Theoretical Framework for Employment Generation

1.      Every society has a host of human needs that are not being fully met, needs for greater physical comfort, health, education, environmental safety, enjoyment, luxury, curiosity, travel, etc. These unmet needs represent a huge untapped potential for employment generation.

a.      A study by the International Commission on Peace and Food showed that a strategy designed to improve nutritional levels in India by increasing the productivity and incomes of farming families could generate downstream multiplier effect capable of creating 100 million new jobs within a ten year period.

2.      Every society also has a vast reservoir of unutilized and underutilized resources in terms of knowledge, skill, technology, information, organization, management expertise, money and values that can be harnessed to meet those needs.

a.      For example, Indian citizens currently hold private savings of more than $200 billion in the form of gold which could be invested in productive activities that generate employment. The Government has recently introduced a banking scheme that permits payment of interest by banks on deposit of gold jewelry and use of the deposit as a part of the bank’s reserve for the purposes of determining how much money it can lend. This effectively converts the gold into money.

b.      Land and water productivity are very low in many developing countries. Cotton grown under irrigated conditions in India on average consumes 30 times as much water and five times as much land per unit of cotton produced than is required by leading cotton growers in California using the latest technology for crop management.

c.      There is no inherent limit to the capacity of society to increase its knowledge, skill, technology, information, organization, management expertise or values, therefore there is no inherent limit to its capacity for development and employment generation.

3.      Given the fact that employment is the primary means provided by society for individuals to achieve and maintain economic security under current economic systems, societies are necessarily obligated to ensure that the system provides opportunities for every citizen to obtain gainful employment. Every nation has an obligation to guarantee access to gainful employment to all its citizens. Employment should be made a constitutional right.

a.      This does not mean that government should or could employ every job seeker, any more than it means the government should itself grow all the food needed to ensure food security for its population. Rather it means government has an obligation to formulate and modify its policies to make the system meet this objective.

4.      The number of jobs and the level of employment in any society is a function of the extent to which the political-social-economic system is able to harness the available resources to meet human needs. The level of employment generated is not fixed according to any universal laws of economics. It depends on the implicit values and explicit policies on which the system is based. Changing those values and policies changes the availability of employment. There is ample scope for increasing employment opportunities in every country through a judicious application of policies.

a.      Interest rates, tax rates, zoning laws, environmental regulations, limits on the number of licensed physicians or taxicabs, import and export restrictions, limits on business hours are just a few of the ways in which policies influence the number of jobs created.

b.      A tax system that provides incentives for capital investment in the form of depreciation allowances while discouraging employment through the levying of payroll tax is an example of an explicit policy that creates an inbuilt bias toward investment in technology rather than labor.

c.      The initiative of Netherlands to ensure part-time employees the same worker rights as full-time employees enabled large numbers of people who preferred part-time work to reduce their working hours and thereby created a proportionate number of new jobs.

5.      The conception that technological advancement inevitably destroys more jobs than it creates is not supported by the facts. There is no direct relationship between technological development and unemployment. Therefore, it is not true that rising levels of unemployment will be an inevitable aspect of the future society.

a.      In spite of the unprecedented adoption of new technologies during this century, the USA, which is one of the most technologically advanced nations in the world, has quadrupled the number of people employed since 1900 and has a higher percentage of its population employed today than at any time in the past 100 years.

b.      It is true that introduction of new technologies can eliminate jobs in specific fields of activity. It is also true that it can create many more jobs in other fields related to scientific and industrial research, education, equipment manufacture and repair.

c.      The higher paid jobs generated by technological development also increase purchasing power and demand for goods and services generating a multiplier effect that creates jobs in unrelated sectors of the economy.

6.      In many fields, a shortage of labor is a driving force for technological advancement rather than vice versa.

a.      There is a shortage of labor for agriculture not only in industrialized nations, which immigrant labor is essential, but even in the more developed regions of countries such as India (e.g. Punjab, Pune, Coimbatore).

b.      According to current estimates there are more than 200,000 unfilled jobs for computer software professionals in the USA today alone.

c.      The tooling and machining industry in USA, which employs highly skilled, high paid (average $40,000 or more) workers, has been suffering from an increasing shortage of job applicants for the past decade or more, despite concerted efforts by the industry to promote careers in this sector.

7.      Current problems of youth unemployment in Europe and many developing countries are a result of a complex mix of factors which can respond to effective policy initiatives.

a.      The impact of labor market rigidity on unemployment levels in France and Germany has been well documented. Recently France has reported progress in loosing up labor markets.

b.      The population explosion that has peaked in most countries has created a larger wave of new entrants to the labor force that will gradually decline in the coming years.

c.      The sudden influx of large numbers of women into the labor force is a one time increase which has raised unemployment levels in some countries at the same time that overall employment rates have been rising.

Excerpt from Uncommon Opportunities: Agenda for Peace and Equitable Development by the International Commission on Peace and Food (Zed Books, 1994, p.72-75)

“In spite of widespread anxiety that machines are progressively replacing people in the workforce, historically there has been a strong posi­tive correlation between technological development and job creation. It is certainly the case that the commercial application of each new phase of productive technologies does displace people from traditional occupations, reduce the number of workers required to carry out specific tasks, and can in the short term lead to fewer jobs in specific industries. n the process, a larger number of low-wage, unskilled jobs are replaced with a smaller number of higher-wage, more skilled jobs resulting in rising levels of worker productivity and rising personal incomes. But that is only the most direct initial impact of improved technology. Seen from a wider perspective and traced patiently along the course of its myriad consequences, the introduction of new technology acts as a catalyst that generates a positive ripple effect which, on average, results in the creation of many more jobs--more skilled, more productive and higher wage jobs--than it destroys. The rising productivity made possible by technology reduces production costs and thereby lowers the price of products and services to customers and consumers. The lower prices result in increased demand, greater consumption, higher levels of production and even greater cost reductions due to economies of scale.

