economic growth,Jobs

Even as Automation, Robotics and AI are replacing humans in most jobs in advanced countries, especially in America, promising jobs to people remains the standard slogan for politicians in elections around the world. There is unemployment problem in Europe, the US, and India. President Trump has been obsessed about bringing jobs back to America because, according to him, earlier government policies had led to outsourcing of jobs to developing countries like India, Mexico and China. He pledged to correct such policies. Trump has come to power backed by the support of many unemployed men and women who lost their jobs due to manufacturing shifting from the US to countries with low labour costs.

Trump is lucky because the latest US job statistics show that there has been a fall in unemployment. Though there has been a small decrease in job growth in March 2018 due to inclement weather that slowed down construction activity, on the whole job growth in the US has been rising over a period of last one year.  Since joblessness is on the decline, currently the unemployment rate is at 4.1 per cent. According to the Washington Post, there is a position open for every unemployed person in the country and the Labour Participation Rate (LPR) is on the rise and is at 62.9 percent closer than ever to the LPR of 66 per cent achieved before the Global Financial Crisis of 2008.

Many countries, including India, have objected to Trump’s protectionism as he has undertaken the unprecedented step of slapping higher duties on steel and aluminum, but even before that he raised duties on washing machines and solar panels and claimed that thousands of jobs have returned to America.

As expected, China has retaliated with duties on American agricultural products, knowing fully well that this would hurt US farmers who in turn would put pressure on Trump to withdraw the hike in duties or at least modify them. The possibility of conciliatory moves by the US and China is thus on the horizon.

So far, the US has also not experienced high inflation due to rising wages that would require the Federal Reserve to react and raise interest rates. That would hurt India and all Emerging Markets as FIIs would head back to America, creating stock market turmoil.

Trump is lucky that the American economy has posted a GDP growth of 2.5 percent, which for a rich country like the US, shows robust growth. The unemployment rate on the other hand is at a 17-year low. Nothing could be better! All this is happening because the US is coming out of a long period of recession and low growth since the Global Financial Crisis. The quantitative easing undertaken by the US Federal Reserve as a stimulus measure also helped in reviving investment and demand.

Prime Minister Modi also came to power by promising jobs to the youth but by contrast, is going to be disappointed by the recent job data. The unemployment rate, according to CMIE (Centre for Monitoring Indian Economy), currently is at 6.3 per cent (1 April 2018 ) and very few jobs have been created in the past four years. Around one million youth are joining the labour force every month and Modi had promised them that there would be 10 million jobs available during his tenure every year. Yet only 4.18 lakh jobs were created in 2016-17 in the organised sector.

According to the Bureau of Labour and Statistics, 48 million people registered for employment in 2014, and less than 1 percent was given placements in jobs by the exchanges. In February 2018, around 41 million people were competing for 1.6 million jobs posted at employment exchanges across India. The number of unemployed seeking jobs has doubled from around 3 per cent in 2015 to 7 per cent in early 2018. Almost half the job seekers are between the ages of 18 to 34 years or the youth of India.

Demonetisation had a disruptive influence on the informal sector which led to people leaving for their villages and not actively looking for jobs from there. In 2016, according to the CMIE, unemployment rose to 9 percent and greater unemployment to 17 percent, which include the marginally unemployed -- defined as those who are not actively looking for a job but are willing to take one if it came along. In 2017, unemployment rate and also the marginally unemployed rate fell which means there were a large number of ‘missing’ unemployed who just left the labour force during the demonetisation. The question of bringing them back into the labour force is an important one.

As a result, the already low LPR in India has declined further to 42.7 percent compared to many other countries where the average is around 60 per cent. Women’s participation in the labour force in India is also much lower at 24 per cent. Manufacturing jobs are increasing very slowly at around 2 per cent which is alarming because it is manufacturing that employs the maximum number of semi-skilled or unskilled labour.

Also even with many incentives, the Modi government has not been able to revive investment which remains lower than during the UPA government’s tenure.  Without investment picking up, job growth will remain muted. Industrialists are waiting and watching and are also not expanding their operations in the face of slowdown in demand and excess capacity which has been mainly due to slow export growth. The twin balance sheet problem of corporate and banking sectors seems to be at the core of problems of industrial growth slowdown even though in February 2018, there has been an uptick in industrial growth to 7.1 per cent.

There is hope because recent the results of  2040 listed companies also show that aggregate net profits, after adjusting for onetime gains and losses, rose 11.1 per cent in three months ending December 2017 — the highest in the past four quarters. This could signal early signs of economic recovery. But rising oil and commodity prices could play spoil sport for job growth in the manufacturing sector. Thus according to economic forecasts, full recovery can start only by the third quarter of 2019 when faster job growth may be expected. However, this  may be a bit too late for Mr. Modi!

The views expressed above belong to the author(s).

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