Financial Daily from THE HINDU group of publications
Wednesday, Jul 21, 2004
Minimum wage key to UPA's employment programme
An employment guarantee scheme assuring 100 person days of employment per household a year is also on the agenda. Though the overall unemployment rate in the country is about 9 per cent, the bigger cause for worry is under-employment and the higher rate of unemployment among the educated class.
Given the income distribution scene in the rural and urban areas and the structure of public finance, is an employment guarantee scheme viable? An annual allocation of Rs 23,000 crore is needed to generate 100 person days of employment at a net minimum wage (NMW) of Rs 100 a day. If the NMW offered is, say, only, Rs 60, then the amount needed will be less than Rs 4,000 crore. The proposed employment programme is sensitive to the NMW guaranteed and the institutional factors that could affect its implementation across the country.
There are 145 million rural and 54 million urban households in India and they are categorised into different income classes. In 2003-04, the mean household income of the lower income class (which make up about 37 per cent of all households) in the rural and urban areas has been estimated at Rs 18,805 and Rs 38,551 respectively,
Income levels improve as one goes up the income class. And with this structure of household income distribution, the income earned per worker for a working day can be arrived at using the `number of days of gainful employment' estimates available in the Human Development Survey of the National Council of Applied Economic Research (NCAER). Such an income estimate can be interpreted to be a `reservation wage' for participation in wage employment programmes.
From the income distribution and reservation wage for 2003-04, the number of households willing to participate in the proposed mass employment programme at different levels of NMW can also be estimated.
The Minimum Wages Report for 2002-03 proposes a complex procedure in arriving at a range of minimum wages. For agricultural work, for instance, it is Rs 50-120. It is expected that the UPA Government will announce a reasonable NMW, which will appeal to a larger labour force that may take up employment under the programme. If such a minimum wage is not guaranteed as a net transfer payment to the average wageworker, the programme is bound to fail, not because of a lack of job-seekers but owing to low NMW transfers.
In estimating the number of households (according to income class) willing to take up additional employment, the NMW considered is Rs 60 up to Rs 100 per day at Rs 10 intervals. Since at Rs 60 the NMW will be less than the respective reservation wage, only subsidiary workers mostly women and a modest number of main workers will accept public employment. In all, only an estimated 9.2 million individuals will access public employment at Rs 60 NMW. And this will increase to 23 million at Rs 70 NMW, to 28 million at Rs 80, 33 million at Rs 90 and just over 33 million at Rs 100 NMW per person per day.
For the mass employment programme to succeed, this dynamics of increased participation at higher NMW is crucial. The total public funds needed to generate this kind of employment at an NMW of Rs 100 will be Rs 46,468 crore a year. However, the expenditure will be less than Rs 7,800 crore if the NMW is fixed at Rs 60. This highlights the sensitivity of the employment programme to the NMW offered.
In practice, however, public employment cannot be extended to every part of the country. Rather, it need not be, as in many States, such as Punjab, Haryana and Kerala, there may not be any takers for employment schemes of this nature. It is expected that only about 50 per cent of the households willing to participate can be covered by the public employment programme. Attrition would occur not only because of a lack of minimum number of households willing to participate in a given locality/panchayat but also because of the high incidence of morbidity and incapacity to work among the poorer households. The public employment programme can motivate some of the non-workers or subsidiary workers to take up employment, and these are likely to be women.
Taking all these into account, estimates of expected number of households who will actually work will be less than five million at Rs 60 NMW. This number will rise progressively along with the NMW. For example, employment seekers will increase to less than 12 million at Rs 70 NMW, to 15 million at Rs 80 and to 16.5 million at Rs 90 and Rs 100.
In this scenario, at Rs 60 NMW, the Government have to allocate only Rs 4,000 crore on the employment programme, which include 30 per cent non-wage cost and 10 per cent as the cost of administration. The amount will increase to Rs 11,000 crore at Rs 70 NMW, to Rs 16,000 crore at Rs 80 NMW, to Rs 21,000 crore at Rs 90 NMW and to more than Rs 23,000 crore at Rs 100 NMW.
But given the poor track record in implementation of employment schemes, only about 50 per cent of the earmarked funds will be utilised, that is, not more than Rs 12,000 crore a year if the NMW is fixed at Rs 100.
Thus, if the programme is implemented without strengthening the administrative and implementation machinery, even greater allocation of funds will not result in any tangible gains. Besides, the proposed employment guarantee scheme can be launched for as less as Rs 10,000 crore in rural India. It must also be noted that the programme, as currently conceived, would have few or no takers in urban areas.
Poverty alleviation effect
If the programme is implemented well, lower income households will benefit even at a low Rs 60 NMW. (The mean income of an average household in the lower income class is Rs 18,805 per annum and the poverty line income cut-off is Rs 21,200.)
Thus, 100 days of wage employment will enhance the household income by Rs 6,000 if the NMW is Rs 60. This amount would rise as the NMW rises. Nonetheless, at all levels of NMW discussed, households are bound to cross the poverty line substantially and come out of the poverty trap.
Hard cash versus soft food
The success of the whole programme lies in whether the payment is made in cash or kind. In fact, it is easier to handle funds in cash, as cash flows can be managed through public sector banks or even district/taluk level public treasuries across the country. Cash and also be used by wage-workers to pay local moneylenders or put the same in the savings account of a cooperative bank or post office.
If the Government is contemplating that NMW payments be made in form of foodgrains, the programme is likely to either fail or benefit only a small fraction of the unemployed. Compared to cash, it is much more difficult to manage foodgrain flows.
The food distribution system requires a strong warehousing network and accounting system to manage and monitor stocks and flows. But these are non-existent in States such as UP, Bihar, Jharkhand, MP, Chattisgarh, Rajasthan and Orissa, where the mass employment programme is most needed.
In fact, the entire concept of food-for-work programme is anchored on the highly successful Maharashtra model of the late 1980s and early the 1990s, when the State was facing serious drought conditions; such a programme is now non-existent even in Maharashtra. Food-for-work programme is probably the best way to address the issue of poverty, provided appropriate delivery structures are established through panchayats and self-help groups under the watchful eyes of civil society and NGOs.
However, before introducing such a programme in the States, pilot studies must be undertaken.
If implemented well, the programme can go towards enhancing the purchasing power of the rural masses. And this, through the accelerator effect, will boost economic activity and, thereby, promote higher rural incomes and GDP growth.
The double whammy
One of the more serious concerns in the Indian employment scene is the high level of educated unemployment among the youth. While the unemployment rate of those with secondary level education and more fell considerably from 21 per cent in 1983 to 15 per cent in 1999-00, the rate for those with technical education has stayed put at 24 per cent. It is estimated that there are a total of 48 million and 75 million unemployed youth in the two categories respectively, and about 65 per cent of them are in the rural areas.
The high level of educated unemployed indicates that well-structured policies are needed to generate employment in the rural sector. This apart, synergies among job demand, education and skill formation are needed.
To provide easy access to loans of up to, say, Rs 50,000 per educated unemployed, about Rs 48,000 crore would be required. This amount can be used to finance future employment programmes as well.
(The author is Head, Human Development Programme Area, National Council of Applied Economic Research, New Delhi.)
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