The lockdown due to the coronavirus disease (Covid-19) is estimated to have tripled the urban unemployment rate in its first three weeks. According to the Reserve Bank of India, a full bounce-back looks unlikely in the near future, and the business sentiment has shifted from negative to one of pessimism.
The government’s recently-announced economic package does little for workers in urban areas, most of whom are irregular informal workers. The majority of them – 62 to 85% – have no access to benefits such as provident funds and insurance, which make up the flagship government schemes for Covid-19 relief aimed at such workers.
Policies to protect workers are being discussed across the world. Such as the United Kingdom’s payment of 80% of wages for furloughed workers and a universal basic income. Closer home, the Confederation of Indian Industries (CII), has urged the government to provide a fiscal stimulus of Rs 2 trillion, which could support 200 million low-income people with Rs 10,000 each. Many of the proposals being put forward insist on targeted direct transfers, often through biometric identification-based bank accounts. The CII specifically mentions an “Aadhar based Direct Benefit Transfer”.
Targeting based on incomes and encashing checks may be easy in economies with broad-based tax and payments systems. For vulnerable groups in India, correct targeting and timely payments are perennial problems. Detailed data is severely lacking. For example, just 7% of adults file taxes, and the available labour force statistics make it difficult to accurately identify unemployed individuals. There is growing evidence of exclusions and omissions, and payment failures and misdirection from the Aadhar-based system even in normal times and in areas where it has been in place for a while.
Economists have long recognised the informational challenges of targeted payments. They have advocated job guarantees because they are self-targeting. A needy rural household and a rural landlord both have access to work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), but the landlord is unlikely to take up digging wells for Rs 202 a day.
These reasons motivated MGNREGA to cover all rural households, and the government expects to rely on it to create rural jobs once social distancing rules are relaxed. It is time to be bolder than this. A universal job guarantee needs to be on the table for discussion to cover the many workers who are in precarious work situations across in the country.
Even in more advanced countries, national statistics have proved inadequate in recording informal workers outside the organised sector, especially the new breed of self-employed and temporary workers in cities. To understand the value of job guarantee to such workers, the Centre for Economic Performance at the London School of Economics conducted a survey of over 16,000 individuals in India in 2018. It found that, on average, an urban worker is willing to take a 15% cut in wage to get a guaranteed number of days of work in a year.
Our survey showed that migrants were much less likely than non-migrants to be able to pay for emergency expenses. They also placed a greater value on having a job guarantee. Although a universal programme would not have overcome the immediate plight of uncovered migrants, it is certainly fair to say that the holes in coverage created by targeted payments have not been adequately weighed in policy discussions.
The self-targeting features of a universal job guarantee make it equitable and cost-effective. A 100-day job guarantee at a daily wage of Rs 200 (similar to MGNREGA) would cost Rs 20,000 per person. Let’s suppose all casual workers (13% of the urban workforce of 300 million persons), irrespective of income, take up the job guarantee. To calculate how many other individuals take it up, add the 15% value that workers place on having a job guarantee, and we end up with a daily value of Rs 230. In urban India, 16% of the workforce, including those who are unemployed, earn less than Rs 230 from other works – and suppose all of them take up the job guarantee scheme. From a back of the envelope calculation, an urban job guarantee would cost Rs 1.74 trillion, or 0.8% of India’s annual GDP.
Many may consider Rs 200 obscenely low. At Rs 400 a day, the estimated cost of providing a 100-day job guarantee would be Rs 6.6 trillion. In reality, costs are likely to be much lower, because the take-up rates here include government workers and business owners, who place much lower values on job guarantee.
Importantly, these costs do not net out potential benefits from skills for young urban workers, 93% of whom have no formal vocational or on-the-job training. A job guarantee might lift some of their despondency, as documented for young UK workers during the New Deals of the late 1990s.
At a time of severe economic insecurity, a pledge, not even an actual outlay of 1 to 3% of GDP, is a minuscule sum to restore dignity to those who may have fallen through the cracks. This is not the time for “technophiles” to dogmatically cling on to the libertarian ambitions of targeted bank transfers as an end in itself. Old ideas of job guarantees have value in today’s difficult economic times.
Swati Dhingra is associate professor, department of economics, and Centre for Economic Performance, London School of Economics
The views expressed are personal