Government jobs, reservations and the job crisis.

Published on Pragati -7 Aug 2018

“At the heart of all our recent agitations is a jobs crisis. Government jobs and reservations will solve nothing.”

India has become a land of agitation. We had just gotten over the farmers’ agitation when up came a Maratha agitation, crippling everyday life in Maharashtra. While the demand for reservations has always been a part of Indian politics, what is different now is the fact that we are in a phase where supposedly well-to-do, upper caste sections of society are demanding reservations in government jobs. We saw this in Gujarat through the Patel agitation couple of years ago, and are seeing it now in Maharashtra. What’s going on here?

Let’s first try and understand the impact of extending reservations to those now agitating for it. This piece contains no commentary on reservations per se, or their history so far in India. Let’s just look at where we are today.

The law lays a limit of 49.5% for reservation under various categories. As more and more subgroups claim to reservations, the only way to give them jobs is to expand the pie of government jobs, and allow specific groups to take larger pieces. With increasing commitments to various caste subgroups, the day is not far off where we will need an amendment to the legislation to increase it beyond the stipulated numbers.

Expanding the ambit of reservations indefinitely will not just be a political minefield, but an economic one. Reservations involve expansion of state capacity to accommodate different sections of the society. In a market economy, this will lead to crowding out of resources, hurting the economy. As the government expands its footprint in areas where market forces can compete, it will borrow heavily from financial institutions, leaving very little for disbursal to the market.

Also consider the opportunity cost of spending on creating and maintaining jobs which would otherwise could be created by the markets. The funds demarcated on creating and maintaining these jobs could have be used in areas of greater importance, such as education and healthcare. Also, expanding government expenditure will impact the fiscal deficit. Socially, with groups competing for reservations, we will further sink into identity politics of the worst kind, leading to social unrest caused by religious and caste groups.

While the assertion of political identity and vote bank politics cannot be set aside, the underlying reason behind all agitations, especially caste based reservations, seems to be an aspiration-reality mismatch. As mentioned in this piece, declining farm incomes and increasing rural-urban divide have made non-farm jobs an aspiration to even people who own some land. It would be erroneous to assume that all people within a caste group demanding reservations are within the same socioeconomic group, and hence a one-size-fit-all solution will work. Solutions should be tailored to people in all blocks of the hierarchy. These solutions would boil down to a) making agriculture viable to ensure the income aspirations are met, b) creating an economy where the market will provide jobs that fulfill aspirations, c) reducing the clamour for government jobs arising out of negative factors and d) incentivizing the right features of a government job.

Making agriculture viable as a profession of course will move people up in the income size and stability matrix. Suggestions to make agriculture viable range from liberalization of agriculture to repealing the APMC act, which have been discussed at length before in Pragati. (1, 2, 3, 4, 5, 6, 7.)

The creation of adequate numbers of adequate jobs by the market is a huge part of the solution to reduce the clamour for government jobs. To make this a possibility, different cogs of the wheel need to move together. This implies bold structural reforms in factor markets as well as educational reforms to make people employable. However, in the private sector we often see that there is a mismatch of skills to jobs. While companies do some carry out some training, there is a need for a base level of skills. The sector that seeks reservation more often than not are not skilled to take on real world jobs.

Reducing the Clamour for Government Jobs

Santosh Desai, in this piece, explains why a government job is still attractive for so many people. Reducing clamour does not imply we make government jobs less desirable, because needless to say we need talented and committed people in this sphere more than ever. However, we need to understand why these jobs are sought after, and work towards pushing the right levers to attract the right people. Here are some reasons for why government jobs are attractive, and what can mitigate that.

1. Historically, there is great ‘prestige’ attached to a government job. This was understandable in the centrally planned economy of the 50s through the 80s, as there were a limited number of jobs being created. With the opening up of the economy in the 90s, the sheen of these jobs wore off in some sections of society. So more private sector jobs will reduce the attractiveness of a government job.
2. On the income-size-and-stability matrix, a government job scores very high. Stability with post-retirement benefits are almost a certainty. While the cash in hand may not be as high as in a private sector job, it comes with great benefits attached such as maybe subsidised housing, transport etc.
3. The skill levels of people looking to gain through reservations is low. Since government jobs at the lower levels do not insist on skills other than basic literacy, the vast majority seem to think they have a chance at it. So to reduce clamour for these jobs, we need to increase skill levels for jobs and increase skill levels in people so that they have a vast array of options to choose from.
4. However, the other main draw of a government jobs is the associated perception of a ‘non-stress environment’ and ‘double incomes’ through rent seeking. This can be addressed by changing and aligning incentives to solve the principal-agent problem. In this situation, the government is the principal while the employees in government jobs are agents. We need to find ways to ensure that the incentives to the agents align with the goals of the principal.

There is no silver bullet to the problem of jobs, and reforms are needed in every sector. Will they happen in an election year?