1. Simplistic to link DeMo and job losses

Simplistic to link DeMo and job losses

Linking job losses to demonetisation is trivialising the serious issue of unemployment by confusing correlation with causation.

By: | Published: October 20, 2017 4:59 AM
Simplistic to link, job losses, employment, DeMo and job losses Linking job losses to demonetisation is trivialising the serious issue of unemployment by confusing correlation with causation. (Image: Reuters)

I loved the film 2001: A Space Odyssey. I have no idea whether people watch it any more. Stanley Kubrick and Arthur C Clarke wrote the screenplay. The sequence is something like this. Arthur C Clarke wrote a short story titled The Sentinel. The film was based on the short story. After the film and screenplay, Arthur C Clarke wrote a book with the same title. The film and the book have a character named Moon-watcher. Moon-watcher was a leader of the man-apes and, in the film, the role was played by Daniel Richter. (He wrote Moon-watcher’s Memoir, a book documenting his experiences during making of the film.) If you remember the film more than the book, Moon-watcher was the character who first picked up a bone as a tool and tool-wielding man-apes used tools to beat back rivals. The name is never explicitly explained in the film and there is one particular quote about Moon-watcher that occurs only in the book, not the film. “Of all the creatures who had yet walked on Earth, the man-apes were the first to look steadfastly at the Moon. And though he could not remember it, when he was very young, Moon-watcher would sometimes reach out and try to touch that ghostly face rising above the hills. He had never succeeded, and now he was old enough to understand why. For first, of course, he must find a high enough tree to climb.” With transition from Homo erectus to Homo sapiens, this kind of deductive logic appeals to us.

With FIFA under-17 World Cup going on in India, there is a lot of interest in football. Who’s the greatest footballer ever? People will have their own individual choices, but I suspect, Pele will figure on most lists. There is an anecdote about Pele. He gave his football jersey to a fan and his form suffered. Frantic, Pele asked a friend to retrieve the jersey from the fan. As soon as Pele got his jersey back, his form recovered. In reality, the friend had never been able to track down the fan or retrieve the jersey. Instead, he had simply given Pele a distinctly different jersey that Pele had worn earlier. Perhaps Pele’s sub-conscious had been affected. But he had also used deductive logic. Specifically, Pele had succumbed to a fallacy known as post hoc, ergo propter hoc.

If X occurs after Y, this is the temptation to deduce X must have been caused by Y. Before some logician corrects me, since I don’t know exact sequence of the Pele events, it might also have been a similar, but slightly different fallacy—cum hoc ergo propter hoc. If two events occur together, this is the temptation to argue one caused another. Unlike the earlier fallacy, in this case, two events occur together, not one after another. A statistician would say both fallacies confuse correlation with causation. We may have forgotten, but Union Budget for 2016-17 had a proposal. If I withdrew from corpus of EPF (employees’ provident fund), 60% of withdrawal would be taxed. Since this was widely opposed, in Lok Sabha, on March 8, 2016, the finance minister announced this proposal would be withdrawn.

Withdrawal of this proposal led to creation of 6.3 million new jobs. You probably think I have gone nuts, but logic is logic. CMIE (Centre for Monitoring Indian Economy) has a product titled Unemployment in India, A Statistical Profile. I need not get into details of sample design and coverage. It’s there on the website, including assorted definitions. This has had five editions—January-April 2016, May-August 2016, September-December 2016, January-April 2017 and May-August 2017. In a country like India, household surveys are better indicators of employment than enterprise surveys. Based on CMIE household surveys, employment was 400.825 million in January-April 2016, 407.135 million in May-August 2016, 406.534 million in September-December 2016, 404.996 million in January-April 2017 and 404.580 million in May-August 2017.

Based on this evidence, 1.538 million jobs were “lost” between September-December 2016 and January-April 2017. Based on the same evidence, 6.31 million jobs were “created” between January-April 2016 and May-August 2016. That loss of 1.538 million jobs has been ascribed to demonetisation, an event that occurred on November 8, 2016. By exactly the same logic, creation of 6.31 million new jobs must also be ascribed to something that occurred in the corresponding period. Hence, I chose the decision of March 8, 2016, on withdrawal of the EPF provision. I haven’t trivialised the employment/unemployment issue, which is a serious one. Trivialisation is done by those who link demonetisation with loss of 1.5 million jobs. This is no different from Moon-watcher’s logic, or that of Pele’s.

However, since we are Homo sapiens, we must also grant others extension of the same logical principle to illustrate how ridiculous that demonetisation and job-loss causation argument is. You will argue demonetisation on November 8, 2016, was much more momentous than the EPF decision withdrawal on March 8, 2016, and indeed, you are right. But that’s precisely the reason one shouldn’t reduce the debate to such simplistic and naïve assertions. For instance, probe the 1.538 million job loss figure by disaggregating it, using CMIE. There was a 3.7 million “job loss” for males aged 15-19, compensated by “job gains” elsewhere. There was a 1.8 million “job loss” in UP, but 0.5 million “gain” in MP and 1.3 million “gain” in Rajasthan. Still plausible?

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  1. abhisek banerjee
    Oct 25, 2017 at 12:04 pm
    I am reading this article and remembering about the sessions conducted by Mr. Bibek Debroy as an ex faculty of IIFT. And the first thing that comes into my mind is , "Sir are you OK?' The MACRO ECONOMIC basics you taught is around two prin ls one, as it lacks evidence it has to be always based on logical assumption but that assumption has to be correlated. So its hard to believe same person defying the logic by associating instances like PELE and Jersey to justify the ill intended ill executed demonetization. Well official post sometimes acts upon the logical sensibility
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