The problem is jobs, not wages

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India is not unique in experiencing rising joblessness and, consequently, income inequality.Jobs crisis in India is an economic issue, not a political one. Thus, there is a need for coordinated implementation of ideas to solve the job crisis.

Key Facts:

  • According to a set of arguments, India does not have a job crisis but rather is going through a phase of wage crisis.
  • There is a wage crisis and not a jobs crisis would do well to go back to economic history and study the work of Arthur Lewis, the Nobel Prize-winning economist from the West Indies. Lewis, in his seminal work in 1954, showed how in economies such as India and China, which have an “infinite supply of labor”, there tends to be a two-sector economy — the capitalist sector and the subsistence sector.
  • The living standards of all citizens in such two-sector economies are determined by the wages of the people in the subsistence sector. If there is demand for labour and skills in the capitalist sector, then the endless supply of labour from the subsistence sector will transition, and wages will ultimately rise only when the demand for labour exceeds the supply of labour in the subsistence sector.
  • There is a lack of acknowledgment by the PM and his government and hence there is hardly any step taken towards its solution. And this inaction on part of government has led to much confusion over the existence of a job crisis as well as on its diagnosis.
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Modi’s frying pakodas :

  • The wages for a person frying pakodas is determined by the demand for pakodas in the economy and the supply of pakoda fryers. If the wages for pakoda frying are very low, it can only mean that there are far more people willing to fry pakodas for a job than there is demand for pakodas, Hence, their wages continue to be low.
  • In other words, the economy is not creating enough opportunities for the large number of unemployed people other than to fry pakodas or any other job at minimum wages. But the same person frying pakodas in a five star hotel will get paid higher than a roadside pakoda fryer because their skill set and productivity level are different.
  • If demand is higher than supply, wages automatically rise; if not, they remain stagnant.

Way Forward:

  • Needs to be acknowledged rather than saying that there is only wage crisis and not a job crisis as such diagnosis do not solve the problem.
  •  Formalisation of the economy is an outcome of economic development, not a cause. So, forced formalization of the economy will not solve the job crisis as there has to a demand for the job in the market in the first place.
  • The author sums up the article by saying that in India we do not produce enough jobs.

Source:The Hindu




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