Neither is quotas in limited government jobs, nor raining down cash on farmers and informal workers in the garb of universal basic income are solutions for the Indian economy’s failure to create more good jobs at the bottom of the pyramid
The idea of a Universal Basic Income (UBI) has ignited great interest among economists. It has also pushed both left- and right-leaning political parties into a competitive rush to prove who can provide more cash to people faster. Before they all fall over the economic edge like proverbial lemmings, policymakers should pause to consider why the need for a UBI has arisen.
The shapes of the economies of all countries have been changed by global economic and technological forces whereby people in the lower halves of the economy are not earning adequate incomes. The fear is that unless fundamental economic structures are changed, further advances of technologies into the realms of “Industry 4.0" will deprive even larger numbers of people of opportunities for work from which they can earn adequate and steady incomes.
UBI and its many variants—quasi-UBI and income supplements for targeted groups—treat only the symptoms of the disease. The root cause of the disease is that many people do not have work that provides adequate incomes. Therefore, policymakers must focus on the reforms required in the economy to produce good jobs to provide good incomes by doing good work.
Jobs cannot be sprinkled into an economy by the government, except the jobs created within the government for people paid by tax-payers’ money. Jobs—opportunities to work and earn incomes—spring out of the growth of economies. The “gig" economy is creating many opportunities for earning incomes. However, the incomes are insecure and often insufficient. Moreover, the conditions in which people have to work to earn their incomes are not always satisfactory.
Delivery boys on motorcycles, rushing around to deliver pizzas to customers who want them in a few minutes, must work long to earn little. They do not have an employer who cares about their health and customers do not treat them with dignity. Moreover, their jobs do not provide them any opportunities to learn and develop themselves. When Indian government officials tout the numbers of these precarious “jobs" to claim that the Indian economy is generating adequate employment for Indian youth, they display their lack of understanding of what constitutes a good job.
A good job implies a contract between the worker and society. The worker provides the economy with the services it needs. In return, society and government must create conditions whereby workers are treated with dignity and can earn adequate incomes. Good jobs require good contracts between workers and their “employers". Employers are those who benefit from the services workers provide the enterprise, even if they are not legally classified as “employers". Therefore, the government, to discharge its responsibility to create a good society for all citizens, not only for investors, must regulate contracts between those who engage people to work for the enterprise and those who do the work, even in the gig economy.
An appeal to the government and employers to care for citizens and workers sounds like a call for “socialism". It is a call for a “good society" in which people have opportunities to stand on their own feet, by earning adequate incomes by doing good work. A good society does not require mindlessly more regulation. However, it needs firm regulation of good contracts between workers and employers.
Edmund S. Phelps, a Nobel laureate in economics, has been a consistent critic of UBI. He says, “What matters to people is not just their total receipts; it is the self-support from earning their own way. The solution is not to endow workers with a UBI—that way leads to dependency, unfulfilment, depression and marginalization". Phelps proposes a solution that sounds “socialist", which is to institute a low wage employment subsidy. He wants employers to employ more numbers of less-skilled workers and pay them well. If they are provided good working conditions and opportunities to learn and grow, they will lead more satisfying lives.
Dani Rodrik, another eminent economist, also advocates reforms that will induce firms to employ more numbers of less-skilled workers. He says, “To increase productivity of firms, too often governments subsidize labour-replacing, capital-intensive technologies, rather than pushing innovation in socially more beneficial directions to augment rather than replace less skilled workers."
India’s political leaders are challenged to provide more good jobs for the country’s huge number of young jobseekers. Panic solutions are quotas for everyone in the limited numbers of government jobs and raining down cash to farmers and workers in informal sectors in the garb of “universal basic income". Neither is a solution for the Indian economy’s failure to create more good jobs at the bottom of the pyramid.
Economists and policymakers must go back to the drawing board, to fundamental principles: one, “fairness" for workers must be a stronger principle than “flexibility" for employers. Reduce the number of labour regulations but be very firm about the essential regulations to ensure good incomes and good working conditions.
Two, tax incentives should be directed towards hiring of less-skilled workers, rather than attracting more capital investments that displace workers, so that people at the bottom of the pyramid can step on to the formal escalator for upward mobility in society.
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