Urban Unemployment - Waiting To Explode

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In the 1930s, at the height of the Great Depression, US President Franklin D. Roosevelt’s Public Works Administration (PWA) paid private construction firms $7 billion to build airports, dams, bridges, roads,  schools, zoos, tennis courts, theatres, dormitories, and hospitals. It was a desperate act of rebellion against the faltering economic engine. A Hail Mary pass, if you will.

The hope was that this spending would rejuvenate demand — more jobs, more spending, more economic activity and a virtuous cycle of growth. But there was another angle here. Roosevelt wanted the PWA to provide local jobs directly to the unemployed. And although new jobs couldn’t outpace unemployment levels in the country, it put 8.5 million Americans to work, who went on to erect 600,000 miles of new roads, build 100,000 bridges and construct 35,000 buildings.

It was proof of concept for a radical idea proposed by one of the greatest economists of the 20th Century — John Maynard Keynes.

And these ideas are gaining ground once again.

When COVID sneaked its way into cities like Mumbai and Delhi, we hit the speed breaker. Urban unemployment rates tripled and the informal sector was on its deathbed.

As a column in VoxEU notes:

The vast majority of people working in urban areas are employed informally. They have no written job contracts, no regular salaried work, and are often employed casually through job contractors, subcontractors and temp agencies. Several attempts to formalise informal work have been made and are underway. But the reality on the ground is that the majority of urban workers — 62–85% of them — have no access to benefits, which make up the flagship schemes for COVID-19 relief to workers in urban areas.

Meaning, we have a large portion of the urban population that has no work, no benefits, and little social protection. So there’s been growing consensus that the government could potentially stave off an unemployment crisis in the urban areas by taking a leaf out of Keynes’ playbook.

After all, we have already implemented MGNREGA — a guaranteed-employment program where any rural adult is offered 100 days of unskilled manual work so long as he/she demands it. And it’s turning out to be a lifesaver.

Migrant workers who made the treacherous journey back home have been lapping up MGNREGA like never before. The demand for the scheme has skyrocketed. However, despite the increase in demand, the gap between “those who wanted work and those who got it” is at an all-time high. On average, the gap between the demand and supply of jobs in the month of May (over the past 5 years) has roughly tallied to about 16–18%. This year however, it’s at 29% —  that means only two out of three workers who applied to this scheme were entitled to any benefits under MGNREGA.

And if this exodus continues, there will be a rural crisis unfolding soon enough. So some people have contested that there is an urgent need to stem the flow.

Stop the migration and incentivize these people to stay back.

Maybe we could replicate MGNREGA in urban centres — Offer the urban poor a chance to make a living and pay them a decent wage. It could have far reaching impact and it may help us kick-start economic growth as well.

In fact, some states are already experimenting with this model in a limited capacity.

In April, Odisha announced a Rs 100 crore scheme which would help the city’s urban poor earn an immediate wage by working on labour-intensive projects sponsored by the government.

In May, Himachal Pradesh launched the Mukhya Mantri Shahri Ajeevika Guarantee Yojna to provide 120 days of assured unskilled employment to adult members of households in urban local bodies. The government is planning on spending around Rs 25 crores on the project.

And other state governments will probably join in too. However, if this program gets a slight boost from the central government maybe we could have something really solid on our hands. It all depends on whether the government has the will and the financial muscle to pull this off.

Guaranteed employment for the urban poor. Would be swell, wouldn’t it?

Until next time…

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