Not unemployment, India has a Salary problem

India’s job problem is not as grave as the salary problem we face.

Unemployment – the news that we see?

Media reports & the statistics say India has an unemployment problem & that the unemployment is nibbling away at our economy, slowing down growth, reducing demand etc..etc. I disagree.

Unemployment should actually help the industry thereby helping the economy. Simple demand cycle theory says unemployment should lead to a buyer’s market in favour of the employers, reduce cost of employment, increase per capita productivity in the annual turnover of any company. That however is not the case.

The reality of unemployment – Put some picture of urgent vacancies – list of vacancies

Almost every entrepreneur or HR professional I meet comes up with a list of vacant positions which they want to fill up. There common refrain is that there are not enough suitable people to fill up those positions. When you point out the unemployment data & huge lists of applicants to them, it comes out as a salary problem.

Candidates want increasingly higher salaries while employers want adequate value in a candidate. The kind of money candidates are demanding for the value they will be able to create is simply unreasonable, unworkable. Hence, just as a huge population in India is unemployed, another huge number of businesses are understaffed for want of good human resources.

My experience – an uncanny habit

I have an old habit of connecting job seekers to people looking for jobs. Earlier when I used to connect people most of the times it would result in a candidate getting a job & someone finding an employee.

Since last few years, however, this has stopped working out. Many reasons come forth from both sides but when I once sat down to analyse, I found this to be essentially a salary Vs skills mismatch.

The disconnect between interviewers & applicants

Salaries have gone so high through the roof, with competence going down in equal proportions, that many employers are feeling the pinch, trying to manage with lesser number of employees rather than recruit overtly priced staff lacking commensurate capability.

Simultaneously people are preferring to stay unemployed waiting for the ‘right’ offer to come. The right offer is always only about the salary. It is never about the ‘right targets’ or ‘right deliverables’.

How the government aggravates the problem?

The free rides being given by the government in the name of employment guarantee schemes, loan waivers, welfare schemes etc. have caused a drying up of entry level skilled & unskilled agricultural labour as taking a loan & not repaying it is more profitable than having to find a job & work. Alternatively, one can just register in some employment guarantee scheme of the government & paid for doing nothing, by the government.

While the government can fund its losses by printing money & taxing the citizens more & more, the private industry has no such luxuries. Result is it has to pay higher salaries than the job justifies just to get the work done. Cost increases, competitiveness suffers, corruption soars ultimately hurting the national economy.

Inequality at all levels

The situation is even more glaring at the higher levels. The higher up you go, greater will be the observed gaps between salaries of different grades of workforce. Pay parity is based on what the neighbor gives & not what the work justifies. The salary of the top executive of any company must be at the most 15-20 times the entry level compensation in that company but in reality the difference is 50 – 100 times or even more. This glaring inequality not only leads to higher costs of operation but also enhances social disorder in the society at large.

How it affects us

This mismatch is going to affect our economy in monstrous proportions. By competing to offer increasingly higher salaries, companies are creating a Frankenstein monster. BY continuing to reward the inefficient farmers & unemployed, the government is only contributing an economic disaster in the making. The only advantage we had against the word in terms of competitiveness was our low cost labour. That is why all the outsourcing & call center companies came to India. The whole of the IT sector thrives on this wage arbitration. Else most of our industry has still not moved up the value chain unlike China where there is a consorted move to progress in all directions simultaneously. 

How long can we sleep?

The day is not far when this Frankenstein of obscenely high salaries will devour our economy big time. However we don’t see anyone paying due attention to it. Condition is so dismal that except for the bigger companies in the corporate sector, nobodies, least the government is even planning for it as a risk mitigation strategy. By the time we wake, it may be too late & that delay will not be condonable because countries like Philippines, Bangladesh, Vietnam, Pakistan etc. would have stolen a long march over us.

Flight & return of capital is easy & quick. But correcting an inherent structural flaw of the nation’s workforce takes a couple of generations at least. Can India afford that long a wait?

Post Author: maxyogi

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