More and better jobs: Policy prescription for South Asia

South Asia: the promise of the future

To many, South Asia is indeed the ‘promise of the future world’. Its population is about a little higher than one fifth of the world population. Its middle class is growing and even larger than the combined middle classes in North America and Europe thereby creating a huge regional market for its products.

It had a comfortable economic growth rate compared to the growth rates maintained by most of the economic superpowers in the last decade.

Its Diaspora which had left its shores long ago seeking fortunes in the Western world are now returning like doves with money, knowledge and experience filled with bubbling entrepreneurial spirits to set up businesses in their respective homelands.

Asia is becoming integrated to the global economy now more than any time in history acquiring advanced technology and developing access to markets. Combining with the fast growing China’s super economic achievements, many have even termed these new developments as ‘the return of Asia’ to the global economic dominance.

Creation of more and better jobs should be a priority

Yet, something is amiss in this good storyline as the latest World Bank study titled ‘More and Better Jobs in South Asia’ reveals. The World Bank’s Chief Economist for South Asia Region, Kalpana Kochhar, has summarised this missing part in her Preface to the publication.

South Asia is adding from one to 1.2 million new entrants to the labour force every month in the next two decades, says Kalpana. That is a big number because it will account for about 40% of all the new entrants to the global labour markets.

True that South Asia has attained significant achievements in growth, poverty reduction and job creation in the last two decades. Yet, there is no room for complacency because the challenges before South Asia are enormous.

“Not only do a large number of jobs need to be created, but the jobs also need to be more productive and make workers less vulnerable” Kalpana has opined. What are the risks, if South Asia fails to do that? She has cautioned that joblessness on a large scale may “trigger political instability and unrest” as it has happened in the Middle East recently in the style of ‘Arab Spring’ that was responsible for bringing down the long surviving regimes in the region within just a few weeks.

So, create more jobs and see that those jobs are better jobs.

Sri Lanka has more jobs, but not better jobs

This is exactly the problem faced by the US President Barack Obama today. His country has to create jobs and make them better jobs. More jobs in the sense that the unemployment rate in USA is around nine per cent of the labour force and it does not show signs of abating.

Better jobs in the sense that the growth rate in USA is less than two per cent per annum and people who are presently employed and those who get new jobs should raise that growth rate significantly to take USA out of its current economic depths.

But a country like Sri Lanka in South Asia may have to grapple with only one part of the problem: Its unemployment rate has fallen to a historical low at below five per cent of the labour force and continues to further fall with each new labour force participation survey being conducted by the country’s statistical bureau, Department of Census and Statistics. With an economic growth above eight per cent, its challenge may be to sustain that growth through better jobs.

Is a better job a decent job?

More jobs are of course easy to understand: Create a new job and fill it with a worker who is presently unemployed so that he gets a means of livelihood. But a contentious issue is what a better job would mean.

The World Bank study has used two criteria to define a better job, one a primary criterion and the other a secondary criterion. The primary criterion is that a job is a better job if it carries a higher wage for wage workers and lower poverty levels for the self-employed persons.

The secondary criterion is that a job is a better job if it reduces the risk of low and uncertain income for the most vulnerable group of workers. Thus, the first has to be satisfied first before moving to the satisfaction of the second and a mere satisfaction of the second or for that matter either one will not make those jobs better jobs.

But a trade union leader who was a panellist at the launch of the study in Colombo last week had a different opinion on a better job. According to him, a better job is a decent job in which the worker’s dignity, rights and career development are properly safeguarded and ensured. Just by giving a wage to lift a worker above the poverty level or reducing his vulnerability to risks will not make it a better job.

Both the World Bank and the trade union leader have looked at better jobs from the point of view of individual workers and self-employed people though the two parties have looked at two different social aspects associated with them. Hence, the two contentions of what a ‘better job’ would constitute can be combined without harm to either one. Such a definition of a better job would be ‘high wage, poverty crossing and low risk jobs with decency’ for the workers and the self-employed.

But is it what South Asia needs today to sustain its growth and become respected partners of the global economy? It appears that something is amiss in this definition of a better job from the point of view of sustainable development in the region.

Joseph Schumpeter: A better job produces more with same labour

One hundred years ago in 1911, Austro-American economist Joseph Schumpeter resolved the issue of what a better job should constitute from the point of view of sustainable economic development when he published his masterpiece ‘The Theory of Economic Development’.

According to Schumpeter, economic development was a process that underlay several achievements simultaneously. The economy should be producing more each year (continuous economic growth), its structure should be evolving into a more sustainable production base (structural change from agriculture to high tech industry and sophisticated services), its workers should be more productive (better every year), its industries should be more specialised (producing one or two quality and easily uncopyable products) and its financial system should be more sophisticated (developed financial system pooling risks and meeting every needs of customers).

The rising living standards through this process were the outcome of development. A nation like India or China could produce a bigger output with their huge populations. But that will not necessarily lead to an improvement in living standards unless the real incomes of the people rise along with the continuous development. Hence, the yardstick for measuring development and ensuring a higher living standard for the people was the increase in the productive power of the people of a country.

That came, according to Schumpeter, by producing more and more output with the same resources. In today’s parlance, this could be rephrased to say ‘producing more output with lesser amount of resources’ because technological improvements would enable workers to do wonders.

