It is a measure of our times – and a sad comment on our society’s politics – that the worst employment situation in the recent history of the country merits barely a mention in the discussion promoted by the current central government. Instead, we are confronted with aggressive displays of self-congratulation at what we are told is India Shining, and we are told repeatedly that the country has never had it so good.

But the economic reality, for most people in our country, is alarming. The National Sample Survey on Employment and Unemployment, of which the 55th Round was held in 1999-2000, indicates a dramatic decline in the rate of employment generation in the latest period. The rate of growth of employment, defined in terms of the Current Daily Status (which is a flow measure of the extent of jobs available) declined from 2.7 per cent per year in the period 1983-94 to only 1.07 per cent per year in 1994-2000 for all of India. This refers to all forms of employment  - casual, part-time, self-employment, everything. For permanent or secure jobs, the rate of increase was close to zero.

In rural areas, the decline in all employment growth was even sharper, from 2.4 per cent in the previous period to less than 0.67 per cent over 1994-2000. This was well below the rate of growth of population. In both rural and urban areas, the absolute number of unemployed increased substantially, and the rate of unemployment went up as well. But in addition to this, there was a sharp decline in the rate of growth of labour force. More people declared themselves to be not in the labour force, possibly driven to this by the shortage of jobs.

A significant part of the collapse in employment occurred in agriculture, where the employment elasticity of output growth (the extent to which additional output creates additional demand for jobs) declined from 0.7 in 1983-94 to only 0.01 in 1994-2000. Aggregate employment elasticity of output fell from 0.52 to 0.16 over the same two periods. Organised employment also has been extremely sluggish.

By any standards, these are stark and disturbing trends. So why is the government doing nothing about it? Why, in the past five years, have budgetary allocations for all employment schemes been so low? Why has the government not put more resources and energy into ensuring that small enterprises - which employ most of the people in the country - have access to capital and basic infrastructure so that they can be viable?

Part of the reason is that the central government is so limited by constraints of its own making – financial liberalisation and a dependence upon the whims of international investors, reduction in crucial public expenditure, especially in rural India, and so on – that it simply cannot take the more obvious measures such as directly increasing employment through more public works.

But neoliberal economists have also found another ingenious way of trying to explain away this failure on the employment front, and even suggesting that it requires further doses of liberalisation! The mainstream policy response is that even the extensive reforms undertaken so far have been inadequate; they have not addressed some of the more politically difficult areas such as labour market policies and institutions, which can serve as major impediments to private investment.

The argument is that investment has been constrained, and employment growth has been insufficient, because of rigidities in the labour markets that adversely affect employers’ sentiments particularly as regards organised sector activities. Three types of regulation are seen as especially constraining for employers: first, fairly stringent rules relating to firing workers and also for closing down enterprises, along with requirements of reasonable compensation for retrenchment; second, laws governing the use of temporary or casual labour which enforce permanence of contract after a specified time of employment; third, minimum wage legislation which raises the cost of hiring workers.

The neoliberal argument in this context is that these rules which restrict hiring and firing put undue pressure on larger employers and prevent smaller firms from expanding even when the economics of their situation otherwise warrants it. This creates a dualistic set-up in which the organised or formal sector necessarily remains limited in terms of aggregate employment and most workers, who remain in the unorganised sector, are therefore denied the benefits of any protection at all.

The resulting dualism is characterised by an organised (or larger scale) sector, which has relatively low employment, and an unorganised (or smaller scale) sector, which has low investment. If aggregate economic activity is to break out of this dualism and marry the advantages of both sectors, the argument goes, it is necessary to get rid of the constraints put on large employers in the matter of labour relations.

It is sad that we have to remind ourselves this argument had been demolished as long ago as the 1930s, when Michal Kalecki and John Maynard Keyes had pointed out that unemployment can result when the economy is operating at a low level because of low aggregate demand in the system.  The total use of labour is then determined by the level of output, which is in turn determined by overall demand for goods and services.

Since this labour use is independent of the wage rate, reducing wages will not help. In fact, because of the difference between how an individual employer thinks and how the system as a whole works, reducing wages may even have the perverse effect of further reducing the people’s purchasing power and therefore their effective demand. This would result in even lower levels of aggregate output and therefore employment.

If the central government were really serious about increasing employment and encouraging greater access to and better quality of our public services, it would have pushed for an expansion of public employment, especially in crucial areas such as infrastructure building and repair, health, sanitation, education and so on.

The sad truth is that the politics of our country still allows our current rulers to ignore this most pressing concern of the majority of our citizens, and to announce stock market rises and more consumer goods for the rich as evidence of national prosperity. It is up to all of us to change that.