Intro: In an exclusive interview for Aparna Mathur, Senior Fellow, Harvard Kennedy School, Mossavar-Rahmani Center, throws light on various aspects of how the global and India economic policies must be reframed for the benefit of the masses. Ms Mathur who has been formerly the Senior Economist at the Council of Economic Advisers, USA informs senior journalist Mahima Sharma that paid medical leaves and child care for women workers will go a long way in boosting any and every economy, which has taken a beating in the recent times, due to a large extent of women workforce withdrawing from work to manage homes. For a deeper insight, read the full interview.
MS: Pandemic hit economies, job loss across the globe and rising inflation whether in the US or India. How should developed nations as well as inter-connected developing economies like India proceed ahead? (Background: At 6.2%, retail inflation in the US has made the highest year-on-year jump in 3 decades. In India, inflation has frequently breached the RBI’s comfort zone in the last 2 years. Plus the job loss figures across the globe have been very grim)
While the relief bills passed by the U.S. and other countries, including India, were necessary to deal with the pandemic, there is a growing concern that continued spending at the scale of trillions of dollars, will result in high levels of sustained inflation. This is a concern that central banks across countries are gearing up to face. In the US, there is an ongoing debate about the nature of the inflation we are seeing. Some economists have argued that the inflation we are currently facing is due to pent up demand during the pandemic, which is likely to be transitory, and inflation pressures will ease off in the next few months. They compare this to the temporary inflation seen after the second World War, and argue that if the Federal Reserve responds aggressively to this type of inflation, it could risk putting the economy into a recession. On the other hand, other economists worry that the inflation we are currently seeing is of a more permanent nature, driven by the heightened spending on the economy since last year. If the Federal Reserve Bank does not respond to this, then it will reach much higher levels, hurting households pockets and the economy more generally. Given this lack of clarity, central banks around the globe have to be ready to respond if inflation concerns become more widespread. The problem with high levels of inflation is that it hurts our most vulnerable households most directly. The value of people’s cash savings and their ability to budget and plan for future spending and meet current needs is adversely impacted when there is an increase in prices of everyday items like food and gas. This is an even bigger problem when families are already struggling with job loss and a loss in earnings. Therefore, policymakers need to ensure that while relief programs continue to work effectively to help those in need, the risk that additional spending will lead to higher inflation is mitigated. This can be done by ensuring that aid is targeted to those who are most in need.
MS: International as well as national E-commerce retail chains have spread their roots deeper in India, giving rise to other such indigenous chains. Amod this, what would be your advice towards small income groups’ economic stability and how can MSMEs be helped?
AM: Small businesses across the globe have been hit badly by the pandemic. In the US, we saw big declines in employment and an increase in small business failures in the early months of the pandemic. Similarly, in India, as the pandemic hit, many small businesses struggled to survive. Government relief efforts were aimed at keeping businesses afloat during the crisis and helping them to retain their employees. In the US, the Paycheck Protection Program was targeted at these types of small businesses. However, it is not yet clear whether the relief targeted the most vulnerable businesses well and to what extent it staved off small business failures. In India, many small businesses survived by expanding their digital presence and allowing customers to buy and sell products online. Some anecdotal evidence suggests that small businesses in India were similarly unable to take advantage of the loan programs that were initiated during the crisis due to either administrative hurdles or a pessimism that taking the loan would allow them to survive the crisis. Small businesses are a critical piece of the economy in terms of creating economic value and jobs. We need to better support their growth in order to help entrepreneurs but also the people they employ. Even pre-pandemic, small businesses faced issues with access to working capital and loans, reaching bigger markets and consumers, and expanding their digital presence. These issues are likely to be exacerbated post-COVID given the high failure rates of these firms during the pandemic. As an initial first step, helping businesses recover might involve providing temporary subsidized loans, better bankruptcy protection so that if businesses fail, they do not lose all of their property or assets, and better connections with banks and investors and consumers.
MS: What economic policies should India, US respectively take on for maintaining a strong, inclusive recovery that provides real support for low-and moderate-income families?
