Jobs for locals: The politics and the economics

Moves towards job reservation for locals have come under fire. Integrated political and economic actions could present a solution.

The Haryana State Employment of Local Candidates Bill, 2020, which reserved 75 per cent of private-sector jobs paying less than Rs 30,000 per month in the state for local residents, was recently declared unconstitutional by the High Court of Punjab and Haryana. The court observed that this would lead to “large-scale similar state enactments…putting up artificial walls throughout the country, which the framers of the Constitution had never envisaged." The court further observed that the Bill curtailed the fundamental right to earn livelihood. Such Bills in other states such as Jharkhand, Madhya Pradesh, Karnataka and Andhra Pradesh have also run into similar troubles. 

Much of the commentary on 'jobs-for-locals' type laws points to constitutional problems, implementation difficulties or economic inefficiencies. These are legitimate points. However, there are deeper structural reasons behind such attempts which should also be understood. These include the weak capacity of the Indian economy to create aspirational jobs in adequate numbers, growing divergence in income across Indian states and the incentive structure of competitive electoral politics. These reasons have resulted in a political solution to an economic problem that is likely to be counter-productive.

First and foremost, growth has been weakly connected to job creation, particularly jobs that are aspirational in nature. As education levels have risen over the past two decades, we see that a larger fraction of the workforce is willing to wait a few years to see if they get a job that matches their aspirations rather than accepting the first offer that comes along. This is reflected in high rates of open unemployment among educated youth. For example, as of 2022-23, the national unemployment rate for youth with diplomas or degrees stood at 24 per cent. For Haryana, this reached 30 per cent. 

The hunger for better paying and more secure as well as dignified employment is also seen in the continued and vast over-subscription to public sector jobs. Simply put, available job opportunities are not at par with the expectations of potential workers.

But there are notable differences across states in this respect. This brings us to the second structural reason. The disparities, large to begin with, have become worse over time. For example, around 20 years ago, near the beginning of the high growth period in 2004, Haryana’s per capita state domestic product was around five times higher than Bihar’s.

By 2022, the gap had grown to more than six times. Similarly, Gujarat was four times as rich as Bihar in 2004 and six times as rich by 2022. More systematic exercises by Arvind Subramanian and others support the observation that unlike China, in India, growth has failed to generate convergence across regions. 

Thus, whatever job creation is occurring seems to be concentrated in a few states. For example, in 2004, 21 per cent of Haryana’s workforce was involved in regular wage work (as opposed to being self-employed or in casual labour). Compare this to Bihar’s 5 per cent or the national average of 15 per cent. By 2022, this had risen to 39 per cent for Haryana and a mere 9 per cent for Bihar. Especially at the lower end of the regular wage spectrum, namely, jobs that pay a monthly salary in the range of Rs 10,000 or 30,000 per month and include benefits like PF, industrial states such as Haryana, Gujarat, Karnataka and Tamil Nadu have managed to create far more opportunities. 

Labour migration 

It is such divergences that create the pressure for inter-state migration. Here, we also need to keep in mind the nature of inter-state labour migration. Setting aside marriage-related migration seen primarily in the case of women, broadly, three types can be distinguished. First, short-term (circular) migration mostly in industries such as construction and mostly for casual wage work; second, longer-term migration for regular wage work at the lower end of the wage distribution in manufacturing or in service industries such as health and retail; and third, longer-term migration for professional salaried work in IT, banking, education, health etc. 

Jobs-for-locals type legislation mostly targets the second type of migration. For example, Haryana’s law exempts jobs that pay more than Rs 30,000 per month. And similarly, Karnataka’s attempt at such a law a few years ago exempted the IT industry, which has relatively more professional migrants. The bind is this. Local educated youth may not necessarily want the low-end jobs that such legislation seeks to protect. But governments cannot protect higher-end jobs as easily since this risks losing highly productive industries to another state that does not put such restrictions on employers. 

But the complexity does not end there. Sub-state regional inequalities may also play a role. States such as Haryana and Maharashtra appear to have high average incomes, but this hides the fact that there are a few high-income, high-growth cities (like Gurgaon or Pune) along with a large number of smaller towns and villages that are not growing rich nearly as fast. These intra-state divergences, coupled with the cross-state divergences mentioned earlier, create a difficult social and political situation. 

Political impetus

Finally, we come to politics. Youth unemployment and a lack of aspirational jobs have become a salient political issue in the country. In a competitive electoral system, politicians must seem responsive to such core issues. Further, local residents and voters count for more than migrants without a vote. 

Going beyond the political system, many states also have strong regional and linguistic identities, as well as a sense of history. There is resentment in the face of a lack of effort to integrate (say by learning the local language) on the part of a visibly privileged working class such as those in IT. Of course, the jobs-for-locals laws do not cover privileged workers and are restricted to relatively lower-wage work. Though here too, when migration is across linguistically different states, tensions can and do arise. 

In this respect, the Indian subcontinent is more akin to Europe. Creating a common labour market across economically disparate and culturally diverse European nations has not proved easy. India has the advantage that it is a strong political unit. But that strength can quickly be tested if centrifugal forces gather strength. 

Protecting the local market from competition is an often-used economic policy move whose aim is generally to allow domestic suppliers to become competitive vis-a-vis their foreign counterparts. In the context of the labour market, the “suppliers” in question are, of course, workers. Does a similar logic to develop domestic capacity and skills apply in this case? More work is needed to investigate this. 

In relatively disadvantaged areas, where local workers face competition from better educated and trained in-migrating workers, such protection can buy the government some time to improve the quality of its local workforce. But this comes at a cost. In this case, employers, especially in industries such as manufacturing or IT, are moving to areas with better quality workers. Thereby, they are more fundamentally testing the notion of a common national economy.

With the upcoming delimitation of Lok Sabha constituencies and potential disagreements between the low-fertility and high-fertility states, such tensions can get heightened. Rather than seeing politics as a problem, it is better to think about how these incentives can be used to narrow the gap between migrant-sending and migrant-receiving states, and to quicken the overall pace of job creation such that resentments over stagnating prospects do not take on more divisive tones. This brings us back to the question of how to ensure that growth creates more jobs. This is doable, though it requires a range of coordinated policy interventions on both supply and demand sides of the labour market. 

(Amit Basole is Professor of Economics and Head, Centre for Sustainable Employment. He is the lead author of the ‘State of Working India’ report.)