The Indispensability of Labor to Revive India’s Economic Engine | Opinion – analysis
Migrant workers are like people nowhere. However, they are everywhere. From skyscrapers to freeways, who builds them? It is a silent army of migrant workers, working day and night without job security, without a social safety net and with poor living conditions; however, these are not the names we see on the billboards or the cornerstones of these brilliant symbols of India. Economic progress. From domestic help to drivers, from the vegetable vendor to the roadside food stall or kirana Store owners: Their names are not on any payroll or pension plan or tax records, and yet they are removed and life in urban and semi-urban areas would be paralyzed. Like now.
Invisible, taken for granted, they are treated with indifference at best and insensitivity and cruelty at worst, as shown by the spectacle of migrant workers walking hundreds of miles on hot and dusty roads to return to House. It evoked the words of Woody Guthrie’s song, “I no longer have a home in this world.” For some of them, this turned out to be literally and tragically true, either due to death or the hostile reception they faced at home. They left their homes in search of a better life, to keep their families at home. However, their adoptive homes did not possess them when the tokens were low.
Perhaps the human tragedy involved here will not move everyone equally. Even if the human situation moves us, some may have a more pragmatic point of view: the most important thing is to deal with the public health crisis first and then restart the engine of growth.
Now what is this engine of growth? You may think it is about capital accumulation (new machines and factories) and productivity growth, better technology and organizational methods. But capital cannot generate production on its own: it needs labor. In a country like India, it comes mainly from migrant workers from rural areas. The engine of growth runs on fuel from migrant labor, which moves from less productive sectors such as agriculture to more productive sectors such as manufacturing and services. Without this fuel, the engine will sizzle and stall due to upward pressure on wages in the limited group of local labor markets.
What drives the flow of migration is the prospect of better opportunities in urban areas. Interestingly, migration research shows that there is indeed significant under-migration compared to the potential supply of labor in rural areas. The main factor cited is risk aversion. While average incomes are lower in rural areas, villagers can easily earn a living and rely on strong informal safety nets based on social media. Very poor households may not be willing to incur the financial and psychological costs of migration and face the subsistence risk of things not developing. The horrible experience of migrant workers during this crisis will only increase those fears and reinforce the trend towards sub-immigration.
What does this imply for the post-closing period? Could we just push a button and restart the engine of growth, as Ben Bernanke, the former chairman of the Federal Reserve, seems to suggest for the United States economy? Bernanke said the current economic crisis is closer to a major snowstorm or natural disaster than to a 1930s-style depression that stemmed from problems with human institutions and monetary and financial crises. Therefore, he predicted a strong recession and a rapid recovery for the United States.
It remains to be seen whether Bernanke’s prediction of the United States is correct, but his logic does not apply to a developing country like India, where informal institutions and social media play a much more important role in the economy than in a developed country. . While trust and reputation are important in all economic spheres, these are the only currency in the informal sector where there are no contracts and regulations, and hiring is based on word of mouth referrals (think, for example, how hires domestic workers)
Therefore, social networks play an important role, since reputation in the community acts as a link against possible embezzlement or low productivity. But trust takes time to develop, just like social media once they are affected. Therefore, the assumption that after the crisis subsides, things will return to normal and an unlimited supply of labor will flow from the field is not realistic. Wages will have to rise significantly, and the networks that support informal labor markets will have to be reformed for the process to resume.
Employers are clearly seeing the writing on the wall. Therefore, we see attempts as the construction industry pressuring a state government to cancel trains to prevent migrant workers from returning to their homes.
The same market logic that is often invoked to say that there are no free lunches when it comes to aid packages for the poor, also says that the only way to induce labor to work is by improving wages. and living and working conditions, not coercion. And since 90% of the Indian workforce is in the informal sector with no job security or benefits, the government-provided safety net must be strengthened to attract migrant workers back after this terrible experience.
At a minimum, this would involve making ration cards portable so that migrant workers are covered by the public distribution system (PDS) and committing significantly more resources (than in the previously announced aid package) to direct cash transfers and the PDS. There are no free lunches. The economy will not advance unless migrant workers return.
Maitreesh Ghatak is Professor of Economics at the London School of Economics and Director, Development Economics Program, STICERD
The opinions expressed are personal.