AM: One lesson from the COVID crisis is that direct cash support is often an immediate and effective way to help families in need. In the US, during the pandemic, Congress provided one-time payments to households that averaged over $1000 for families below a certain income threshold. A recent report from the Census Bureau shows that this program was effective in pulling people out of poverty and helping families meet their needs. However, cash cannot be a substitute for a robust social safety net. In the US, the safety net comprises programs to help families at the time of unemployment (though unemployment insurance), health care (through Medicaid and Medicare), cash welfare and food stamps, among others. Even in pre-COVID times, households and individuals faced complex and confusing eligibility requirements for these programs, with wide variation across states in who was eligible for help and what the benefit amount was going to be. This meant that people would often fall through the cracks, with relatively low take up rates across multiple programs. These programs need to be thought through to make it easier for households to apply for and receive benefits. At the same time, the government needs to do more to make it easier for families to afford good quality childcare and to have access to paid family and medical leave for when they need to take time off from work for the birth of a child, or to recover from one’s own illness or to provide care to an ill family member. Making these programs more robust would ensure that workers do not fall through the cracks in these programs.
In India, comparable programs currently exist as well, but seem to be missing large portions of the population. For instance, while people can avail of unemployment insurance through two government schemes, the coverage of those schemes is limited to factories that employ more than 10 workers. This leaves large sectors of the economy uncovered.1 In the US during COVID, insurance coverage was expanded to the self-employed and to gig economy workers allowing these policies to be more wide reaching. Should programs in India cover these types of self-employed and gig economy workers as well? At the same time, we need a better understanding of how well the nutrition and food programs reached the masses of people during the pandemic. Some programs are conditional on children showing up at school, like the mid-day meal scheme. Post-COVID, should these programs be available to children at their homes even if children are not in school but are enrolled and are showing up regularly? One lesson from the pandemic has been that many people often do not get the help they need through these programs and we need to understand how to make them function better. During the pandemic, many workers who lost jobs in the formal sector moved to the informal sector, where it becomes even harder to access the safety net, particularly unemployment insurance. This has left millions in poverty and at risk of hunger and delayed healthcare. We need to understand better how to increase coverage of the safety net to these workers.
Finally, we need to pair the provision of safety net programs with direct training and skill upgradation efforts so that recourse to the safety net is temporary. So for instance, if someone loses their job, can we connect them with a training program or a short academic course offering, so that their ability to apply to different jobs and employers is enhanced? This is going to be a growing need post-pandemic as traditional, contact-based jobs are replaced and people are forced to switch occupations. As per McKinsey Global Institute, by 2030, about 30% of workers could be displaced by automation leading to 800 million displaced workers globally. Of the total displaced, between 75 million and 375 million workers will need to change their occupations in response to changes in automation.
A more inclusive recovery however will go beyond the safety net to address the larger issue of lack of access to good schools and good jobs so as to end the cycle of poverty that many households experience. It will require heavy investments in training and education, and creating a pipeline of skilled workers for employers that will enable high levels of productivity for firms and high salaries and wages for households.
MS: What economic policies must the Biden era adapt/ improvise to ensure the economic recovery at a faster yet stable pace? (Please suggest this in relation to the global economics which is always related to the USA)
AM: When COVID-19 hit, it exposed existing vulnerabilities in our economic system and our social safety net programs. In the United States, as the unemployment rate reached a record high of 14 percent in April 2020, our unemployment insurance system was overwhelmed with the millions of applications that came in. States struggled to deal with the added burden, and it took weeks and months before many vulnerable households received the monetary help they needed. My analysis for the Harvard Kennedy School shows that the unemployment insurance system let many people fall through the cracks, even as the government expanded the program to millions of newly eligible people like the self-employed and gig economy workers. Many of our other relief programs also struggled to expand and provide help to those most in need. The cash transfers were one off payments that provided temporary help to families, rather than sustained support, and researchers show that the Paycheck Protection Program for small businesses may have saved only a few million jobs. Going forward, I think we need to understand better how our safety net programs can be reformed to provide more immediate, effective and targeted aid to families and businesses. In particular, we need to focus on policies like affordable childcare and paid family and medical leave so that if and when the next health crisis emerges, families feel that they have the resources and the ability to take care of themselves and their families by taking time off from work to recover, instead of being forced to stay in the workforce while dealing with a health or caregiving issue. The temporary expansion of the Child Tax Credit and a new paid family leave program were effective in helping families. We need to push for permanent adoption of some version of these programs so that they continue to be a source of support going forward. In general, the economic recovery will require uplifting the millions of households and small businesses that faced financial and economic strains during the pandemic, and ensuring that the cracks that emerged in our safety net programs are not just repaired but closed for good.
MS: World needs to awaken to the reality that the current climate crisis has been precipitated by unsustainable lifestyles and wasteful consumption patterns in developed countries. What's your take on this?
