The Congress-Nationalist Congress Party regime in Maharashtra has acquired a habit of unleashing nasty surprises. The state government on Monday ordered all enterprises—small, medium and large—to reserve for locals 50% of supervisory jobs and 80% in other work categories.

Illustration: Jayachandran / Mint

Apart from the issue of fairness, there are economic and constitutional issues involved in enforcing such a measure. Sentiments of this kind have been around for a long time in the state. But this is the first time that an order of this kind has been accompanied by the whirring of administrative wheels. District-level committees, led by the collector, will meet at least thrice a year and “suggest" improvements.

On the face of it, there is little economic sense to the step and it’s sure to hurt the state’s economy. India has a unified labour market, where any person can move to any location for work, wherever it is available. This is only subject to transportation costs and the skill requirements for a particular job. The government diktat fragments the labour market by the stroke of a pen.

Most migrants to Mumbai and other parts of the state are from poor and backward states such as Bihar and Uttar Pradesh. A majority of them are in the low-skill, low-wage end of the labour market, a work segment that locals prefer not to get into. By making a blanket 80% reservation, the government has ensured there will be poor supply of low-skilled labour in the market. This will have two effects. First, prices of services in which migrant labour is involved will rise considerably. Second, chances are unionism and demands for higher wages for these jobs by locals will be very high. This is on account of political backing by outfits such as the Maharashtra Navnirman Sena and the fact that collective action in a fragmented labour market is very easy.

The greater danger, however, is to small and medium enterprises that supply goods to various regions of the country. Manufacturers of industrial goods may be hit hard due to dislocation in the supply of labour. For many such enterprises, small ones mainly, the cost of hiring unskilled or untrained workers and imparting on-the-job training may turn out to be prohibitive. The closure of such units and the consequent loss to the state’s economy could be one effect of this supposedly beneficial government order. Chief minister Vilasrao Deshmukh has a good understanding of politics, but alas, not economics.

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