Jobs vs Wages
An authored article of Manish Sabharwal in Indian Express talks about how the creation of high-paying private sector jobs is being murdered by three faultlines in wages: Government vs private, nominal vs real, and gross vs net.
Three faultlines in wages sabotage private formal job creation. Demonetisation will undo some damage.
Two events that trigger the most predictable, irrelevant and frenzied media circus around jobs are the application numbers for a government recruitment advertisement and small moves in the official unemployment rate. Both are irrelevant; India doesn’t have a jobs problem but a wages problem. Our official unemployment rate of 5 per cent is not a fudge and anybody who wants a job has one; they just don’t get the wages they want or need. The creation of high-paying private sector jobs is being murdered by three faultlines in wages: Government vs private, nominal vs real, and gross vs net.
Why? Because we estimate that almost 85 per cent of the 30 lakh applicants with PhDs, degrees, etc for government peon posts in Uttarakhand recently already had a job (they were chasing above market wages with the additional upside of an employment contract that is marriage without divorce). Because we know that a child equates a salary of Rs 4,000 per month in Gwalior with Rs 18,000 in Mumbai (the difference in not salary but cost of living reimbursement for rehna, khaana and office jaana). Because we know that applicants in job fairs make decisions on haath waali salary rather than chitthi waali salary (there is a 45 per cent difference between gross and net wages for poor-value-for-money statutory deductions). Let’s look at each faultline in a little more detail.
One, government vs private wages. People at the top of the government get paid too little but people at the bottom of the government get paid too much. Unfortunately people at the bottom are 85 per cent of the numbers and greatly distort the labour market because Class 3 and 4 employees get paid more than 200 per cent of their private sector counterparts for the same job not including low performance accountability and high job security. The huge number of government job applications is not people running away from insecure low-paying private sector jobs but people running towards overly secure high-paying government jobs. Government employment should be public service with reasonable wages; not a rigged rate like LIBOR that distorts the market.
Two, nominal vs real wages. Since we cannot take jobs to people in the short run, we need to take people to jobs. But the migration to cities is being retarded by the huge mispricing of land that directly affects living, eating and commuting costs in India’s few job magnets (we only have 50 cities with more than a million people versus China’s 375). The economic wastelands of Mumbai, Delhi, Chandigarh can’t compete with job magnets like Gachibowli, Mohali, Gurgaon and Bangalore because the new clusters combine an infinite supply of mixed use commercial and residential real estate (happiness economists suggest that commute time is a key component of happiness).
Three, gross vs net wages. A monthly salary of Rs 15,000 per month in a cost-to-company salary world only ends up as a Rs 8,000 bank credit because employers are required to make mandatory deductions of 45 per cent of salary for poor value programmes like provident fund, ESI, LWF, EPS, and much else. Government data suggests that workers with annual incomes of Rs 1.8 lakh do not have any saving and cannot live on less than half their salary; consequently they prefer working for the informal sector where haath waali salary is equal to chitthi waali salary.
These faultlines murder high-paying formal private jobs and we need three regulatory interventions: Faster urbanisation, lower regulatory cholesterol, and broader human capital. Faster urbanisation means an increase to the number of Indian cities with more than a million people from 50 to 200; bad urbanisation is better than no urbanisation but high quality urbanisation like having real mayors, robust city finances, etc could create the virtuous cycle of higher formalisation, higher productivity and higher wages.
Making bribing a core capability for builders has been bad for formal job creation and labour migration and demonetisation will bring down land prices, accelerate construction, and raise labour mobility. Land was the most inefficient and unfair of the three factor markets of land, labour and capital and demonetisation is a wonderful intervention. Lower regulatory cholesterol for job creation is important because most of our workers work in low-productivity enterprises that are not productive enough to pay the wage premium; our 6.3 crore enterprises only translate to 18,000 companies with a paid-up capital of more than Rs 10 crore. Human capital is key; neglecting primary school education for decades after Independence is a mistake being amplified by the new world of work that disproportionately values reading, writing, arithmetic and soft skills.
As the long-term plans for formalisation, urbanisation and human capital yield results, it’s time for a time-bound monitoring on three overdue and impactful interventions in regulatory cholesterol by the ministry of labour. First, we must overrule its self-serving case for an Establishment Number and replace the 27 different numbers issued to every employer with a single Universal Enterprise Number. Second, we must set a date for 100 per cent paperless, presenceless, and cashless compliance for all state and Central labour laws. Second, we must end the shameful stonewalling of the ministry of labour of the provident fund and ESI reforms announced in the budget by making employee contribution to the provident fund voluntary and creating competition for ESI and EPFO by allowing employees to choose alternatives like NPS and health insurance.
Recent youth unrest — the idealisation of Burhan Wani by Kashmiris and the reservation agitations by Patels, Jats, Gujjars — have roots not in a job emergency but a formal job emergency. Gandhiji said the difference between what we do and what we are capable of doing would suffice to solve our problems. Time to remind the ministry of labour.
This was published in Indian Express: https://goo.gl/WSTr3z
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