AM: It is important for countries to come together to develop a global solution to the climate crisis. The recent pledges and commitments to net zero emissions and continued reductions in carbon emissions is an important step forward. A recent report from the International Energy Agency shows that this reduction in emissions can be done in a fair and inclusive manner, by providing developing economies with the financing and technical know-how needed, so that their populations are not adversely impacted during this period of change.2 In the US, I have been writing about the need for a carbon tax. A carbon tax can be structured so that it imposes a tax or a fee on fossil fuel consumption per metric ton of carbon emissions. Such a tax would shift production towards the use of cleaner fuels and encourage research and development of alternative cleaner technologies. At the same time, as companies face higher costs of production due to a carbon tax, some of this will be passed on to consumers in the form of higher prices. The hope is that these price changes will bring about changes in behaviors amongst consumers as well leading to a substitution towards cleaner consumption goods and away from products that are heavily carbon intensive. The one issue with a carbon tax is that it might disproportionately hurt low income households since they spend a larger share of their income on heating and gas. However, my research shows that the money from a carbon tax can be used to expand either direct cash support to low income households or expanded social safety net benefits, which helps offset the burden of a carbon tax for these families.
While global agreements send an important signal to the world about the importance of addressing climate change, each of us can be the agent of that change by altering our own personal behaviors and consumption habits.
MS: Despite India’s relatively strong record in terms of economic growth over the last decade, its middle class remains small and getting a job is no guarantee of escaping poverty. What measures should India take to ensure that the growth process is broad-based in order to reduce the share of the population living on less than $2 a day—many of whom are employed in informal and low skilled jobs.
AM: India faces many issues that are similar to those faced globally as well as others that are unique to the country. India has a large share of young workers that need to transition to good, high paying jobs. It also has a large informal sector that employs relatively low skilled workers. The challenge going forward will be to invest in education and upskilling for young workers coming out of school as well as workers employed in jobs that in the future will be more likely to be automated away. Investment in education can be done through the government or through vocational programs and courses offered in private institutions. More on the job training programs to train younger workers to occupy skilled positions is needed by employers as well. In the US, some states are experimenting with paid apprenticeship programs where employers pay young apprentice workers to work with them for a period of 2 years while learning the skills needed to do the jobs they will eventually occupy. This helps ease the transition to work leading to a lower risk of unemployment or joblessness for youth. Such programs can also be geared towards particular demographics of workers, such as more experienced workers looking to learn new technologies, as well as women returning to the workforce. This will help address the problem of lack of work and incomes for middle and lower income workers.
MS: By 2025, one-fifth of the world's working-age population will be Indian. According to a World Economic Forum’s report, more than half of Indian workers will require reskilling to meet the talent demands of the future. Which are key potential areas where India should focus on reskilling more.
AM: COVID-19 has accelerated the trend towards automation- and a recent McKinsey Global Institute report shows that nearly 30 percent of workers globally will have to learn new skills in order to change occupations and move to jobs that are more in demand. Demand for tech talent in particular is going to grow significantly over the next decade and employers are realizing that tech worker shortage issues will need to be addressed either internally by upskilling their own workforce or externally by investing in educational and vocational institutions and programs that will produce the kinds of workers that companies need. Going forward, there will be a big demand for people who can work with big data and who have the hard technical skills to handle big data needs. At the same time, employers are increasingly looking for workers with the right soft skills—skills like taking ownership and responsibility, being accountable, being conscientious, and the ability to think big. That is also going to be a big challenge since it is not immediately clear how employers can impart soft skills training to their workforce.
MS: India's economy will be big but not as big as China's (which is currently five times its size). What measure should India take to reach a five trillion economy?
AM: India has tremendous potential in it’s billion plus population. The key is to figure out the right mix of policies to unleash that potential. We can think of this as a life cycle of change, starting with ensuring that children all over the country have access to the best schools and courses and to higher level education options at the college and graduate level. While enrollments in schooling have been increasing over time, India still faces issues related to high dropout rates of children in high schools, poor teacher attendance, and poor assessments and quality of learning for children who stay in school. These challenges need to be addressed so that every child can have a brighter future and opportunities to build upon. This problem became particularly acute during the pandemic when schools closed down or children could not access remote learning options because of a lack of access to technology. This needs to be tackled urgently.
In addition, there is a growing realization globally that academic institutions or colleges are not the only path to prosperity. Instead, investing more in vocational training and education can provide more efficient and effective pathways to work. India faces a youth unemployment crisis, and a large part of that is driven by college graduates not having the right mix of skills and competencies needed by employers. To tackle this problem, we need to invest in paid apprenticeship programs whereby employers hire students in colleges and vocational institutions, train them on the job while enabling them to continue with their coursework, and then offering them job opportunities when they graduate. This helps meet the needs of both employers and younger workers. As mentioned earlier, we need to invest heavily in tech and soft skills training, which is the shortage that employers most worry about facing.
