Jobs Crisis Will Worsen: 10 Ways In Which Covid-19 May Alter Nature Of Unemployment In India

Jobs Crisis Will Worsen: 10 Ways In Which Covid-19 May Alter Nature Of Unemployment In India

by R Jagannathan - Wednesday, March 18, 2020 12:02 PM IST
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  • Thanks to Covid-19, the link between growth and jobs may become even more tenuous, for the historical evidence is that with every recession, people tend to use more automation.

The Covid-19 pandemic, which is yet to play out fully in India so far, will lead to massive job losses which portend a worsening of the underlying crisis.

Even if the crisis phase of the disease’s spread lasts one or two quarters, its impact on jobs will be disproportionate to the drop in economic output and GDP growth.

This is primarily because GDP growth and jobs have become practically independent variables, with increases in growth being propelled by higher productivity.

Nothing else can explain why despite 6-8 per cent GDP growth between 2015-16 and 2018-19 (i.e., before the current growth slowdown) employment has stayed stuck in the range of 400-411 million, according to the Centre for Monitoring Indian Economy (CMIE), which conducts four-monthly surveys.

While the CMIE surveys have their problems, they are the only source of high-frequency data on jobs over an extended period.

While the gross numbers may be skewed by the survey’s bias towards urban households, the trajectory of jobs stagnation — or very low growth — is not easy to dispute.

Thanks to Covid-19, the link between growth and jobs may become even more tenuous, for the historical evidence is that with every recession, people tend to use more automation.

Evidence from the US is clear. As I have noted in my book on The Jobs Crisis in India, before 1991, recessions used to be short and job losses were made up in three to six months after recovery.

But from 1991, this trend started changing. Recovery to the old level of employment took 15 months after the 1991 recession.

In the 2001 recession, the recovery of lost jobs took 39 months; the 2008 Great Recession took 43 months. In fact, a return to the previous jobs peak took six years after 2008.

It would be foolhardy to believe that Indian employers, from either the organised sector or the informal one, will not cut jobs when the going gets tough.

They will also tend to keep the labour complement lower after the growth recession is over.

Consider what is happening right now.

First, most sectors — from airlines to hotels to malls — have seen a dramatic drop in business, causing them to downsize staff, presumably in the short run. Is it likely that they will rehire them all when the recovery is likely to be slower?

Second, many companies have asked their staff to work from home to ensure social distance and prevent community-based infection. But if you are an employer, and have now created the governance and accountability structures to make people work out of home, why would you not continue the same — at least to some extent — after the contagion recedes?

And if you are working out of home, your income and compensation package will either stagnate or be cut in due course, driving down wage pressure.

Once you have the capacity to use a substantial number of workers from different locations, the pool of available workers also rises.

Women, for example, will join this kind of workforce in larger numbers. This is a good thing in itself — there are too few women in India’s workforce — but its short-term impact on overall wages will be negative.

What we could see is a dramatic evisceration of mid-skill, mid-level, good quality jobs across sectors, since these will either be taken up by automation or done by remote workers who are paid less.

The entire assumption about full-time work in offices with substantial job security will now have to be challenged.

What we should expect to see are the following changes.

#1: More short-term and contractual work, and wages based on output or time spent on work.

#2: More remote working, which is what works best for part-timers, and companies with cost pressures.

#3: Workers will need repeated upskilling in order to maintain lifestyles and wages at levels where they can support families and dependents.

#4: Retirement dates have to be flexible, since work itself is not a full-time affair for most people. Pension corpuses will take longer to build when incomes are lumpy or variable.

#5: Middle level jobs — the kind that banks, IT companies, and retailers offer in plenty right now — will shrink, while demand for high-skill jobs will zoom.

#6: Given the uncertain nature of work and incomes, financial products for savings and loans will need to be dramatically rejigged. Contributions to retirement funds will come in fits and starts, and loan products will have to factor in lumpy incomes, even periods of no income, while designing their EMIs or repayment schedules. Due to Covid-19, most banks will have to either extend loan tenures for homes and autos, or even offer a temporary EMI holiday if job losses are severe.

#7: Universities and schools and skilling companies will have to redesign themselves around short-term courses based on transient skill requirements. Barring high-knowledge courses like the ones offered by the technology institutes (IITs, IIITs, etc), most non-technical courses will serve no useful purpose. The three- and four-year graduation courses are generally a waste of time, for they generate no employable skill.

#8: With incomes unpredictable, many people may move away from owning assets (houses, cars, high-end mobiles) to sharing them. This means demand for rental housing and tech-based taxi and transport services will rise, while demand for ownership assets will slow down. Repurchase plans for high-cost mobiles must be a part of corporate business models.

#9: Apprenticeships and job-based training offer the best bets for skilling. This is what government and industry must emphasise. Subsidies for taking on apprentices and full-time workers have to be made more universal.

#10: The unemployment data will have to be read with care. When jobs disappear suddenly, as happened during demonetisation and now with Covid-19, sometimes the unemployment data seems to improve merely because many people have stopped looking for jobs. The unemployment rate is a function of those seeking jobs as a proportion of the total labour force that has jobs plus those actively looking for job. When those actively looking for jobs stop looking for jobs since the scenario is bleak, the unemployment rate artificially shrinks.

Governments, if they have to be proactive, must work with the corporate sector to devise appropriate policies for a fast-changing jobs market. They must also improve the jobs data, including high-frequency jobs data on a monthly basis. Relying only on CMIE or payroll data is not good enough for India.

Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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