news details |
|
|
| Employment subsidy and guarantee | | |
BHARAT JHUNJHUNWALA
THE government’s determination to provide employment to the poor, including those in urban areas, is truly laudable. This objective can be achieved in two ways. One is to impose taxes on business enterprises and use the revenue to provide jobs in state-run employment generation like the Rojgar Guarantee Scheme. The other alternative is to collect taxes from capital-intensive industries and use the revenue to provide employment subsidies to labour-intensive industries. The government has adopted the first option. Taxes are being collected in equal measure from capital and labour-intensive industries, and the money is being used to fund the Rojgar Guarantee Scheme. This approach has been followed by the developed countries over the past 50 years or so. It is all too evident that the results have been far from impressive.
The Nobel Laureate, Prof Edmund Phelps, says: “Although such programmes have been substantial in Europe and the US, the working poor remain as marginalised as ever. Indeed, social spending has worsened the problem because it reduces work incentives and thus creates a culture of dependency and alienation from the commercial economy, undermining labour force participation, employability, and employee loyalty.” The alternative, according to Prof Phelps, is: “The best remedy is a subsidy for low-wage employment, paid to employers for every full-time low-wage worker they hire and calibrated to the employee’s wage cost to the firm. The higher the wage cost, the lower the subsidy, until it has tapered off to zero. With such wage subsidies, competitive forces would cause employers to hire more workers, and the resulting fall in unemployment would cause most of the subsidy to be paid out as direct or indirect labour compensation. People could benefit from the subsidy only by engaging in productive work.”
THE government must seriously consider this suggestion. The beneficial aspect is that increase in employment is made an asset for the economy instead of a burden. The present approach provides for taxes to be imposed mainly on urban business enterprises and the money is spent in rural areas. The urban businesses have to bear the tax burden while the benefits are reaped by faraway villages. The business sector suffers on account of higher wage rates. The availability of some employment in the villages acts as a disincentive for workers to move from labour-surplus to labour-scarce areas because some employment is available locally under the Rojgar Guarantee Scheme.
It is reported that many workers from Bihar are not going to Punjab this summer because employment is available within the state. The farmers of Punjab are being forced to pay higher wages. It is a double whammy for business enterprises. They have to pay higher taxes for providing funds to run the Rojgar Guarantee Scheme. They also have to pay higher wages.
The impact of Prof Phelps’ suggestion is exactly the opposite. The taxes paid by businesses are recouped by receiving employment subsidies. The net outgo on wages is reduced due to subsidies thus received.
It is possible to attain the objective of job creation by making changes in the tax policy. A common rate of taxation is now being followed for both capital and labour intensive industries. Ideally, separate rates ought to be fixed. Capital-intensive industries such as bottled soft drinks can be taxed at a higher rate, while labour-intensive industries such as rasvanti can be taxed at a lower rate. This would lead to a higher price for bottled soft drinks and a lower price for sugarcane juice sold by rasvanti. The consumption of bottled soft drinks will decline, while that of fresh sugarcane juice will rise. That will spontaneously lead to the generation of more employment in the rasvanti industry without the government having to undertake additional expenditure under the Rojgar Guarantee Scheme.
The impact of employment subsidy on the workers will also be positive. Workers will acquire new skills. The young man working as helper in the scooter repair shop will become a skilled mechanic after some time. These skills will help him open a shop and add to the country’s economic growth. He will not acquire new skills if he is a construction worker in the Rojgar Guarantee Scheme’s roads-and-check dam projects. He will remain an unskilled worker forever.
The employment subsidy approach will also alter the attitude to employment. The unemployed will be forced to visit factories in search of jobs. They will realise that it is their duty to search for a job. In the process, they will pick up new skills and learn languages. Nothing of the sort is conceivable in the Rojgar Guarantee Scheme. Instead, the jobless develop a sense of dependence upon the government. They wait for the government to create the jobs.
It is nevertheless true that certain types of employment available under the Rojgar Guarantee Scheme enables the workers to demand higher wages from businessmen. For example, workers from Bihar are able to demand higher wages from the farmers of Punjab because some employment is available under the Rojgar Guarantee Scheme nearer home. The farmers of Punjab, as also industries of Meerut and Delhi, have to pay higher wages in order to attract workers from Bihar. This increase in wages is a positive development as far as the impact on the workers is concerned. But this may not be sustainable because high wages often lead to closure of businesses and contribute to the generation of unemployment.
A regressive cycle
TEXTILE workers of Mumbai demanded high wages under the leadership of Datta Samant in the eighties. They got what they demanded. But sooner rather than later, the textile industry shifted from Mumbai to Surat and Coimbatore and the workers became jobless. Similarly, farmers in Kerala have given up the cultivation of labour-intensive crops like paddy and bananas and are growing more coconut and coffee because of high wages. The benefits obtained by workers of Kerala from high wages are nullified by less employment. The long term impact of Rojgar Guarantee Scheme will be similar.
A regressive cycle can set in. Taxes are imposed upon running businesses to raise revenues for the Rojgar Guarantee Scheme. The availability of work under the scheme leads to an increase in wages. Business enterprises close down under this double burden. This leads to higher unemployment. The expenditure under the Rojgar Guarantee Scheme has to be increased in order to accommodate the neo-unemployed. Yet higher taxes have to be imposed on the remaining businesses that are still running. That leads to closure of more businesses. Thus a regressive cycle of high taxes and high unemployment is created.
The main difficulty in implementing Prof. Phelps’ suggestion is that it offers nothing to the government employees. They collect 20 to 30 per cent commission in the Rojgar Guarantee Scheme. They make additional money through the supply of materials. There is no such income under the employment subsidy plan. Eventually, the Rojgar Guarantee Scheme transfers money from businesses to bureaucrats. The government will have to decide whether it wants to help businesses and workers in a sustainable way; or does it want to help government employees collect more commissions today at the cost of development tomorrow.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
|
|
 |
|
|