Finally, we need to encourage entrepreneurship and small businesses and provide a broader and more robust social safety net with wider coverage that enables families and businesses who fail, lose jobs, to get a second, or third chance, at success.
MS: Your fight for paid maternity leave and its success is a landmark in the history of the global economy. In the current hybrid-work scenario, women are juggling work from home and home care without much external/internal help, thereby affecting their mental health. Some have even quit jobs due to the same? What kind of economic reforms are needed in the hybrid-work scenario for women, who are the pivot of a household as well as a global workforce? (Background: Lack of paid leave and affordable child care are holding women back from the workforce. Women are quitting jobs due to extended work from home hours and lack of child care. Plus salary cuts have added more to the woes)
AM: COVID -19 has exacerbated pre-existing disparities in the labor force, when it comes to men and women. Even prior to COVID, women’s labor force participation in the US lagged relative to men. During COVID, we saw much bigger declines in women’s employment than men’s primarily due to the fact that the sectors that were hit the hardest, such as leisure and hospitality and retail, are primarily dominated by women. In addition, the closure of schools and daycares meant that women bore the brunt of caregiving responsibilities at home making it even harder to juggle work and family. The worry is that in the longer run not only will women continue to drop out of the workforce but that there will be more non-participation in the workforce as the effects of the pandemic continue. Employment in contact-based industries, which traditionally employ women, will decline, and this will further exacerbate gender wage disparities. In order to encourage women in the workforce, we need to move towards more flexible workplaces that allow women (and men) to balance both responsibilities. This includes paid family and medical leave policies that allow workers to take time off from work when they have a caregiver need at home and making childcare more affordable so that women are able to make choices that work well for them. I have been advocating for these policies in the US, and have also commented on India’s maternity leave laws. Further, COVID has also changed how people view work. Surveys show that employees feel equally productive working at home as they did in office pre-pandemic, and there is a desire for more flexibility to do remote work. Encouraging proper adoption of these policies might help address the gender inequity challenge since it may lead to greater participation by women in the labor force.
About Ms Aparna Mathur
Aparna Mathur is a Senior Fellow at Harvard Kennedy School’s Mossavar-Rahmani Center where she is researching safety net issues. She is also a Senior Research Manager in Economics at Amazon where she studies labor issues. Prior to this, she spent a year as a Senior Economist at the Council of Economic Advisers, USA. She joined the Council as part of the COVID-19 response task force at the peak of the crisis in April 2020 and worked with epidemiologists on the health aspects of the crisis, while also tracking the economic downturn that came with the lockdowns. Prior to joining CEA, she was a resident scholar in economic policy studies at the American Enterprise Institute. At AEI, she directed the AEI-Brookings Project on Paid Family and Medical Leave, building bipartisan momentum on paid leave, for which she was recognized in the Politico 50 list for 2017. Her academic research has focused on income inequality and mobility, tax policy, labor markets and small businesses. She has published in several top scholarly journals, testified several times before Congress and published numerous articles in the popular press on issues of policy relevance, including on her own blog at Forbes. Her work has been cited in leading news magazines such as the Economist, the New York Times, the Wall Street Journal and the Washington Post. She has regularly provided commentary on prominent radio and television shows such as NPR’s Marketplace and the Diane Rehm Show, as well as CNBC and C-SPAN. She has been an adjunct professor at Georgetown University’s McCourt School of Public Policy. She received her Ph.D. in economics from the University of Maryland, College Park in 2005, and is currently serving on the University of Maryland Economics Leadership Council. She is also on the Board of the National Academy of Social Insurance, Simply Green and the National Economists Club.
About the Interviewer
Mahima Sharma is an Independent Journalist based in Delhi NCR. She has been in the field of TV, Print & Online Journalism since 2005 and previously an additional three years in allied media. In her span of work she has been associated with CNN-News18, ANI - Asian News International (A collaboration with Reuters), Voice of India, Hindustan Times and various other top media brands of their times. In recent times, she has diversified her work as a Digital Media Marketing Consultant & Content Strategist as well. Mahima can be reached at email@example.com
Disclaimer : The opinions expressed within this interview are the personal opinions of the interviewee. The facts and opinions appearing in the answers do not reflect the views of Indiastat or the interviewer. Indiastat does not hold any responsibility or liability for the same.