4 min read.Updated: 08 Mar 2021, 09:58 PM ISTAjit Ranade
A carrot plan that incentivises firms to hire locally would work much better than a job-quota stick
How do you boost the hiring of local workers? Two recent and contrasting approaches are worth examining. The first one is from Singapore, which has a population of 5.7 million. The second is from India’s state of Haryana, with a population of 28.8 million. A few months ago, Singapore’s ministry of manpower and its inland revenue authority announced that its government would pay firms S$15,000 for each local worker hired who was below 40 years of age. For older workers, the reward was S$30,000. This incentive would be available for six months and is part of a S$1 billion scheme to boost local hiring, especially of older workers. The government would also help local job seekers by putting up information on the 100,000 jobs thus being created.
A contrasting approach is that of Haryana. Its government has just passed a law requiring that 75% of local jobs that pay below ₹50,000 per month be reserved for locals. This law is applicable to all companies, trusts and partnerships employing more than 10 people. Compliance will involve an elaborate inspection machinery. These two may be called carrot and stick approaches. Incentive versus coercion. The former requires fiscal resources to reward compliance and achievement, while the latter requires a law enforcement and inspection machinery that can penalize non-compliance. But such comparisons can only take us so far. Singapore is a rich country with zero population growth that is preparing for jobs of the future. Haryana has an unemployment rate of 26.4%, as per the Centre for Monitoring Indian Economy. Even then, the latter’s approach is far inferior.
Firstly, Haryana’s new law goes against India’s Constitution and probably breaches fundamental rights, as enshrined in Articles 14, 15, 16 and 19. These rights variously cover the freedom to move freely in the country, equality before the law, non-discrimination on the basis of birthplace, etc. The law’s constitutionality will soon be tested. A similar law passed in 2019 by Andhra Pradesh has been challenged in court and is sub judice.
In recent times, more than half-a-dozen Indian states have tried to impose such laws with a jobs-reserved-for-locals requirement. These include Gujarat, Maharashtra, Madhya Pradesh, Andhra Pradesh and Karnataka. Some have tried it only for public employment and not extended it to the private sector, while others have used a proxy, such as requiring local-language proficiency, to exclude ‘outsiders’.
But most of these attempts have been half-hearted, not least because of constitutional impropriety. These laws are often passed under a populist impulse, or, as in the case of Haryana, to fulfil a promise made in an election manifesto, never mind if that promise was illegal to begin with. It must be noted that such poll promises are made because they reflect public desires or anxieties.
In a 2017 survey of youth conducted by Lokniti-CSDS, it was found that across India, 63% of its respondents supported job quotas for locals. This proportion was higher in big cities. This sentiment was further fuelled by high levels of unemployment or anxiety over jobs. The tendency to blame ‘outsiders’ for causing unemployment is, of course, a global one, and not confined to India. In the case of Haryana’s law, it has also been justified on two other grounds: to curb the proliferation of slums, and to contain the outbound migration of its own youth. Surely, if the youth are seeking better jobs outside the state, they can’t be compelled to stay, particularly when joblessness at home is so acute.
At a time when the Centre is engaged in labour reform, consolidating myriad laws into four codes to make labour markets more flexible, presumably, these job quotas for locals at the state level are counter-productive. The Centre’s four codes cover wages, safety, industrial relations and social security, and focus on moving away from protecting jobs to protecting the worker.
Labour laws in India have inhibited employment creation, at least in the formal sector. Hence, any further legislation must focus on job creation, not job reservation. The free movement of labour in the country is actually a market outcome and a response to unequal regional growth and work opportunities. Migration patterns not only reflect the distribution of economic opportunities, but are also a response to disparate ageing and demographics across states. Thus, Kerala now offers a free Malayalam literacy programme to migrant workers, whose kids are filling up government schools too. This is a more enlightened approach than creating quotas.
India has an acute problem of unemployment and its private sector will account for much job creation in the coming years. Insisting on job quotas will deter investors from investing in Haryana; it constrains their choice. Instead, a carrot approach à la Singapore might work, if the state can afford it.
Public investment in skilling, training and enhancement of human capital in the state is the surest way to attract investors and jobs. This could be bundled with incentives for employers to impart on-the-job training or to run apprenticeships. Also, providing labour with affordable housing, even by way of low-rent dormitory space, will go a long way in diffusing the ‘slums’ problem. And the state can play a big role in creating an authentic database of jobs, both for seekers and recruiters, which will enable real-time monitoring of the employment situation. Haryana, by passing its job-quota law, has gone too far in being vocal-for-local.
Ajit Ranade is chief economist at Aditya Birla Group.