Employment as an objective of economic policy

It is difficult to distinguish between social problems associated with unemployment as such and those that arise from the loss of income to the employed families. It may be relevant in this context to distinguish between "open unemployment" and "disguised unemployment." It is the latter kind which is more important for a developing country like Bangladesh where agricultural sector is characterised by pre-capitalist modes of production. In case of disguised unemployment the psychological impact on matters like self-respect, self-confidence is less acute than open unemployment. Much larger social problems such as lawlessness and chaos may be seen where there is open unemployment.

Having work is a good way of learning, and being out of work is forgetting productive skills. Unemployment makes labour rusty. Thus one impact of additional employment is an improvement in the quality of the labour force. However some employment expansion may conflict with efficiency and some expansion may be undesirable on the ground that the social costs of employment may be greater than the social benefits. Even in economies with plentiful labour, labour-intensive techniques may not be desirable. Much depends on the precise facts of the various projects.

Employment is valued because of its impact on income distribution. In most developing countries such as Bangladesh a dole for the unemployed is not provided. With a large volume of surplus labour a poor country can ill afford a dole system, and a productive employment even with low output is preferable. Whether employment should be valued separately in project selection in the light of its impact on income distribution should be given a specific value and employment treated as a means to it is worth consideration. The planners' evaluation need not be concerned with the precise calculation of the impact of employment on consumption of the poor classes; this would be left to the project evaluator.

A more fundamental issue is why employment should be regarded as a vehicle of income distribution and why income cannot be redistributed more directly through taxation and fiscal policy. In principle there is no difficulty in paying a person a certain amount of money even without employing him in a project. The objection that paying someone without employing him will be unethical need not detain us. Our real concern is getting income to the poor person, whether or not he is employed. Payment without work may have important political and social repercussions. Questions may arise as to why a number of people rather than others are given income without work. When unemployment is widespread (as in Bangladesh) charges of favouritism in giving job are not uncommon. In some situations income may be redistributed better through a direct payment than through giving employment. However, often employment will be an important vehicle of income redistribution and its political feasibility is somewhat greater than pure distribution of money. The possibility of corruption is perhaps also less when income is redistributed through employment rather than through subsidies. It has been observed that the system of paying wages to labour in specially devised work programmes is less open to misuse than the system of a direct dole in a country with inefficient administrative system. Thus we may not recommend the system of direct dole in Bangladesh.

Sometimes when a whole region is known to be economically depressed, income generating in that region may be given a special weight which will include the impact of employment because in estimating the income generated in that region, note must be taken of employment and wages paid out. Sometimes we may like to attach a special importance to income accruing to depressed groups within a specific region, and we may then wish to attach a special weight to the wages paid to that group. Regions very often are internally unhomogenous and it may be important to distinguish between the "depressed" and "not-so-depressed" classes in a certain region.

For assuming the impact of employment and sectional income, the precise pattern of disbursement between different categories of expenditures would have to be examined. Usually expenditures on wages are not separated nor it is specified where the additional people to be employed would be found in the project data provided. It would be important to obtain breakdown of the data and to check what part of the disbursement reflects the additional wage bill and to whom these wages are to be paid.

The opportunity cost of labour will be positive when there is full employment. If there is unemployed labour the cost will be zero. Although labour may be unemployed, it does not follow that there is no unpleasantness of work. The unpleasantness of work for those who have otherwise been idle cannot be dismissed. The conditions of living in some of the urban areas of developing countries (such as Bangladesh) are often miserable. In such a situation, the worker prefers job because he is paid a certain wage. In calculating the benefits from employment in terms of output creation as well as of income redistribution and other objectives one must also take into account the social costs, if any, of additional employment, especially when it involves migration.

The impact of employment on the distribution of the current income between consumption and investment is complicated one. If an additional person is employed and he is paid wages, some additional purchasing power is generated and this will reflect itself in an increase in consumption. Though consumption is desirable under most circumstances, an increase in immediate consumption is achieved through a reduction in investment. In an economy where overall rate of investment is deficient, a reduction in investment for the sake of an expansion of immediate consumption may be regarded as loss. Thus additional employment may lead to better distribution of income but it also results in shift from investment to consumption.

The social importance of employment creation is one of the more intricate aspects of project evaluation. The complexity arises partly because the subject of employment is charged with emotion. Employment is taken as an objective in itself in the evaluation of projects. Greater employment, especially from depressed classes or regions will increase a component of aggregate consumption to which additional weight is to be attached for the sake of redistribution. Thus employment will have its impact on the benefit figure of the project. Employment is basically desired not for its own sake, but what it generates, such as output for the productive system, income of certain people, opportunities for learning, increased modernisation and so on.

A B M S Zahur is a retired Joint Secretary.