Invest in human capital, not longer work hours

Infosys co-founder NR Narayana Murthy's suggestion to India's youth to work more hours has stirred a controversy in a country that has among the world's longest working weeks, yet trails in labour productivity by international standards. The obvious analogies to rebuilding post-war Germany and Japan may be misleading, because those countries faced labour shortages. India has a problem with unemployment and underemployment that pulls down its labour productivity. Disguised unemployment in agriculture contributes to negligible labour productivity. Low female participation in the wage-earning labour force is another contributory factor. Both need solutions that go beyond the willingness to work. China addressed this by moving an enormous army of workers from farms into labour-intensive factories. India is trying to follow that example, but with less resolve.

Formal jobs are not being created at the rate to absorb new entrants to the labour force, which in itself pulls down productivity. Self-employment is challenged by access to capital. Years of peak productivity are also limited by unfavourable education and health attainments. The issue of labour productivity requires a whole of government approach that is coming together now with infrastructure build-up, incentivising manufacturing exports, reduced labour market rigidities, universal health insurance and reoriented education. The economy is also formalising itself through jobless growth, widening the gulf in productivity with the unorganised sector that is generating employment. Workers in the informal economy put in far longer hours than the 48-hour work week, but face a big handicap in pay parity and security of employment.

Murthy has approached the demographic question from the supply side while the solutions are to be found in the demand for labour. India is far from the point where labour supply acquires an inverse relationship to wages, that is when leisure becomes more desirable beyond a certain income threshold. Further enhancement to labour supply would need investments in human capital more rather than longer working hours.