“This represents only the first cycle of job creation. While jobs are being eliminated in low skilled manual or assembly operations, simultaneously they are being created in industries that manufacture and service the more sophisticated machines as well as in R & D laboratories that develop the new machines, materials and manufacturing processes. The workers who operate the improved machines require higher levels of skill, which demands more education and training, thus creating demand for jobs in the service sector. The more productive and higher paid industrial workers utilize their enhanced purchasing power to buy more goods and services than before--spending more on travel, consumer goods, housing, leisure, health and the education of offspring--thus, creating demand for more jobs in other industries. Rising incomes generate higher standards and expectations, bringing changes in life style that create new needs and new commercial activities.

“Advances in technology provide society with greater conveniences and in the process endow the society with greater creative and productive abilities. Over time, these new abilities spur the creation of new activities in many different fields distantly related to the original point of innovation. The process results in improvements in health, which raise the level of physical energy; higher standards of education, which raise the level of mental energy and culture; and higher levels of social skills and organization, which raise the energy level of the entire society, making it ever more creative and productive. A comprehensive study of this wider process of job creation and destruction arising from technological innovation is needed to develop specific coefficients for measuring the impact of technological advances in different fields on total employment. Finally we may hope to dispel the widespread fear and sense of helplessness that this issue evokes.

“This process can lead to enormous growth in new jobs. The best documented example of this process is the automotive industry. Inspired by the idea of making a car affordable by the working class masses at the turn of the century, Henry Ford adopted new manufacturing technology, the automated assembly line, to produce the first low priced automobile. Ford's technology increased worker productivity more than seven-fold and reduced production costs by two-thirds. As an immediate result, thousands of small, custom-built manufacturers of cars and horse-drawn carriages were put out of business. But the growing demand for low cost vehicles generated explosive growth for the industry, creating tens of thousands of new jobs in the process. Globally, production rose from less than 250,000 vehicles in 1910 to 42 million in 1980. Nine decades later, the automotive industry is still the largest manufacturing industry in the world and the single largest source of jobs in the American economy. Every job created in automotive manufacturing has spawned roughly ten more in related occupations. Thus, about 9 percent of the entire US workforce is employed in occupations directly related to automotive manufacture, sales and services, road construction and maintenance, and transport of freight and passengers. Globally 7 to 9 million workers were employed in automotive manufacturing in 1980 and perhaps as many as 50 to 80 million in related occupations. In addition, the spread of automotive technology has had tremendous impact on the growth of other industries stimulated by the greater mobility of the public--retail trade, hotels, restaurants, tourism, recreation--and indirectly on agriculture, as well as every other service and manufacturing industry that benefits from lower cost and greater speed of passenger and freight transport.

“The notion that there are a fixed or inherently limited number of jobs that can be created by the economy is a fiction. It is not just advances in technology that work in this fashion. Every major advance in social attitudes, institutions, val­ues and life style has a duel effect on employment, creating jobs in some areas and destroying them in others. Higher standards of education not only raise productivity. They stimulate higher expectations that lead to greater consumption as well. Changing attitudes toward the environment have created entirely new industries and generated new jobs in every field where impact on the environment is of concern. New types of organization such as fast food restaurants, franchising and hire purchase or leasing create new jobs by hastening the growth or expanding the activities of the society. Shifting attitudes toward marriage and the role of women create greater demand for jobs but also more opportunities for employment, because working women consume more and require additional services, e.g. the dramatic increase in demand for day-care services in industrial nations.

“Anxiety regarding the impact of technological development on jobs has been aggravated by the belief--largely a hangover from the Industrial Age--that in the industrial nations automation is rapidly eliminating replacing high wage manufacturing jobs with low wage jobs in the service sector. Actually, services have had a dominant place in Western economies for most of the 20th Century. In America, they now account for 79 percent of all jobs, 74 percent of GDP, and generate a $56 billion trade surplus, compared to a $132 billion deficit for goods. Technological development, such as advances in computers, telecommunications and medical technology, have played at least as great a role in the growth of the service sector as in manufacturing. New service jobs in banking, foreign trade, research, design and engineering, computer software, education, health, law, finance, business management, communications, transportation, media and entertainment demand higher levels of education and skills and offer higher pay. In 1992 the median manufacturing job in the US paid only $19 per week more than the median job in manufacturing. The growth of technology is freeing workers from the drudgery of the production line, while providing consumers a quality of life previously available only to the most wealthy.

“The organization of production is also a major determinant of the number of jobs created. The Western pattern of mass production by monolithic corporations that emerged during the first three quarters of this century is no longer the inevitable or even the obvious pattern for either industrial or developing countries in the coming decades. Smaller, technology intensive firms are faster at adapting new technology, more flexible in meeting specialized customer needs and generate more skilled, better paying jobs. Recent experience, such as in the Prato region of Italy, indicates that proper blending of new technolo­gies in existing productive sectors can be utilized to preserve a geographically decentralized, small scale pattern of production and enable small firms to match the competitiveness of countries with much lower labor costs. This offers an attractive alternative for preserving the small-scale decentralized pattern of production still prevalent in developing countries and for the future development of enterprises in new industries.

“Each advance in attitudes, life styles, social institutions and forms of commercial organization has ultimately expanded the scope of economic activities and raised living standards substantially. Jobs are created by our innate capacities for human resourcefulness and ingenuity which expresses as invention, innovation and social imitation. The ultimate determinant of the numbers and quality of jobs in future will not be physical or even financial constraints, but rather—‘science, technology, values and social organization--in a word, the human imagination’.”