Extract published from India@100:Envisioning Tomorrow’s Economic Powerhouse by Krishnamurthy Subramanian, published by Rupa Publications India.
Good jobs do not just appear magically; they depend on companies being more productive and successful businesses growing. In particular, creating good jobs consistently over a period of time requires labour productivity to grow in the economy. However, government programmes can play a crucial role in supporting this process. Besides the perverse incentives for firms to remain dwarfs and consequently curb their productivity and job growth, taxes on investment earnings are significantly lower than taxes on income earned from employment. This unintentionally makes it more appealing for companies to invest in machines and save on labour costs, even if it is not the best choice for society. Employment should be a factor in the tax incentives for research and development (R&D). Priority could be given to innovations that create jobs for people with low and medium skills, rather than those that just replace jobs without significant overall benefits. Tax incentives for R&D should be staggered based on the actual number of jobs created using the investment in innovation.
The way in which private companies are encouraged to innovate can often be hostile to job creation. Research shows that venture capital (VC) tends to invest in areas where profits come quickly. This means that some valuable innovations with longer-term benefits for society-like enhancing the productivity oflabour and thereby adding to job creation may get overlooked. Moreover, there are two approaches to bridging the divide between skills and technology: improving education to meet the needs of new technologies and directing innovation towards utilizing existing skill sets. The second approach does not get much attention but is worth considering. Government policy should be focussed on directing technology in a way that aligns with the current workforce’s skills, in addition to equipping the workforce with the necessary capabilities to adapt to emerging technologies. Post-War Job Creation in Western Europe and North America.
During the post-War era, scores of high-paying jobs were created in Western Europe and North America; such job creation led to the rise of a burgeoning middle class. The primary contributor to such job creation was the increase in labour productivity, which fuelled labour demand. This increase in labour productivity was fostered by high-quality education. Of course, firms would not have been willing to hire millions of well-paid workers if these workers lacked useful skills. The US federal government supported university education through GI Bill grants, Pell Grants and generous research support.52 Moreover, local governments increased spending on primary and secondary education.
Evidence from the Atmanirbhar Bharat Rozgar Yojana
The Atmanirbhar Bharat Rozgar Yojana (ABRY) was implemented in October 2020 with the aim of stimulating job preservation during Covid-19. The scheme incentivized new hiring, including for those who had lost their jobs due to the pandemic. Under this scheme, the government covered both the employee and employer contributions to the Employment Provident Fund (EPF), which accounted for 24 per cent of wages, for all new hires in firms with up to 1,000 employees. In the case of firms with more than 1,000 employees, the employee’s EPF contributions for all new hires, which amounted to 12 percent of wages, were covered. Data from the Ministry of Labour and Employment of the GoI reveals that over 6 million employees were hired under this scheme by over 1,50,000 firms. Two lakh establishments specializing in expert services, textiles and trading-commercial sectors emerged as the top three contributors to employment recovery and growth.
Manufacturing Jobs in the Age of Al
Remember the film Naya Daur, in which the competition between a horse carriage and an automobile-competition between capital and labour-forms the central part of the story? This movie from the 1950s starring thespian Dilip Kumar reminds us that automation technologies have been around for a long time. It is crucial to remember this when rationally analysing the fear about job losses in manufacturing due to automation and AI.
Of the 270 occupations in the 1950 US census, 232 of them (86 per cent) still exist today; 37 of them disappeared because of changes in consumer demand or technological obsolescence. Only one occupation disappeared purely due to automation: elevator operators. However, some commentators argue that this time things will be different, especially because of advances in AI. In this context, it is useful to recall the story of automation at Tesla. In 2016, Elon Musk announced that Tesla’s Model 3 would be built in a new, fully automated car factory with robots operating beyond human speed, raw materials coming in at one end and finished cars rolling out the other.54 By mid-2018, the automation was not working as expected, and Tesla was driven close to financial collapse.55 Tesla then launched a new assembly line full of human workers. Learning from this experience, Musk admitted that people are way better at dealing with unexpected circumstances than robots. He conceded on X (formerly Twitter) that excessive automation at Tesla was a mistake and that humans are underrated.56
This experience reveals important lessons. First, it highlights how production techniques relying on human labour can still dominate automation in situations where uncertainty cannot be fully addressed and all tasks cannot be standardized. For instance, many of us can relate to the frustration experienced when an AI-powered automated voice fails to resolve our customer service issue as effectively as a human customer service representative. Second, it is indicative of the excessive faith many business leaders often place on new technologies. Third, it reminds us that technology adoption is a choice that businesses must make. They are presented with a range of options about the types of innovations to use and deploy. These choices have significant implications for the workforce, and occasionally even for society at large. However, these implications are not typically internalized during the decision- making process.
(Excerpted with permission from Rupa Publications India.)
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