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National Labour Exchange for Efficient Labour Market, Full Employment and maximising wealth. : IIF Study

In the light of latest IMF statement asking India to go for labour market reforms, in the spring meeting of IMF/world Bank, it is stated that a recent research study by a team of economists at Indian Institute of Finance has suggested setting up of a National Labour Exchange to achieve an Efficient Labour Market, full employment and maximising wealth. The research paper entitled Theory of Employment, Wealth and Efficient Labour Market through National Labour Exchange, by J.D.Agarwal, Manju Agarwal, Aman Agarwal and Yamini Agarwal, has been submitted, earlier in March 2017, for presentation in a conference of American Finance Association to be held in first week of January, 2018 in USA. One of the authors is currently attending IMF/World Spring meeting in Washington D.C. U.S.A. The study has already been accepted for publication in a leading journal. The Findings of the study in brief are given below. Full text of the paper can be asked for from any of the authors.

The authors of the research have proposed setting up of a National Labour Exchange along the lines of National Stock Exchange, Bombay Stock Exchange and Commodity Exchanges worldwide in order to promote efficiency in the Labor market, full employment and generating wealth and for positive contributions to GDP. The author also consider that Labor is a valuable resource and a wealth of a nation, having potential to generate more wealth. In the study the authors questioned the concept of wages or price of labor as in classical economics, but supports Ricardo’s theory of value and laissez faire through efficient labor market. The authors of the study also questions Keynesian theory outlining Government Intervention to generate Employment though Monetary Policy changes and Fiscal Policy. According to the study Keynesian Theory is outdated and irrelevant in the today’s economic perspective as Keynesian theory is based on his book on The General Theory of Employment, Interest and Money. Keynesian theory employment was a product of Great Depression of 1931-36, when businesses failed and Labour laid off in abundance. The Keynsian theory does not take into consideration the normal economic and business conditions in the economy. The study also critically evaluates various theories on Labour.

The proposed Model of creating efficient Labor Market through National Labor Exchange, according to the study completed at IIF, will facilitate an automatic way for Full Employment, generating wealth for the Nation, Firm and Labour, easy access to information about the availability of Labour (man hours) and jobs. It would also help save employment costs in a market driven economic system with asymmetric information. National Labour Exchange as proposed, in the study, would also help rating certificates, diplomas, degrees, skill development and experiences of labour based on scores and would facilitate transparency in the efficient labour markets where man hours and services can be traded like stocks bonds and commodities. It would automatically adjust the return to labour based on value addition and economic and business conditions avoiding the problems of laying off. Efficient Labour Market would facilitate perfect or nearly perfect mobility of labour and full employment and maximizing wealth through National Labour Exchange which would need digitalization of labour records.

Labour is the most important resource that utilizes natural or capital resources in most productive manner to create and generate wealth for nations, companies, organizations and for themselves state the authors of the study. Despite the technological revolution and advancements in the artificial intelligence, labor continues to be supreme and guides the functioning of all economic events and economic systems. Labor in itself is wealth of a nation. But it is not effectively utilized. Labor suffers from lack of employment opportunities, poverty, poor wage, income variations, immobility and many other problems. In developed economies, wages constitute about 70 % to 80 % of the pre-tax income and post transfer payments with at least one working member in each household. However in developing and emerging economies this share is less than 50% for example it is 40-50% in Argentina, 40% in Peru and 30% in Vietnam. Self Employment is the main source of income in most of the developing and emerging economies for lack of employment opportunities, information, corruption, lack of transparency, and accountability in recruitments and lack of skills and adequate training. Despite the importance of labor in the world economy, labor market is far from perfect for lack of necessary information available.

The proposed model provides a General Theory of Employment, Wealth and Efficient labour market through setting up of a National Labour Exchange. National Labour Exchange can be a vehicle of facilitating information for available jobs i.e. employment opportunities at given return to labour and availability of labour offering the services for a return based on their value addition. The proposed model will fill the existing gap of asymmetrical information.

The proposed National Labour Exchange as suggested in the study, according to authors, would induce competition, both among employers and labour to maximize the productivity, maximizing wealth, GDP and social welfare. Labour, instead of being idle or underemployed would prefer to pick up a job with lower return. It would provide transparency and accountability of the employer, employable and employed and would avoid exploitation of labour. Efficiency in labour market would help foreign investors, to know about the skill, experiences, qualifications and desired return of labour in a country. This is in turn will remove any fears regarding the availability of labour in a given industry.

The payment to labour should be based on return to labour on the basis of value addition, rather than as wages as is being currently done. Payment of wages is exploitative on one or the other ground. Labour is resource (wealth) as much as land or capital and deserves return to labour. In the study it is stated that the wages paid to labour should be replaced by “Return to Labour” based on value addition. Return to Labour would be automatically directly linked to productivity. It would give dignity and enhance or reduce return.

According to the authors of the study, setting up of National Labour Exchange,would create one national market for labor exchange, uniting the country and its countrymen to one common working platform removing the discrimination of regional imbalances, labor immobility and information asymmetries that create distortions in the demand or supply of labor. It would encourage labour at all levels to acquire certificates, degrees, skill and focus on maximizing productivity so as to quality for a composite score to be high to get better return on jobs and choice of firms.

The proposed Model of creating Efficient Labour Market through National Labour Exchange will facilitate an automatic way for Full Employment, generating wealth for the nation, firms and Labour, easy access to information about the availability of Labour (man hours) and jobs. It would also help save employment costs in a Market Driven Economic System with Asymmetric Information. National Labour Exchange as proposed would also help Rating Certificates, Diplomas, Degrees, skill development and experiences based on Scores and would facilitate transparency in the Efficient Labour Markets. It would automatically adjust the return to labour based on value addition and economic and business conditions avoiding the problems of laying off. Efficient Labour Market would facilitate perfect or nearly perfect mobility of labour through National Labour Exchange.

About the authors:

Professor J.D.Agarwal, Sr. Professor of Finance and founder chairman, Indian Institute of Finance, editor-in- chief, Finance India (ISSN-0970-9772) – The Quarterly Journal of Finance published since 1987 regularly, author of 16 books are 200+ research papers, AIR and TV expert economic commentator and former professor at SRCC, DU, IIT Delhi, Cleveland State University, USA. Email: jda@iif.edu

Professor Manju Agarwal, Sr. Professor of Economics, Indian Institute of Finance, Member Editorial Board Finance India, author of 4 books and 30+research papers and former Principal, Moti Lal Nehru College, University of Delhi. email : ma@iif.edu

Professor Aman Agarwal, Professor of Finance and dean International affairs, Indian Institute of Finance, Executive Editor, Finance India, author of 5+ books, 60+ research papers, AIR/TV expert economic commentator. Email: aa@iif.edu

Professor Yamini Agarwal, Professor of Finance and Dean Research , Indian Institute of Finance, Associate Editor, Finance India, Author of two books, and over 40 research paper. Email: ya@iif.edu

Indian Institute of Finance setup in 1987 pioneered Business Finance Education in India

Indian Institute of Finance
45A, Knowledge Park III
Greater Noida
INDIA

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