In 1978, during my postgraduate studies at the University of Melbourne I came up with…
It is a holiday today and so my blog will be relatively short. The Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) was proclaimed on September 7, 2005. It aims “to provide for the enhancement of livelihood security of the households in rural areas of the country by providing at least one hundred days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work …” The program is an example of supply-determined job creation, which renders it less effective than it might otherwise be if it was redesigned to become a demand-determined scheme. The latest data shows that as the relevant labour market starts to slow down in terms of employment creation, the number of workers who are unable to access jobs at all within the MGNREGA are rising and the proportion of workers who cannot access the full 100 days of guaranteed work remains high (as does the hours gap).
As an aside, dealing with any of the Indian statistical agencies (for example, Central Statistics Office, Labour Bureau) is a frustrating, haphazard experience. The most recent data available is often more than a year old and many of the links on the sites give errors.
In addition, you have to put up with a plethora of flashing and spinning gifs next to brightly-coloured headings, signalling ‘New’ or ‘Updated’. Not very visually appealing I have to say.
Further, the portals for major Ministries (such as Labour and Employment) are not reliably available (not available from Australia today, for example).
So trying to build up a picture of what is happening in this economy and labour market is difficult.
The most recent data from the Central Statistics Office (released February 8, 2016) – Advance Estimates of National Income 2015-16 and Quarterly Estimates of Gross Domestic Product for the third quarter (Q3) of 2015-16 – show that real GDP will likely grow by 7.6 per cent over 2015-16 (if the performance up to the third-quarter is maintained.
This is in contradistinction to the 7.2 per cent achieved in 2014-15.
While the FIRE, retail, hospitality, transport, communications and manufacturing sectors are driving above 7 per cent growth, the Agricultural, forestry and fishing and construction sectors are languishing at 1.1 per cent and 3.7 per cent, respectively.
India doesn’t publish regular employment data and what data one can piece together is quite dated.
The most recent data that is helpful is in the form of the 27th Quarterly Report on the Effect of Economic Slowdown on Employment in India, which covers the period July 2015 to October 2015 and was released on March 8, 2016.
The following graph taken from the latest quarterly small-sample survey by the Labour Bureau shows that the annual growth in employment is slowing after a fairly robust recovery from the GFC.
In addition, the results show that:
… a maximum average monthly increase of 0.95 percent in employment is observed in the Metal sector. The other contributor to increase in employment are IT/BPO sector by 0.83 percent, Textiles including Apparels by 0.18 percent, Transport by 0.13 percent and Automobiles by 0.08 percent.
The strongest growth for ‘direct’ workers (those not on contract) was in the IT/BPO sector.
None of these jobs are likely to benefit the rural sector workforce much, which is experiencing a slowdown in employment opportunities.
Further, the most recent data released by the Central Statistical Office for its – Index of Industrial Production (IIP) – (at the 2-digit level up to January 2016) shows that industrial production remains flat.
The following graph shows the evolution of the Index of Industrial Production (March 2008 = 100) up to January 2016. The black line is a 12-month moving average (to smooth out the seasonality in the monthly data).
The overall index has declined for the last three months – the annual growth in November 2015 was -3.4 per cent, December 2015 -1.2 per cent and January 2016 – 1.5 per cent.
The overall impression one gets is that the Indian economy is slowing down and this is reducing employment growth in areas likely to benefit the poorer citizens in the rural areas. It might also be encouraging a return to rural areas by unemployed workers who are unable to gain work in the urban centres.
So what has been the impact on participation in the NREGA?
I have written about the program previously:
The MGNREGS was introduced to bridge the vast rural-urban income disparities inequality that have emerged as India’s information technology service sector has boomed. Essentially, the growing jobs boom in the urban areas created massive incentives for poor rural workers to move into the cities in search of a living.
There were two negative consequences of this. First, the urban centres could not cope with the increased populations – housing, transport, public services, etc – were in adequate to meet the demands of the rising populations.
Second, the exit of tens of thousands disrupted the continuity of the rural areas.
The answer was to create job opportunities in the rural areas, where they had been extremely scarce to provide a minimum standard of living for those who stayed and were prepared to perform manual work for a certain guaranteed number of hours per year. That was the main motivation for the introduction of the scheme.
The MGNREGS guarantees 100 days of minimum-wage employment on public works to every rural household that asks for it. The adults must be willing to undertake unskilled manual labour at the legal minimum wage. Once an adult applies for work, the scheme must employ them within 15 days or pay unemployment benefits.
Local communities have input into the selection and design of the jobs and local government plans and implements the work activities.
The Indian Government maintains a wonderful NREGA homePage with a wealth of information seemingly available, but be prepared to endure broken links and scheduled maintenance that prevents you accessing key data.
You can also learn about it – HERE.
The latest – Summary Data.
The initial design of the MGNREGS was far from the Job Guarantee ideal. Remember the features of the Job Guarantee are designed to ensure the simultaneous achievement of full employment and price stability and exploit the currency monopoly held by the national government.
The following Table provides a brief comparison of the desirable properties of a buffer stock employment scheme and the MGNREGS.
The MGNREGS is a cut-down version of the Job Guarantee, in the sense, that the latter is unconditional and demand-driven (that is, the government employs at a fixed price up to the last person who seeks work) whereas the MGNREGS is conditional and supply-driven (that is, the government rations the scheme according to some rules – number of jobs, hours of work or some other rationing device).
You can readily appreciate that the underlying MMT which drives the JG conception is missing from the MGNREGS.The scheme does not provide a permanent job offer which means there is no ‘buffer stock’ capacity available in India.
The lack of universality of the programs means that unemployed workers are unable to freely enter and exit the program. As we will see the promise of 100 days work per year remains an illusion in the MGNREGS.
