The Haryana government has passed a legislation that mandates the private sector to reserve 75% of the jobs to the locals. In other words, the companies must hire people from Haryana for at least three fourth of the jobs who fall below a certain salary level or position. This obviously has set in a controversy. The Prime Minister has often indicated the proposition for ease of business. In pursuit of ease of doing business (EODB), the labour mobility would of course figure in prominence. Moreover, India has been in the forefront of the global negotiations for ease of mobility of labour especially from the developing to the developed world. India obviously wants to harness its talent advantage and young population pool as against the ageing demographics in the Western world. in this context, it is but obvious, that such a legislation as passed in Haryana would be seen as regressive and something that would deter investment. There is of course lot of talk that Gurgaon might lose its status as key business centre to other outlying regions like Noida etc.
There is no doubt that the industry will find loopholes to exploit. There would be pressure on the government to withdraw or dilute the legislation. It is possible that the legislation itself have been framed with enough escape clauses. As they say, the devil lies in the details. What would count as political angle or rhetoric is one and what counts in practice through leveraging loopholes is another. There is no doubt, the legislation is perhaps anchored in the farm agitations that have found some traction in parts of Haryana. Yet, while the controversy rages on, the fact that there is a demand for such a legislation itself is revealing. However, there should be no surprise in this. People everywhere are sensitive to outsiders occupying their turf. As others come in and settle down, it does lead to certain effects, perhaps unsettling to the local community.
While there would be some anger in the business world and the social media chatterati, the issues that it raises cannot be dismissed outright. There is certain disquiet across the country and perhaps abroad over the jobs being taken over by outsiders. There is a concern that the locals are kept away from the jobs. One of the reasons that if often attributed to the outsiders getting the jobs has to do with the wages. Perception has it that the outsiders are ready to work for lower wages relative to the locals. Jobs are essentially function of the willingness and ability on the part of the prospective worker to offer his or her services at all possible wages. If one were to discount the ability as something being equal across locals and outsiders, it is the willingness that counts.
Apparently, the locals are not willing to work at the given wages. Given the firms in constant pursuit of cost leadership, they would seek labour that would be willing to work at lower wages. This influx of labour would essentially create a dichotomy between the locals and the outsiders. There exists barriers to entry in job market and these barriers might take the shape of aggressive tactics. Physical fights would not be unknown of. This is something that has to get addressed. The demand is usually to secure reservations in jobs for the locals. The associated electoral dynamics is tempting for the government to offer such a proposition. While they remain on paper and of course as rhetoric, the business realities often dictate the government turn blind eye to recruits from ‘abroad’.
This however does not resolve the issue, just that it keeps the issue boiling beneath the surface. Thomas Friedman in slightly unrelated context had termed the lexus and the olive tree problem. While economy would keep the people engaged in pursuit of luxuries, yet there is always an olive tree to which there is an attachment. While the economic considerations favour the pursuit of the lowest cost, to others there would be deprivation or at least a sharing of resources with others. The game while not zero-sum certainly gets positioned one as. This is the milieu in which the governments have to act and at times they morph into political hazards and in turn solutions that would be politically popular in the short run but economically bad in the long run come into existence. Haryana legislation is one such manifestation.
However, the underlying issue must face a resolution. The resolution attempted in Haryana is more a legal driven or legislative driven. Solutions often are anchored in multiple forms. The first is of course is the legislative intervention. There can be an architectural or technological intervention. This perhaps might not have been possible in the circumstances. The third would be norm-based intervention. While the government does not frame any rules, the firms on their own follow an unstated policy of giving preference to the local recruits. While violation of the norm cannot be punished, yet the social norms if strong will compel firms to remain focused on employing local recruits. The fourth would be the market intervention. The norms based and the market based interventions need some engagement and encouragement going forward.
There could be moral persuasion on the part of the government to the firms to encourage them to indicate a preference towards the locals in the recruitment process other things being equal. Alternatively, the market models might be more suited. There could be a tax incentive for the firms desirous of engaging the locals. The key reason, ceteris paribus, is the willingness of the outsiders to work at lower wages which results into lower production costs thus translating into lower prices. Prices are essential to win the markets that are competitive. The tax concessions would essentially neutralise the cost disadvantage of locals demanding higher wages. The government can introduce tax concession of let us say 1-2% to those firms hiring locals. The operational modalities could be worked out. Yet at the heart of the solution would be the firms now are able to save on taxes which would translate into perhaps lower prices. To the government, employment of locals would anyway boost consumption and ensure the outward remittances would be reduced. As the economy expands, these issues will gain critical prominence and flare up the regional tensions. Rather than an economically unproductive legislative intervention, it would be prudent to focus on market based intervention seeking to achieve the same objective.
Thoughts on Theory and Practice 