the only focus of our politicians? In fact, should job-creation even be on the politician's agenda?

Micro- and macro-economists see jobs as part of a larger picture in which a firm or a nation produces an (array) of outputs with several inputs of which labor is but one. The demand for labor and the change in it - which is what employment and job growth/loss measure - is itself derived from demand for products or aggregate economic activity. So, should we not instead worry about aggregate economic activity? A short-sighted, horse-blinded focus on jobs detracts from the larger task of maximizing the economy's growth. Besides, in socialist economies such as ours, a focus on employment - in particular a combination of labor-intensive policies and job quotas and reservations - will detract from profit maximization and turn our enterprises bloated with unqualified labor. Such unabashed support for maximizing employment has other micro- and macro-economic implications as well. First, firms are over-staffed and inefficient on account of a biased capital-labor ratio. Labor-intensive technologies and industries are favored over capital-intensive technologies. Second, the pressure to retain employees biases hours of employment, economics of production, and on a macro-economic scale, wages, the age of retirement, pension funding and even the labor-leisure trade-off. Third, cost-reducing technological innovation such as robotic automation and nano-technology have brought about new scale-economies in high-technology industries. Harping on labor-intensive policies excludes our economy from these advances, turns the clock of economic progress back and reduces our productivity, and in turn, international competitiveness.

These impacts are not necessarily anticipated (or for that matter, appreciated) by politicians with sights fixed for the day after elections. Come to think of it, there may be a 'political rate of unemployment' depending on who is in power, (while we measure the 'natural rate of unemployment' on the Phillips curve with 3SLS instruments)! In fact, the drama turns in to a comedy (I call it a tragedy) when unemployment and job growth are used as leverages by politicians conspiring with the industry (and labor unions?) to divert scarce public resources in to private investments that milk profits under the shelter of tax holidays in the guise of generating jobs for locals. In the days of yore when our country lacked investment, such policies could be passed off as part of the larger cause of nation-building. But in an increasingly competitive world, India can no longer afford its politicians ruining the financial state of the nation by promising jobs and subsidizing labor-intensive industries that play the petty, if enriching game. It is time our politicians desist from such ruinous practices in the interest of the nation - and for our voters and union leaders to understand that lop-sided emphasis on creating jobs could, paradoxically, hurt them in the long-run. If you ask me, there is no better time to reform labor laws, job reservations and the politician's mindset than when the economy is booming and job demand high.

Those who wish to second the motion, raise your hands.