Unlike a true JG policy, the MGNREGS does not operate as a buffer stock of jobs which allows the wage to serve as a price anchor.
A lack of universality is not the only way that the MGNREGS fails to serve the buffer stock role.
In the MGNREGS, sub-national governments, which are revenue-constrained, contribute to the investment outlays of the scheme, which limits its scope to respond to the demand side.
Also, given the wage arrangements (some of the wage can be paid in food) the MGNREGS does not provide a comprehensive nominal price anchor. By paying a minimum wage to all workers, the Job Guarantee creates ‘loose full employment’ – in the sense it places no pressures on the price level in its own right.
It can also be used to discipline the inflation process by redistributing workers to the fixed price sector. There is no such capacity in the MGNREGS.
Finally, MGNREGS provides no training capacity. The ideal Job Guarantee would integrate skills development into the unconditional job offer and thus build dynamic efficiencies into the economy and provide the least-advantaged workers income security but a ladder to move to higher productivity jobs in the future.
A report yesterday in the Times of India (March 27, 2016) – India’s most wanted: Jobs, Jobs & Jobs – provides some insight into what is happening with respect to the MGNREGS.
The data it reports demonstrates why a supply-determined employment guarantee approach is less than effective.
The Job Guarantee in its pure form is a demand-determined employment guarantee approach to macroeconomic stability.
The most recent data from the Ministry of Regional Development, which oversees the MGNREGS shows that there is a rising percentage of workers seeking work in the program but are denied jobs as a result of the supply constraints put on the system.
This is at a time that there is a rising demand for jobs in the program as the general labour market slows and the hours available have shrunk.
The following graphic (taken from the most recent reports) and reproduced in the Times of India article shows the persons (in millions) who desired to work in the MGNREGS.
19 per cent of willing participants were denied access to work in the most recent financial year.
The Times of India article concludes that:
Till the third week of March this year a staggering 8.4 crore persons had demanded work under MGNREGS. That’s a 15% increase from the 7.3 crore who demanded work last year. This is a symptom of large scale scarcity of jobs because the wage employment scheme provided only 43 days of work on average in a whole year – instead of the 100 days guaranteed under the scheme -and that too manual labour.
Of those who applied, nearly 1.6 crore or 19% were not given work – the highest turn-back ever seen in this scheme. So, the job situation in rural areas doesn’t appear to be very healthy.
Note: a crore is a unit of measurement used in India and equals ten million, so 8.4 crore equals 84 million.
The other way in which the supply-constraints on the program are undermining its capacity is in the proportion of workers who receive 100 days of work.
The publicly-available data shows that the scheme has consistently failed to reach the 100 days per year per household target.
For the financial year 2012-13, the average was 46.2 days, in 2013-14, the average was 45.97 days, 2014-15 40.17 days and 2015-16 46.4 days per household.
Conditional (supply-driven) approaches not only undermine the job creating potential but also reduce the capacity of the scheme to act as a nominal anchor.
The reality is the unconditional Job Guarantee approach is the only guaranteed way that the national government can ensure there are enough jobs available at all times without activating an inflationary spiral. It is a very modest approach given those aims – choosing to work via the automatic stabilisers.
A Job Guarantee buffer stock approach would ensure that there was work available on demand, which clearly requires an infrastructure be developed by government to support the policy. Governments must create an inventory of employment opportunities which can be quickly made operational when required.
FINALLY – Introductory Modern Monetary Theory (MMT) Textbook
I will write a separate blog about this presently, but today we finally published the first version of our MMT textbook – Modern Monetary Theory and Practice: an Introductory Text – today (March 10, 2016).
The long-awaited book is authored by myself, Randy Wray and Martin Watts.
It is available for purchase at:
1. Amazon.com (60 US dollars)
2. Amazon.co.uk (£42.00)
3. Amazon Europe Portal (€58.85)
4. Create Space Portal (60 US dollars)
By way of explanation, this edition contains 15 Chapters and is designed as an introductory textbook for university-level macroeconomics students.
It is based on the principles of Modern Monetary Theory (MMT) and includes the following detailed chapters:
Chapter 1: Introduction
Chapter 2: How to Think and Do Macroeconomics
Chapter 3: A Brief Overview of the Economic History and the Rise of Capitalism
Chapter 4: The System of National Income and Product Accounts
Chapter 5: Sectoral Accounting and the Flow of Funds
Chapter 6: Introduction to Sovereign Currency: The Government and its Money
Chapter 7: The Real Expenditure Model
Chapter 8: Introduction to Aggregate Supply
Chapter 9: Labour Market Concepts and Measurement
Chapter 10: Money and Banking
Chapter 11: Unemployment and Inflation
Chapter 12: Full Employment Policy
Chapter 13: Introduction to Monetary and Fiscal Policy Operations
Chapter 14: Fiscal Policy in Sovereign nations
Chapter 15: Monetary Policy in Sovereign Nations
It is intended as an introductory course in macroeconomics and the narrative is accessible to students of all backgrounds. All mathematical and advanced material appears in separate Appendices.
A Kindle version will be available the week after next.
Note: We are soon to finalise a sister edition, which will cover both the introductory and intermediate years of university-level macroeconomics (first and second years of study).
The sister edition will contain an additional 10 Chapters and include a lot more advanced material as well as the same material presented in this Introductory text.
We expect the expanded version to be available around June or July 2016.
So when considering whether you want to purchase this book you might want to consider how much knowledge you desire. The current book, released today, covers a very detailed introductory macroeconomics course based on MMT.
It will provide a very thorough grounding for anyone who desires a comprehensive introduction to the field of study.
The next expanded edition will introduce advanced topics and more detailed analysis of the topics already presented in the introductory book.
That is enough for today!
(c) Copyright 2016 William Mitchell. All Rights Reserved.