Impact on employment – post liberalization


The new economic policy has at least in the short run, adverse impacts on employment. The policy measures, particularly tight monetary policy, reduction in public expenditure through economic contraction have brought recessionary conditions in the economy and consequently resulted in decline in employment opportunities. Further, decline in government activity in terms of productivity investment affected the employment generation in the economy.

The new trade policy aims at reducing industrial protection and seeks balance of payments management mainly through exchange rate management. Though the globalization policies had visualized that the small-scale industry and service sector employment would grow, no signs of this nature are clear yet. In fact the small-scale sector is the victim of the liberalizations compared to that of large-scale sector. The tight credit squeeze added the fuel to the sickness of small industry. This situation badly affects the employment situation in the county.

Now the organized industry should be high quality and productivity oriented and as such adopts latest technology. These strategies would normally demand for most skilled people with high degree of dedication and commitment which would normally be a thin proportion of the existing human resources of the present organizations. The rest of the human resources would be deployed or retrenched s the organized sector would no longer afford to retain such employees. The magnitude of this problem is more in public sector which has been referred to as ‘employment sinks.’ The Government of India introduced the Exit policy/Golden handshake to get rid of the unwanted segment of the manpower.

Further, the structural changes of industries, i.e. public sector to private sector, manufacturing to service sector, domestic-oriented to export-oriented etc., necessitate the shedding of surplus labor from unproductive/less profitable activities to the absorption of specific types of labor in productive / profitable activities. Sometimes these shifts are due to the pulling factors like high wage, better incentives / benefits etc. and sometimes due to the pushing factors like the fear of loss of job, degradation of the position and towering wages/benefits. It is argued that this type of labor market flexibility is controlled by labor market institutions such as trade unions, indexation policies, labor legislation and labor market segmentation. But the inactiveness of the government in this direction makes the labor market mostly economic spot market rather than a social institution. Thus, the structural shifts caused by liberalization would provide better employment to the qualitative human resources and throw out the inferior and unwanted human resources into the fold of contract labor and/or unorganized sector, at least in the short run, if not in the long run.

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