Our love of government jobs isn’t good for the economy

What caused this ordeal? Typically, government exams do not let candidates take exams at their residence, leading to their having to travel from where they live to their exam centres that are often far away.

In the 90s, I faced a similar ordeal while taking an exam to get into an engineering college run by the Bihar government. While I lived in Ranchi in what was then south Bihar (and now Jharkhand), my exam centre was in Muzaffarpur in north Bihar.

Buses and trains to Muzaffarpur were all full. So were hotels and lodges in the city, with many students having to spend the night before the exam on the railway station. Neither Muzaffarpur nor the Indian Railways had the capacity to handle this sudden and huge influx of students.

But this only explains why the youth have to travel for government tests, it doesn’t explain people’s fascination for government jobs in the first place. Indeed, government jobs at the lower and mid-level pay much better than most private jobs.

The Seventh Pay Commission, which published its report in November 2015, had got the Indian Institute of Management in Ahmedabad to study this issue. The report pointed out: “According to the study the total emoluments of a General Helper, who is the lowest ranked employee in the government is ₹22,579, more than two times the emoluments of a General Helper in the private sector organizations surveyed at ₹8,000- ₹9,500.”

This clearly hasn’t changed. In addition, a government job comes with solid job security, something that has become even more important in the post-covid world. This explains why we routinely see news reports of even engineers, PhDs and MBAs applying for low-level government jobs.

Interestingly, the attraction of government jobs is visible in other developing countries. As Abhijit Banerjee and Esther Duflo write in Good Economics for Hard Times, in the context of these countries: “Public-sector workers earn more than double the average wage in the private sector. And this is not counting generous health and pension benefits.” This leads to a situation where “government-sector jobs are so much more valuable than private-sector jobs,” and given that they are also very scarce “it is worthwhile for everybody to wait around and queue for those jobs.”

Hence, a good portion of what should be a youth’s working life is spent waiting. This is clearly visible in the unemployment data published by the Centre for Monitoring Indian Economy. In September 2022, the rate of unemployment for those in the 20-24-years age category stood at 41.9%. The rate of unemployment for those in the 25-29-years age category was at 9.8%. Beyond that, unemployment was almost non-existent, with the rate for those in the 30-34-years age category being 0.8%.

Now what does this tell us? It tells us that unemployment as a phenomenon almost evaporates as soon as an individual’s age turns 30. By this time, age catches up and many individuals become ineligible for most government jobs or the number of attempts they can take to write the exam finally runs out. This forces them into taking on an informal job in the private sector or alternatively look at becoming self-employed. And that leads to the rate of unemployment falling for Indians in their thirties.

An economist’s solution to this would be to cut wages in government jobs and bring them in line with the informal private sector’s. But that is not practical, and given that, this problem is likely to prevail.

As Banerjee and Duflo point out: “In many developing countries, the labour markets feature this duality: there is a large informal sector without any protection, with many people who are self-employed for lack of better options, and a formal sector where employees are not only pampered but also strongly protected.” There are multiple repercussions of this. First, many youth spend the best years of their lives chasing a government job without ending up with one, instead of doing something more productive with their lives. Second, idle youth are bad for social stability. Third, this hurts the overall private consumption in the economy.

As Peter Zeihan writes in The End of the World is Just the Beginning: Mapping the Collapse of Globalization: “Most of the spending a person does occurs between the ages of fifteen and forty-five—that’s the life window when people are buying cars [two-wheelers in the Indian case] and homes… Such consumption-led activity is what drives an economy forward.” Given that many youth are unemployed till they reach the age of 30, this dynamic does not play out as it should.

Finally, less consumption implies less demand for goods and services in the Indian economy. That means businesses do not need to expand their capacity. Data from the Reserve Bank of India tells us that the capacity utilization of manufacturing companies in India has largely been less than three-fourths for close to a decade now. This leads to the creation of fewer private-sector jobs. And so the cycle goes on.

Vivek Kaul is the author of ‘Bad Money’.