Rich world scrambles for workers, as India sinks in unemployment

Photo: iStock
Photo: iStock

Summary

Advanced economies are in the throes of an acute labour shortage while jobs in India remain scarce

The UK’s petrol stations have witnessed long queues of cars over the past few days as pumps have run out of fuel. News of the arrival of a large tanker with gasoline has been spreading on social media in a matter of minutes, sparking a panicky rush by motorists. The Boris Johnson government is under pressure to reserve allotments of petrol for essential workers such as those providing health services and even to call the army out to help deliver fuel.

The culprit is not the global rise in oil prices that may push crude to $90 per barrel by the end of this year, but an acute shortage of drivers for so-called heavy goods vehicles that deliver petrol to filling pumps and also supplies to supermarkets. The UK has long had a shortage of workers that was papered over by the free movement of workers across Europe permissible when it was a member of the European Union. Ahead of the Brexit referendum in June 2016, opponents had warned of such labour shortages if the UK left the European Union. Now, the country faces the possibility of empty shelves at grocery stores in the months ahead. The UK has promised 5,000 temporary visas for such truck drivers from Europe and 5,500 additional visas for poultry workers. Prime Minister Johnson, a Churchill biographer and admirer, may have yet another huge crisis in which to demonstrate Churchillian resolve.

Across the Atlantic, US restaurants, hotels and hospitals are facing acute shortages of workers and having to dramatically raise salaries. The challenge there is that the US government’s generous unemployment insurance to offset layoffs during the pandemic last year may have succeeded almost too well. In a report on The Daily podcast last month, a restaurant owner in Houston said, “Before, I would post the position and I would get 100 applicants easily. Now, I post the position, and I might only get one or two applicants."

Stock markets buckled on Tuesday partly because of fears that the US might face stagflation, a term from the 1970s that is back to haunt us in India and abroad. These extreme labour shortages in two advanced economies are part of the explanation. Supply-chain shortages of everything from semiconductor chips to shipping containers and a huge jump in the prices of oil and gas understandably merit more headlines, but the developed world is also facing an alarming shortage of workers. Inflation in the US is currently about 5%, a significant step up from 2.3% in 2019, let alone the less than 1% recorded in 2014 and 2015. In the UK, it increased to 3.2% year-on-year in August. Critics of the US Federal Reserve say the central bank should have been more alert. “The Fed has had almost no success gently bringing down inflation once an economy has started to overheat," former US Treasury secretary, Larry Summers warned on 28 May after President Joe Biden announced a $6 trillion budget. But in August, US consumer confidence fell to a six-month low.

At least US policymakers have been in the midst of an ambitious effort to “run the economy hot", seeking to drive up wages for people in low-paid service industries, such as those who flip burgers or make beds in hotels, as well as boost the economy and provide income to the millions laid off during the darkest months of the pandemic last year. The increase in exports to the US from Asia shows that the former’s huge stimulus last year bolstered global trade (and India’s record exports).

The contrast with India, where income support via fiscal outlays from the government has been relatively modest, could not be more stark. In July last year, India’s chief economic advisor, K.V. Subramanian, said the right time for stimulus action would after a vaccine was available. It seemed a reasonable argument then, but a year on, even as the economy shows signs of a rebound, India’s employment data looks alarming. The recent release of the government’s periodic labour survey shows that the proportion of salaried jobs in urban India fell from 53% between April and June of last year, when a national lockdown was in place, to 48.7% in October-December 2020.

The growth in jobs in India is mostly on account of unpaid family labour on farms and low-remuneration employment in service roles ranging from private security to package delivery. As Mahesh Vyas of the Centre for Monitoring Indian economy observed in Business Standard, “ Factories seem to have permanently lost about 10 million jobs in the pandemic-induced lockdowns. “ He believes the 40-million levels that the manufacturing sector once boasted is “ almost out of reach."

Evidence of surplus labour is everywhere at once. The pandemic has made this phenomenon something even Marie Antoinette might have flinched at. I have had friends use delivery couriers to send a large slice of cake across town. I have sent appams and stew to the other end of Bengaluru to cheer friends up. ATMs have security guards in a manner unseen in the west. Similarly, even fitness is made easier by India’s surplus labour. The Delhi Gymkhana reportedly has about 20 ball boys on its tennis courts. The CMIE reports that personal trainers are a boom category—as are house helps. In 2010, I was a correspondent in and out of factories in southern China when it reached the Lewis turning point (named after the Nobel Laureate economist Arthur Lewis), whereby a country’s surplus rural labour is fully absorbed in manufacturing and services. China then saw wages in factories rise by double digits annually. India has now reached a different and rather more worrisome destination altogether.

Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.

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