Revising the parameters of positioning each nation’s economic recovery path in the new year, and amid a surging new COVID-19 variant, one could argue that currently, there are three critical fault lines in the global – and national – economic landscape. How each nation, including India, understands and responds to them using an intersectional lens in policy-tradecraft will shape their future economic trajectory.
The Bottom 50% vs the Top 10%
To understand the first fault line, looking closely at the World Inequality Report 2021 data may help. The report highlights how the share of the bottom 50% of the world’s population in the total global wealth is 2%, while the share of the top 10% is 76%.
The wealth of the top 10% globally, which constitutes the middle class in rich countries and the merely rich in poor countries, is growing slower than the world average, but the top 1% captured 38% of the global increment in wealth, while the bottom 50% captured 2%. Those in the top 0.1% saw their share of wealth rising from 7% to 11% in just a year.
In the context of India, the top 1% earned more than 21.7% of the country’s total national income in 2021, while the bottom 50% made 13.1% of the money. The authors argue that the ‘deregulation and economic liberalisation’ policies pursued since the 1980s in India resulted in one of the most extreme rises in income and wealth inequality.
How COVID Provided a Massive Shock
To understand the second and third fault lines, we need to dig deeper to study the global and national labour market landscape, particularly from the last two years’ perspective.
In a recent paper measuring German workers’ beliefs about rents and outside employment options, authored by economists Simon Jager, Christopher Roth, Nina Roussille and Benjamin Schoefer, it is found that 13% of jobs would not be viable at current wages, concentrated in the low-wage segment of the German job market.
Most remain employed in low-wage work because of being “overpessimistic about outside (work) options”, and this belief tends to give ‘monopsony power’ (undue competitive advantage) to employers in the context of low-paid workers.
The only scenario under which such low-paid workers are forced to change their “misinformed conceptions” about the external employment scenarios and look for, say, better wage opportunities (or a wage-premia), would be a big shock that would force a massive shake-up of the entire labour market.
Two years of COVID19 and its economic fallout did just that. Most economists are now calling this ‘shake-up’ in the global labour market a period of ‘The Great Resignation’.
In the US, over 4 million American workers quit their jobs in the month of September, shattering the record for resignations previously set the month before.
As many as 40% of the remaining employees are also thinking of quitting, according to a recent Microsoft report. In tech, more than 72% of US-based tech employees are thinking of quitting their jobs in the next 12 months.
The Workplace's Disruptive Transformation
So, what is going on here?
Under normal circumstances, an exodus of ‘job-quitters’ may point to a labour market dealing with a great shortage of jobs (a demand-side problem). But the last two years haven’t been remotely normal, and the long cycle of mass resignations isn’t restricted to the US alone but is part of a global trend.
The ‘work from home’ (WFH) scenario, especially in tech and other service-based jobs, has changed workers' beliefs and expectations about their own jobs and the outside employment scenario. The ‘misinformation’, or ‘over-pessimistic’ attitude, which many low-paid workers earlier had, has been disruptively reoriented.
Working parents, especially those under a more taxing work-from-home set-up and those without adequate childcare support, were forced to focus on managing ‘household chores’ and ‘kids’ together. In patriarchal settings, the adverse impact of this additional ‘care responsibility’ was evident with the number of women moving out of the workforce.
And so, broadly, the pandemic’s push to a disruptive transformation of work and the workplace – what would have taken decades in the absence of a ‘shock’ – has changed the global labour market’s status quo.
However, the larger concern remains – those responsible for taking decisions and designing policies for kickstarting an economic recovery continue to miss out on these not-so-subtle signs.
The issue of rising inequality (on income-wealth parameters) and the worsening labour market conditions need to be viewed and dealt with intersectionally.
There is a need to create jobs that recognise the orientation of ‘new’ work demand, whose social security needs may not just include health insurance or pension, but also greater support for childcare while providing time for leisure. The existing deal provided in the ‘employer-worker’ contract fails to accommodate for these factors.
But India Worse Than Pre-COVID Period
In the Indian scenario, its abysmal labour market situation continues to gravitate towards a state worse than the pre-pandemic period. I have termed it previously as India’s ‘broken labour market’ problem.
The Periodic Labour Force Survey (PLFS) data for January-March 2021, released last week, shows that unemployment rates were close to pre-COVID levels of 2020. And women, as argued earlier in 2020, bore the brunt of the pandemic in terms of the economic fallout.
Well-paying, secured jobs in the macro-organised space have been shrinking for the educated workforce in India for some time now. This has obviously added to the ‘rising inequality’ concern among the middle and lower-middle-income classes, as upward mobility for these groups has been adversely affected.
Since the second wave of the pandemic in India, only a select number of sectors, such as construction, have added to temporal cycles of job creation, while most service sectors struggled. This highlights the third fault line – the issue of weak work contracts. Some ‘job creating’ sectors, too, continue to make the conditions of workers more exploitative.
As per PLFS 2020 data, less than 43% of all employment contracts in India’s organised workforce (employing less than 20% of the total workforce) ensure provident funds/gratuity, healthcare and maternity benefits. As per 2019-20 data, the share of regular salaried workers, who have at least one social security benefit, ie, ‘regular protected employment’, is 40%.
Indian workers in areas of health, education and utilities are increasingly finding refuge in temporal ‘ad-hoc work contracts’, while those in lower-paid work (and low-end-manufacturing space) continue being absorbed by a swelling but vulnerable unorganised sector.
Those with capital and more privilege than informal workers are preferring to be ‘self-employed’ (under the sub-category of ‘Own Account Worker’), as reported by the Centre for Monitoring India Economy (CMIE) recently.
This Is Not a 'Supply-Side' Issue
Narrowing down the diagnosis of some of these crises at hand, from the Indian side, the issue appears to go much beyond any analysis that views it as part of a ‘supply-side problem’ alone.
Like Jager’s study, what is needed is a careful analytical scrutiny of the ‘demand-side’ problem in the labour market landscape through a deeper understanding of the psychology of workers’ expectations, centred around the changing composition of workers’ beliefs about rent (work-pay), housing, social security, care-responsibilities, and outside (employment) options.
This can help in undertaking policy interventions for minimising not just income and wealth inequalities but also ‘access inequality’. More importantly, seeing these fault lines intersectionally from both the global and national perspective is critical for immediate and effective intervention.
For now, the challenge for most developing nation-states, especially India, is to first understand the crises at hand and then respond to them. And it remains frighteningly scary.
(The author is Associate Professor of Economics, OP Jindal Global University. He is currently Visiting Professor, Department of Economics, Carleton University. He tweets @prats1810. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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