So, a better job is a job that would enable a nation to produce more continuously with lesser employment of workers. In other words, the workers should be able to produce more by engaging in production in shorter time periods and using lesser amounts of resources.

There are two obvious enemies of such better jobs.

Enemy one of better jobs: Providing jobs for the sake of providing jobs

The first is creating jobs for the sake of providing employment to people to diffuse socio-political tensions. When a large number of people are unemployed and cannot find jobs to match their aspirations, a government may provide jobs to them in the government at the cost of the tax payers.

People appear to be employed and even earn an income above the threshold of poverty line and get decent treatment by the employers, but they do not make any contribution to the creation of wealth of society. The result is that year after year they become poorer because the system cannot sustain them on account of their not producing any worthwhile output.

The Sri Lanka Government’s absorption of unemployed graduates to the already overburdened Government service is a very good example of employing people for the sake of providing employment to people.

Enemy two of better jobs: Rent-seekers

The second enemy is the creation of jobs that earn an income for the individual but do not make any productive contribution to the national wealth. In other words, even if they are not there, the nation’s wealth is totally unaffected.

These are the people who benefit from the prevailing rules, regulations and licensing systems of the government. For instance, if the government introduces price controls on rice, it also has to create a bureaucracy to man such price controls. The price controllers would raid shops and bring the offenders before courts of law. To adjudicate their cases, the government has to strengthen the judiciary too with judges and other court officials. Then, it provides a good income source for the lawyers.

If the convicted parties are unable to pay their fines, they would be jailed and the government will have to strengthen the prison system too. So, with one decision to control prices, the government creates so many other jobs in the system and these people’s services are not needed if the market system is allowed to determine prices.

These types of jobs do not add to the wealth of the society, but enables those engaged in the work to earn an income for which they do not make any contribution to the economy. Economists call such incomes ‘rents’ because the recipient of income does not make a matching contribution to the national wealth.

When an economy is governed with rules, regulations and licences, it automatically pays people to seek occupations in the licensing authorities and eventually the whole economy becomes a huge ‘rent seeking society’ as described by the Columbia University Economist Jagdish Bhagwati in reference to India’s economy.

So, if a society is bent on creating better jobs, it should first defeat the temptation to create jobs for the sake of creating jobs and introduce unnecessary rules and regulations that prompt people to become rent seekers.

Improve productivity of capital

So, a sustainable economic development has to be ensured in order to create more jobs and also make them better jobs. In this respect, does the current high economic growth experienced by South Asia will guarantee a continuously high economic growth as has happened in some of the East Asian countries like Singapore, South Korea, Taiwan and Hong Kong? Yes, provided the countries in South Asia are able to improve the productivity continuously.

The World Bank study has identified two sources of productivity improvement: the accumulation of physical capital leading to a higher use of quality capital in production and the leaps made in improving human capital on a continuous basis. Since all countries in South Asia have to depend much on global markets to sell their surplus outputs, it is necessary to use high tech capital combined with better human capital resources.

While high tech capital can be acquired at a price from the global markets, its use productively to remain in competition with rivals will depend on the managerial skills and the nature of workers a country has employed for producing goods and services.

One good example is the airline industry in the South Asia region. The national carriers in the region have acquired the most modern aircraft and they are not second to any airline in the developed or even in East Asian countries. But due to poor management and unproductive workforces, airline in India and Sri Lanka have incurred significant losses compelling the governments to bail them out at the expense of tax payers and other priority development activities. So, those workers in national carriers in South Asian countries may have better and decent jobs, but they are not sustainable since they live on the output produced by others.

In Sri Lanka, this argument is valid for almost all the State sector enterprises which have been incurring heavy losses for many years and which have been bailed out from time to time by the Government.

Human capital development

Human capital development comes from continuous research and development, education, training and learning. Research and development is the key to future prosperity and the creation of more and better jobs.

In the case of Sri Lanka, universities which have to carry out this function are basically engaged in producing graduates. Other research institutions are under-funded or caught up in internal conflicts associated with bureaucratic rules. Hence, no worthwhile technological development takes place in Sri Lanka. On top of this, the education system has failed to produce graduates who are employable from the point of view of employers.

The World Bank study has reported survey results on the perception of employers on various job attributes of recently graduated engineers on a scale from totally irrelevant to extremely relevant. While attributes like integrity and reliability have commanded very good, but not extremely good, all other attributes are ranked in the middle level, that is, at a ranking which says that the attributes are somewhat relevant.

India is a country with the best education system in the South Asia region. Yet the graduates produced by its educational establishment are ranked in the middle wanting further talent and skill improvement.

The situation relating to Sri Lanka is in fact appalling. When the unemployed graduates were absorbed by the Government in 2005 under a graduates’ employment scheme, the State had to train them for another four years before they were offered even lower positions in the Government service.

This factor was emphasised by a representative of employers’ federation at the launch of the study. According to him, those who seek private sector jobs have multiple paper qualifications. But when it comes to delivering the products needed by employers, they need further training.

Create jobs to produce more with less

So, there are several important issues which countries in South Asia have to reckon when it comes to creating more and better jobs. That is, while refraining from providing employment to people for the sake of providing employment, attention should be paid to create jobs which would enable the region to produce more with less. It will require the countries to use advanced technology, spend money on research and development and improve the quality of the educational institutions to produce quality graduates.

Without this in place, a job will just be a job and not a better job that assures sustainable economic development.

(W.A. Wijewardena can be reached at [email protected])