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LATEST NEWS UPDATES | The problem is jobs, not wages -Praveen Chakravarty

The problem is jobs, not wages -Praveen Chakravarty

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published Published on Mar 19, 2019   modified Modified on Mar 19, 2019
-The Hindu

There is obfuscation over both the existence of a jobs crisis and the diagnosis of it

It is well established that India is staring at a massive jobs crisis. Every single survey points to jobs as the biggest issue concerning voters, especially the youth. Yet, the Prime Minister and the government steadfastly refuse to even acknowledge this issue, let alone address it.

India’s jobs crisis is an economic issue, not a political one. India is not unique in experiencing rising joblessness and, consequently, income inequality. Many developed and developing nations are grappling with this problem, too. Such a crisis requires acknowledgement of the issue first, then a vibrant public debate on solutions to tackle the crisis, and finally, a coordinated implementation of ideas. Instead, there is much obfuscation over both the existence of a jobs crisis and the diagnosis of it.

Demand and supply


The latest in this obfuscation is the notion that India does not have a jobs crisis but a wages crisis. According to this argument, every Indian youth who wants a job can get one, but not the wages she wants. This is a banal argument. This is akin to arguing that every Indian who wants to buy a house can buy one but just not at the price she can afford. What determines the price of a house? Apart from external factors such as taxes, the price of a house is simply determined by the demand for houses versus the supply of houses. Similarly, what determines wages for an employee is the demand for such skills versus the supply of such skills. Wages are not determined by some external factor that is removed from labour market conditions. It is entirely a function of the labour market. In economic parlance, wage, or the price of labour, is an endogenous variable and not an exogenous one.

Let us understand this through the Prime Minister’s favourite example of frying pakodas, which is apparently an evidence of the plentiful jobs that we are creating. The wages for a person frying pakodas is determined by the demand for pakodas in the economy and the supply of pakoda fryers. If the wages for pakoda frying are very low, it can only mean that there are far more people willing to fry pakodas for a job than there is demand for pakodas. Hence, their wages continue to be low. In other words, the economy is not creating enough opportunities for the large number of unemployed people other than to fry pakodas at minimum wages. Of course, a person frying pakodas in a five-star hotel will get paid higher than a roadside pakoda fryer, presumably because her skill and productivity level are different. But for that same skill level, the wages of a person are determined largely by the demand for such skills and the supply of people with such skills. If demand is higher than supply, wages automatically rise; if not, they remain stagnant. To understand the unemployment issue as a wages problem shows ignorance.

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The Hindu, 18 March, 2019, https://www.thehindu.com/opinion/op-ed/the-problem-is-jobs-not-wages/article26561533.ece?fbclid=IwAR0ckrzJoDjVeksvk1pU1_8lZGb7u6Bs9fdcN-JfXhEaTkH1jcZjcP5zmzM


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