Wednesday, July 18, 2007

Unemployment in India

Every time there is overproduction of a good we need to look at the underlying causes. One of the most repeated questions in India is that of the reasons for the high levels of unemployment and under employment in this country. Individuals holding a post graduate degree and working as clerks in offices and engineers driving cabs are legendary stories. These are not just stories but ground realities. The official unemployment count for the year 2005-2006 is 7% of the workforce. This is a huge number given that the population of India is about 1.1 billion. To alleviate this problem the government is constantly coming up with new schemes of employment for unemployed youth and as is common knowledge most of these schemes come to naught. It was understood as far back as the end of the third plan that projections of employment potential based on the plan targets were not reliable due to lack of knowledge about employment created by every new unit of investment and had to be abandoned. The more recent plan documents are vacuous and do not state any clear strategy to reduce unemployment in the country.

Although it is laudable that the government is thinking about the unemployed, they are way off base when it comes to having diagnosed the problem. The root of the problem of unemployment and under employment lies elsewhere in the education system. Here are two reasons

  1. Highly subsidized technical and higher education
  2. Emphasis on technical skills such as scientists and engineers since the first five year plan
Highly subsidized technical and higher education:

One of the most fundamental concepts taught in introductory economics courses is that of costs. Due to scarce resources individuals allocate their scarce resources based on a value scale. The most valuable use will be on top of the chart and the least valued will be all the way down. In the case of higher and technical education in India, both of these are highly subsidized. Thus the students (or the parents in most cases) do not bear the full cost of their technical education. If they had known the full cost of the education, its value in their scale may have been at a different point. Thus, this subsidy has lead to an over production of higher and technical education. Since there is no commensurate demand from the market, the overproduction leads to unemployment. In addition all the money for the subsidy comes from consumers in the form of taxes. Thus, in the absence of the subsidy (and the resultant taxes) some of them may have been able to afford higher education and others not. Thus spending even more of tax payers’ money on employment schemes does not attack the problem but just the outward manifestation of it or the symptom. It is true that even in medicine for the most severe diseases the symptom is first treated; however, when the treatment fails to work usually further diagnostic tests are conducted to ascertain the actual problem and once it is diagnosed the correct treatment is undertaken. In the case of government sponsored programs the symptoms have been treated for several decades now without a proper analysis of the underlying causes.

Read Who actually paid for my education?

Emphasis on technical skills such as Scientists and Engineers since the first five year plan

A newly independent India in the early 1950s wanted to industrialize fast and that was the aim of the first three five year plans. The emphasis was on building a heavy goods public sector that would absorb Scientists and Engineers. Thus was born the obsession with technical education and liberal arts education completely lost its appeal. Since private enterprises were few and far between a government job was a coveted position, and these jobs were in the technical sector. Naturally, individuals flocked towards the technical schools. In addition, these were also subsidized and so were affordable to the common man. However, in the 60s and 70s there was distinct shift in the nature of planning. But the masses failed to see this shift and continued towards technical education. This is a clear case of knowledge that was gained in one period having become institutionalized by the next period. The collective understanding of a generation was passed down to future generations, and the shift out of the sciences is yet to occur in India. However, with liberalization new avenues in Computer Science and Management have opened up and some of the population has drifted that way. Nevertheless, excessive demand still lies in the Sciences. In addition decades of neglect of the liberal arts has led to a completely deteriorated liberal arts education in the country. The latest fancy at least in the upcoming middle classes and elites is to get a basic engineering degree here and go abroad for higher education and better avenues. The subsidized fee structure, in addition to the lingering romanticism of a planning era long gone, have contributed to the increasing levels of unemployment among educated and well qualified individuals.

No comments: