Macro Economy

The haircut analysis that could have cemented Modi’s jobs rhetoric

Praveen Chakravarty
July 27, 2018

Customers receive haircuts at a barber shop in Coonoor, Tamil Nadu, India, on June 7, 2018. (Photographer: Dhiraj Singh/Bloomberg)

“India produced 17,000 new Chartered Accountants in the fiscal year 2016-17. 5,000 of them may have started their own accounting practice. If we assume each accounting practice hired twenty new people, there were one lakh new accounting firm jobs created.”

“India produces 80,000 new doctors, dentists and healthcare graduates every year. If we assume 60 percent of these started their own medical practice and employed five new people each, then the medical profession created two lakh forty thousand jobs.”

“India produces 80,000 new lawyers every year. If 60 percent of them started their own new legal practice and each employed two or three people, the legal profession created two lakh new jobs.”

These are all formal sector job estimation exercises which are relatively easy to work out. What about the informal sector? There are ways to estimate those too.

“There were 7.6 lakh new commercial vehicles sold in India last year. If we assume 25 percent of these were replacement vehicles and 75 percent new vehicles, and each new vehicle employs two people, then the transport sector created 11.4 lakh new informal jobs.”

“25.4 lakh passenger vehicles were sold last year. Let’s now assume 20 percent are for replacement of old vehicles and 80 percent new. If only 25 percent of these new vehicles employed one driver, this alone created five lakh new jobs for drivers.”

If you thought this is an extract from a conversation among freshly-minted MBAs in a university campus rehearsing for their job interviews with consulting firms, you would have been right, normally.

But we live in abnormal times. This is also the Prime Minister of India’s speech in Parliament to apparently showcase his government’s record of job creation for 1.2 billion Indians.

The Prime Minister’s evidence for a record number of jobs being created in the economy is some inane and convoluted analysis of numbers of lawyers, doctors, accountants, and cars produced in India every year to impute the number of jobs created.

Perhaps, the Prime Minister could have resorted to an even more basic premise to prove how jobs are in abundance in the nation.

A large number of people are born in India every year. Everyone, regardless of whether one is a doctor or a lawyer or an accountant, needs some basic services and goods. One such essential service is a haircut. Economists often hold that haircuts are among the most non-tradeable goods or services in any economy. That is, a haircut cannot be exported or imported away and must be produced and serviced locally in the country.

Let us assume a male child less than 10 years old will need a haircut once in two months, 10 to 30 year-old males will need a haircut monthly, 30 to 50 year-olds will need a haircut once in two months and others will need a haircut once a quarter. Let us also assume that a barber can cut one person’s hair in fifteen minutes. Using India’s demographic distribution and barber productivity, it can be inferred that India needs nearly 1.5 lakh new barbers every year.

If we, like the Prime Minister, assume these barbers employ two new people, then the haircut industry alone generates nearly five lakh new informal jobs every year.

A customer gets a haircut at a barber’s shop in Bangalore, India(Photographer: Dhiraj Singh/Bloomberg)

Such irrefutable haircut analysis can now be extrapolated to the larger economy to estimate the total number of jobs created and thus we can infer that India does not have a jobs scarcity but a jobs bounty.

If you find this line of reasoning laughable, you will not be alone.

That the Prime Minister of India, who was blessed with the extraordinarily good fortune of an absolute majority in Parliament, low oil prices, and a robust global economy, had to resort to inane, twisted and bizarre analytics to explain the state of jobs for the nation’s youth is in itself a vindication of how dire the jobs situation in the country is.

This is not how the leader of a $3 trillion global economic powerhouse should answer questions on jobs produced in the economy.

Most large economies adopt scientific survey methods, gather empirical and payroll data to estimate job creation in an economy. The Modi government inexplicably abandoned the Labour Ministry’s quarterly employment surveys that were instituted in 2009. These surveys were an important tool to estimate the state of jobs produced in the economy and surveyed sectors accounting for more than 80 percent of all employment in the country.

At the same time, the Modi government must be lauded for publishing payroll data from the Employees’ Provident Fund Organisation and making forays into formal sector job estimations. But in its enthusiasm to embrace any small semblance of positive news on job creation, the government released payroll data only from September 2017 and touted itself as an exemplary job creator, as the Prime Minister did during his speech in Parliament. The EPFO data released publicly is inadequate to make any inferences regarding new job creation. The time period is too short, the data is too noisy and must be first normalised for external shocks of demonetisation and the Goods and Services Tax.

t does not need a scientist to infer that lack of jobs for India’s youth is one of the biggest issues confronting the nation today. It is repeatedly borne out in various surveys. Jobs for hundreds of millions of India’s youth is a serious challenge. The answer to this challenge lies in acknowledging it first and being open-minded to discuss new policy solutions. Indulging in juvenile analytics to fool everyone into believing that there is no jobs problem cannot be the solution.

Praveen Chakravarty is Chairperson, Data Analytics Department of the Indian National Congress, and a former scholar in a think tank.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.

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