State Job Quotas Are A Symptom Of A Bigger Unemployment Crisis

Context: Critical analysis on risks of economic policy parochialism at the state level in India.

Economic policy parochialism at the level of states

• Haryana job reservation legislation: Requires private employers to reserve 75% of new jobs that pay ?50,000 or less per month for residents of the state. 
• Similar measure in move-in Jharkhand and proposals in Tamil Nadu. 
• Reasons: 
  • Lack of jobs: Economic development paradigm since liberalization in 1991 has not been of labour-intensive, job-creating variety. (led to underemployment disguised as employment)
    • Cumbersome and costly labour regulations that retarded formal job creation and discouraging selection of labour-intensive production techniques.
  • Lack of financial independence to improve ‘ease of doing business in states: n the context of the goods and services tax (GST) introduced in 2017, Indian states have been deprived of the usual fiscal tools that may be deployed to attract new investment and foster new business creation.

Key issues accompanied by such policy parochialism:

• Doubtful constitutionality: Question on the constitutional guarantee of freedom of movement.
• Added economic cost: Due to limited workers’ freedom of movement among states, by restrictions on employers’ freedom to hire out-of-state workers etc.
• Democratic compulsions and the race to the bottom: The political economy literature also teaches us that, when a few sub-national jurisdictions pursue such policies, others will follow.
• New fissiparous tendencies: Periods in history that have seen the greatest social disharmony and internecine conflict are those that were characterized by economic stagnation. - Benjamin Friedman
  • Risk of social conflict and criminality: Threat of large pools of idle young people.
  • Zero-sum situation of states: One may gain only at the expense of someone else.