Should Full Employment Be Pursued ?

In the previous few articles, we studied about the various types of unemployment. We also studied about how the root cause of these different types of unemployment varies widely from one another. Also, we understood that not all types of unemployment are equally bad for the economy. In fact some of them may be beneficial.

In this article, we will try to answer a fundamental question based on the knowledge that we have acquired. The question is whether “employment” is a goal within itself i.e. should the goal of full employment be pursued as an independent goal ?

Employment: The More the Better

The average person believes that the more employment we have, the better it is. After all, employment provides a means of livelihood to the majority of the population. The more people are employed, the more people are prosperous, isn’t it?

Well, this logic appears to be right if we consider only the short and medium term consequences of such employment. However, in the long run forced zero unemployment creates more problem than it solves. It is like avoiding multiple small crises to create a gigantic catastrophe. Let’s delve into the reasons a little bit further.

Employment: A By-Product of Efficient Production

In the common sense way the economy is supposed to function, employment is a byproduct of efficient production. In fact efficient production entails the minimum possible use of resources to create the maximum possible output. Since human resources are finite and expensive, efficient production must ensure their minimum utilization.

With this minimum level of utilization, an economy must create enough employment to meet the needs of its labor force. Simply put, productivity is the main concern and employment is a byproduct of well designed efficient businesses. Hence, productivity is the main goal. Businesses must strive to be more productive and it should never be the goal of businesses or any kinds of economic organizations to provide more employment at the expense of productivity.

Employment: Forced Production

To the contrary, if jobs are created with the sole intention of creating zero unemployment and do not pay attention to productivity, then the long term consequences are adverse.

Schemes life welfare spending, minimum employment programs etc mandate that the government must provide a certain minimum level of employment and provide a certain minimum level of wages to everybody. Whether the government can identify enough projects wherein it can utilize the labor of so many people is secondary. The objective is political and not economical. The objective is to create the illusion of prosperity by falsely creating favorable unemployment statistics in the short term.

Case In Point: MNREGA Scheme in India

The Mahatma Gandhi National Rural Employment Guarantee Act is a legislation that was passed in the Indian parliament in 2005. This act dictates that every household must be provided at least 100 days of work for able bodied members who are willing to do unskilled manual labor. While many people have hailed this act as a remarkable piece of legislation providing social security to the poverty ridden rural Indians but the act has also faced many criticisms.

Prime amongst the criticisms is the fact that MNERGA constitutes a substantial portion of the Indian government’s budget. However, the output from the MNREGA scheme is negligible. Most of the money is spent on building roads and other infrastructure projects where there is no need to do so. Every year the Indian government borrows money to finance this unviable project with the goal of creating more employment.

By doing so India’s debt rating has suffered in the global markets. The Indian governments bonds were graded at near junk levels by Standard and Poor, a leading credit rating agency in the world.

The goal of full employment pursued without any regard to productivity has created a cash guzzler!

Sustainability

The biggest difference between employment pursued for productivity’s sake and employment pursued for employments sake is the sustainability.

  • A productive system is sustainable in the long run. All the people that are employed in their jobs add value to the process and hence even after a long time span they can expect to hold their jobs. The system will not collapse. In fact, a productive economic enterprise will prosper and will create more jobs in the long run, solving the issue of unemployment permanently

  • On the other hand, a system that creates employment for employment’s sake is unsustainable. Most of the people do not add value and hence there is no legitimate reason for them to hold their jobs many years later. The losses are usually financed because of political motives. However, this too does not continue for very long. Finally, the (un)economic enterprise collapses leaving more people unemployed and also a debt ridden government which is ill equipped to handle the crisis it is confronting.

Conclusion

Hence, from an economic standpoint, the goal of zero unemployment should not be pursued independently. Economic policies aimed at increasing employment without giving due consideration to productivity will collapse creating mayhem. The economic policies of a country must aim at creating productive enterprises. Productive enterprises have a way of expanding on their own and creating an upward spiral of escalating employment levels and dwindling unemployment levels.


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