Unemployment is not about just education

Unemployment is a complex issue that cannot be solely attributed to the quality of education. While demanding reform of the education system is valid, it is important to recognize that high unemployment rates exist in countries with superior education systems, such as Finland and Sweden. Additionally, within India, states like Kerala with higher levels of education still experience significant youth unemployment.

Another factor to consider is that even with scarce educational qualifications and skills in India, real wages for skilled workers have not significantly increased. In fact, wage growth for the majority of Indian workers, particularly in the IT sector, remains stagnant.

The issue of unemployment in India is further compounded by a slowdown in aggregate demand. Over the past decade, seven out of eleven sectors have slowed, with only one sector growing faster – real estate. With a comprehensive slowdown in the economy, demand for labor would naturally decline. However, the slowdown in the economy is a result of both short-term and long-term factors.

The primary trigger for the slowdown is believed to be demonetisation in 2016, which caused growth to slow annually for three years, followed by a contraction in 2020-21 due to COVID-19. The economy has since rebounded but has not been able to sustain the same level of growth.

Two long-term factors contributing to the slowdown are the reduced pace of capital formation, primarily due to low public investment, and a rising price of food. Despite significant progress in India's growth during the early 2000s, the real price of food has increased by 53% since 2008-09. This rise in food prices has led to lower household welfare and reduced demand for other goods.

Consequently, industrial firms have experienced excess capacity, leading to postponed investments. This stagnation in private investment is further fueled by the stagnation of real wages for most rural workers over the past decade and declining real earnings for regular workers and the self-employed. As a result, consumption expenditure has been impacted, leading to pessimism about future growth among firms. This, in turn, has resulted in unchanged growth rates of private investment.

Public investment can somewhat counterbalance the stagnant pace of private investment; however, it requires careful selection of projects. The Modi government's preference for large-scale infrastructure projects, such as highways and airports, may not yield the same level of employment generation as infrastructure closely related to production, like roads, electricity, sewerage, and transportation.

To tackle the current employment crisis in India, it is crucial to understand the underlying issues and take appropriate corrective action. While India must provide its youth with the best education, public policy must prioritize maintaining a high aggregate demand for goods to create sustainable employment opportunities.