Why growth can’t be jobless

Why growth can’t be jobless

Of the many problems that policymakers had glossed over in the lead-up to the worst downturn in several decades was the abysmal situation on the job front. Repeated reminders from agencies such as the International Labour Organization (ILO) and the United National Development Programme (UNDP), that the phenomenon of “jobless growth" witnessed particularly in developing countries would derail the global economy, were ignored in the glitz of high growth. A joint UNDP-ILO study conducted just before the onset of the recession provided evidence from the fast-growing Asian region that economic growth had failed to create enough jobs, improve income distribution and reduce poverty. In other words, the assumption that high growth would have helped in solving the worst forms of poverty was no more than a myth.

The growing mismatch between growth of gross domestic product (GDP) in real terms and employment, especially in developing countries, was one of the most understated features of the past three decades—a period that has witnessed an unprecedented level of global economic integration. Thus, in the period 2003-09, real GDP growth in developing countries averaged more than 6%, while employment grew by a mere 2%. Among the Asian countries, South Asia registered the most impressive employment growth at nearly 2.5%, but this was way below the average GDP growth of more than 7.5%.

However, despite this yawning gap between the growth of income and employment in developing countries, much of the discussion in the aftermath of the crisis has been on the severe job losses suffered in developed countries. Two recent developments have tried to rebalance the discussion somewhat. A conference held by the International Monetary Fund and ILO in Oslo this month on “The Challenges of Growth, Employment and Social Cohesion" raised policy questions posed by the steep rise in joblessness and the setback to growth and poverty reduction. The conference dwelt on the crucial problem that short-term job losses could trigger long-term unemployment, thus leading to the progressive loss of workers’ skills and exclusion from the productive economy. At the same time, this year’s Trade and Development Report of the United Nations Conference on Trade and Development has brought into sharp relief the challenges developing countries face in creating additional jobs for their ever increasing workforce.

The challenges facing developing countries stem from the fact that many of these countries are beset with dualism: a modern sector with relatively high productivity sits beside a traditional sector (largely agriculture) which has been mired in a low-productivity trap. And while the modern sector experienced rapid growth since it was conjoined with the global economy, the traditional sector saw little of this dynamism. More importantly, the latter, having suffered from a policy bias against it in most developing countries, has seen a remarkable decline in fortunes. India is a case in point: The share of agriculture in GDP, which was nearly one-third in the late 1980s, had decreased to 17% two decades later. And this fall in its share in GDP occurred when the workforce dependent on the rural sector, which was more than two-thirds of the total in the early 1990s, showed very little change.

The continued dependence of a large segment of the workforce on agriculture in countries such as India occurred because of the inability of the rapidly growing modern sector to absorb labour. Evidence from India’s organized industry, for instance, shows that in a majority of sectors, the share of wages has declined. This, along with an increase in the number of casual workers hired as well as an increase in the length of working day, portends a decrease in employment in the organized sector. Not surprisingly then, studies have pointed out that in the decade since the mid-1990s, the workforce in India’s organized sector declined by more than 6%; in the manufacturing sector, the decline was nearly 18%.

Perhaps the more disturbing aspect of the conditions workers face is that even in the sectors that have experienced high growth rates, productivity gains have not been translated into higher wages. Consequently, domestic demand—more wages would mean more spending—did not increase as anticipated. This situation, it may be argued, has resulted from the very nature of this latest wave of globalization where global firms are consistently on the lookout for destinations offering cheap labour: They move country instead of raising wages. Clearly, it is this economic paradigm that is militating against workers.

However, the present crisis has shown quite unambiguously that this division of labour, which helped the developed countries indulge in high consumption, can no longer be sustained. There seems to be a near-consensus that the way forward is to allow developing countries such as China and India to generate more domestic demand. The best way of addressing this issue would be to adopt programmes for reducing inequality and poverty—since demand generated this way would outstrip demand generated any other way. The comity of nations must, therefore, provide strong support for achieving the UN’s Millennium Development Goals, that are aimed at removing the scourge of inequality and poverty, in a time-bound manner. After all, helping the poor is no longer a matter of charity; it is imperative for the survival of the global economy.

Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi.

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