The Employment crisis during COVID19


On June 24, The International Monetary Fund projected that the Indian Economy is likely to face a contraction of 4.5%. Millions of youth (age group between 20-30) have already lost their jobs due to layoffs. The Centre for Monitoring Indian Economy reported that almost 27 million youth have lost their job due to the lockdown imposed. With such chaotic statistics, it is very important to understand how economic policies can help us recover from such a crisis.

Bill Clinton - A lesson from the Past

During the period of 1993-2001, The United States enjoyed economic prosperity under the 42nd President Bill Clinton. It was mainly due to his economic policies that helped America create 18.6 million jobs. Although he didn’t have to face any recession during his presidency, his policies have a lesson for us. So how did the 42nd President of the United States created so many jobs?

It was mainly due to his contractionary fiscal policy which involved three crucial measures. First, he raised income tax for the high earners and increased the top corporate tax rate from 34% to 36%. For low-income families, He created the earned income tax credit and also raised the gas tax.

Secondly, he cut the welfare( also known as the Temporary Assistance for Needy Families programs) spending and reduced the number of people on welfare by two-thirds, to 4.5 million, by 2004. Thirdly, he signed an agreement with the North American countries - Mexico and Canada that allowed them to trade eliminating tariffs.

Bill Clinton had one of the most effective reforms after President Roosevelt. The reason why so many Americans got jobs were specifically because of his well planned economic policies.

A lesson for the Present

Reduce Interest rates

In order to deal with the current pandemic, We can use two methods - Expansive Monetary Policy and Expansive Fiscal Policy. During any recession, the need of the hour for any Economy is to increase the money supply. This is often done by lowering Central Bank Rates and increasing liquidity. An increase in the money supply in the Economy makes the consumer buy more and lead to Business Expansion. This often results in increasing demands and hence, hiring more and more workers.

reserve bank of india

Jobs by Public Works

In order to create jobs, the Government often focuses on building the Infrastructure. The construction and development of Infrastructural activities create numerous jobs. However, COVID19 can put some restrictions on such projects due to the nature of the virus. The government needs to find ways in which these projects may be carried out safely.

The Government of India has many existing schemes like MNREGA and the Pradhan Garib Kalyan Rojgar Abhiyaan Yojana. These schemes and the Kharif crops have helped the Rural areas recover much faster than the Urban area. According to the CMIE, Job loss rate in Rural India was 10.52% in June, down from 22.48% in May, while urban unemployment was 12.02% in the month as against 25.79% a month ago.

Tax Cuts

In simple words, tax cuts increase the purchasing power of the consumer and lead to an increase in the money supply of the Economy. The tax cuts allow families to save money and buy more. This leads to an increase in demand and leads to business expansion which further leads to the company hiring more workers for better outputs and competition. This is considered as one of the most important economic measures for regulating money supply in the Economy.

Post COVID19 Recovery

Back in June, it was predicted that most of the countries will experience a V-shaped Recovery once the virus is defeated. However, it’s not the same for India. It is projected that India will be having a U shaped recovery. Many experts have projected that the 'U' would be having a shallow base and that the other end of the 'U' would not exactly be a right angle.

So What is a 'U' shaped Recovery?

When it comes to Recession shapes, there are of four types - U, V, W and L

Once the Virus is controlled, it is expected that the Economy may not recover immediately but remains stagnant for a few quarters. Unlike the U-shaped recovery, V-shaped recovery is the one where the economy recovers quickly.

An example of the U shaped recovery is - The Jobless Recovery in the United States (1900-1901).

graph showing employment changes
graph showing employment changes
Fiscal Policies - The key factor

As far as Macroeconomics is considered, there are two policies implemented in order to regulate money supply in the economy - 1) Fiscal and 2) Monetary Policy.

During any Recession, the best way to improve the Economy is by implementing effective Fiscal policies. Tax cuts can lead to the creation of numerous jobs and Discretionary Spending increase the rate of hiring workers or by increasing the subsidies to state government such that they do not have to lay off their workers.

However, it is easier to formulate policies than implementing them. Many have believed that the reason why the Indian economy slowed down during 2019 was due to the lack of transparency and the effects of GST and the Demonetization. Moreover, the banking sector was already struggling before COVID19 and the pandemic has made the situation worse.

Indian Economy is also likely to be affected by the Immigration policies of the US and the recent Expat bill by the Kuwait Government, will force 8 lakh Indians to go back home. The worst recession is on its way and the Government needs to prepare itself for the chaos. The Government should implement policies in a transparent manner such that the policies are beneficial for every Indian and help create more jobs.

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