28 January 2025 : Daily Answer Writing
Q1) Why is it said that India does not have an unemployment problem, it has wage problem? (150 Words/10 Marks)
Answer:
While a significant portion of the Indian population is employed, many are engaged in low-paying, informal sector jobs that lack job security and adequate working conditions. This phenomenon is characterized by underemployment, low wage growth, and significant income inequality.
Reasons for Wage Problem:
1. Low job creation and lack of quality jobs – not enough high level/ technical jobs are not being created to match the high volume of youth with degrees [e.g., PhD/MSc candidates applying for clerical jobs.]
a. In contrast youth with higher education degrees do not apply to low paying jobs – a situation where unemployment is preferred over low-paying jobs. [voluntary unemployment]
b. youth is scrubbing between 4 issues – Lack of opportunities, Lack of Suitable opportunities, lack of Employment and lack of suitable employment.
2. Government regulation and stringent labour laws have a reverse impact on the wages of worker –
a. Employers are forced to deduct gross wages for social measures like PPF, health etc.;
b. Also, most enterprises in India are ‘dwarfs’, and they prefer to stay small due to regulatory cholesterol [17 definitions of workers, 22 definitions of wages, and 72 laws to comply] – discourages formalization of the economy.
3. Government schemes like MGNREGS solve the job problem but not the wage problem + such schemes have distorted the labour market prices.
4. Predominance of part-time + seasonal work and skill-education mismatch a significant number of individuals are considered underemployed, leading to low productivity and wages;
a. Additionally, agriculture employs major chunk of workers but contributes only approx. 14% of GDP, hence considered unproductive + offers low to no wages
5. Wage stagnation due to low productivity: (a) large working-age population + relatively slow growth in job creation, employers have been able to keep wages low; (b) abysmally low productivity of SMEs prevents them from paying premium wages.
Way Forward:
1. Restructuring of the Economy: (a) focus on sectors with high productivity potential – IT sector is only 0.7% of India’s labour force, and it generates 8% of the GDP; (b) provide incentives and support for industries that can offer apprenticeships and higher wages; (c) encourage formalisation of economy.
2. Policy Measures: (a) policy should adapt to changing times + nature of work; (b) average life expectancy of enterprises has come down from 65 years (1955) to 14 years presently, hence government must step into social security such as pension; (c) labour law reforms should ensure job preservation as much as job creation; (d) govt must concentrate on financialization of the Indian economy i.e. giving financial institutions more influence over economic policy and outcomes.
3. Others: (a) crucial to invest in vocational training and education to improve the skill set + align with market forces; (b) increase productivity of agriculture along with providing alternate of avenues of employment for excess labour; (c) targeted regional development programs to reduce disparities + infrastructure development in rural and semi-urban areas; (d) support entrepreneurship and small businesses through financial assistance, training, and infrastructure.
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