increasing formalisation, giving apprenticeship a push, and leveraging aadhaar for background checks could help freshers bag jobs in greater numbers
Upset with our sign at a job fair in Jaipur that read, “Freshers need not apply”, one smart kid told us, “Do you guys in suits leave your brains at home? If you do not give me a job without work experience, how am I expected to get work experience without a job?” Freshers have also been confused in the last few years by the continuous commentary about jobless growth because their experience tells them that India’s problem is not jobs, but wages; a school dropout in Gwalior us, “I do not need your help and have no problem in finding a job that pays me Rs 5,000 per month; I am here for a job that pays me Rs 15,000 per month.”
For the last few decades, every fresh school or college graduate—except IIT and IIM graduates—has faced the punishing combination of wages, and the brutal chicken-and-egg problem of employers unwilling to give jobs to candidates without work experience. But, the only way to solve a chicken-and-egg problem is to become vegetarian—that is, do something totally different; we would like to make the case that five changes in our labour market in the last few years are good news, and create a more fertile habitat for our first-time job seekers:
Graduate unemployability: For years, employers used degrees as a lazy filter to shortlist interview candidates. But, now that it is clear a degree is not what it used to be—60% of taxi drivers in Korea, 31% of retail sales clerks in the US, and 15% of high-end security guards in India now have a degree—employers are shifting their focus to employability and skills. This means candidates from outside the top institutions, or those without degrees, can differentiate themselves through certifications, soft skills, apprenticeships, projects, work experience, career growth, and more.
Aadhaar revolution: Peter Diamond got his Nobel prize for search costs in labour markets. But, Lloyd Shapley and Alvin E Roth got theirs for the insight that equity markets clear on price, and labour markets clear on information. Aadhaar allows freshers to signal a low-cost background verification that will considerably improve matching. Over time, it will tackle the rampant practice of resume padding and degree fudging. In the short run, India cannot take jobs to the people, but will need to take the people to jobs, and Aadhaar could accelerate fresher migration, whose pace has been retarded because of what economists call the lemon problem (you do not know who the shady ones are, so you stay away from everybody).
Increasing apprenticeships: the only way to solve a chicken-and-egg problem is to become vegetarian, i.e., try something different. India only has 400,000 apprentices, while Germany has 3 million, Japan 10 million, and China 20 million. Amendments to the Apprentices Act mean that many employers are now engaging apprentices through several restructured schemes like BOAT and RDAT. and some new ones like NEEM and NETAP.
Germany has 2.7% of its labour force in apprenticeship; if India had the same proportion, we would have more than 15 million. Apprentices are turning out to be the brightest spot of ‘Skill India’, and this is great news for the chicken-and-egg problem for freshers.
Expanding formalisation: India has 63 million enterprises, but only 12 million are registered for GST, only 1.4 million pay the mandatory social security, and only 18,000 companies have a paid-up capital of more than Rs 10 crore. But, regulatory reforms like GST, demonetisation, FDI liberalisation, Benami Act, RERA, ease-of-doing-business efforts and Mudra are creating an unprecedented formalisation of India (over the last few years, many millions of new ESI and EPFO subscribers got added, and the number of indirect-tax registered enterprises went up 50%).
Sales, customer service and logistics are the fastest-growing segments of India’s job markets, and offer salaries from Rs 40,000 per month to Rs 15,000 for freshers, in areas ranging from seeds, water filters, mobile phones and much more. Domestic consumption is driving the expansion of our labour market. Formal employers are better for India because they tend to be more productive and pay higher wages. Formal employers are better for freshers because they tend to view human capital differently and cast a wider net for talent.
Subsidy revolution: For decades, fiscal policy has given subsidies for capital investment rather than for employment generation. The conscious shift of tax policy for companies for hiring (Income Tax 80JJ), and the payment of benefits (for every fresher hired, the government now pays the provident fund contribution that is due from the employer for the first three years) are starting to modify employer behaviour.
While the role of a government in job creation is not setting things on fire, but creating the conditions for spontaneous combustion, some sector-agnostic policy incentives for formal job creation were long overdue. The shift of broader subsidies to a direct benefit transfer system will also release resources that could be targeted at accelerating and expanding formal job creation.
Mahatma Gandhi said, “If I was to be their real teacher and guardian, I must touch their hearts, I must share their joys and sorrows, I must help them to solve the problems that face them, and I must take along the right channel the surging aspirations of their youth.” India’s youth have been glorified as ‘demographic dividend’, but face considerable regulatory cholesterol in realising their dreams. Change is happening. It should happen faster.