Stimulus Creates Challenges Too

Stimulus creates challenges too, Urban unemployment becomes the woe.

Govt has decided to implement the 9th pay scale of the public servants. The decision is about to contend the bureaucrats. But with pay hike wages of other sectors will rise. RMG workers are also demanding a review of the minimum wage. There is no doubt that wage increase will push up the prices of essential commodities. Earlier govt announced a central bank managed Tk 60000 crore stimulus package for reopening the closed factories and creating 2.5 million jobs. If the two decisions finally take shape ,then wages in general in the urban areas will rise. Apart from inflation,rural-urban migration may take virulent turn,worsening urban unemployment and economy.

For institutional and political reasons, urban wage is higher than rural one. And workers in the urban sector do not want to work below a certain wage level. This wage rigidity and rural-urban wage gap draws rural workforce to urban area. The famous Lewis model shows how rural surplus workforce gradually gets absorbed into modern urban sector. Firms in the urban sector makes profits and reinvest those profits,drawing more rural surplus labor into urban areas. For some time,rural wage stays fixed. As more investment is made,economy develops,rural wage starts to rise. When the economy is fully developed,technological transformation will take place in both the rural and urban sectors of the economy. At this point, wages in both the rural and urban sectors rise. In the end , the whole rural labor force gets engaged into modern urban sector. But the hole in this model is that it does not recognize the urban unemployment.

Harris-Todaro model addresses the issue by recognizing this phenomenon. Not all rural workers who migrate to the city find a job. The rural worker bases his/her decision to migrate on the expected urban earnings. This expected urban earnings is determined by rigid urban wage,which is higher than rural wage, and the chance of getting a job in urban area. So higher the chance of getting a job, higher the expected urban earnings. Depending on the number of urban job created, migrated rural labor force either fully gets engaged in urban modern sector or part of it finds job and other part remains unemployed.

Some of the unemployed gets job in the informal sector. And in informal sector wages may be lower than rural one. So both rural-urban migration and unemployment happens in this economic transition.

Nowadays e-rickshaw pulling becomes popular in the major cities. There are more than 1 million e-rickshaws plying over the Dhaka streets. Compared to traditional cycle rickshaw, income from e-rickshaw is more than that of cycle rickshaw. Higher income and less effort to drive make it a popular vocation among the urban informal workers. In fact, monthly income of e-rickshaw pullers is more than some formal sector jobs. However, there are some dark sides too. As more and more e-rickshaw ply over the streets,traffic congestion at key roads and points becomes acute. Furthermore, it worsens urban accommodation problem and deteriorates public health at cramped living places.

Govt decision of reopening the closed factories under the stimulus package plus the new pay scale at one hand will increase the minimum urban wage. On the other it will increase the chance of getting an urban job even more for a rural laborer. The rural laborer also contemplates the fact that higher earning prospect in the e-rickshaw industry is available even if he finds no job in the formal sector. This altogether makes his expected urban earnings higher in case he migrates. So govt's current programs are increasing the likelihood of urban bound migration.

It is true that a plethora of other programs like canal excavation, family card,peasant card and increasing the agricultural credit to Tk 60000 crore will both augment rural income and job opportunities. But in terms of job creation urban sector always dominates the rural sector. Despite the balancing act of the govt programs , a fresh influx of rural labor is anticipated in urban areas. How many urban jobs will be created is a matter of future scrutiny amid energy infrastructure bottleneck, external shock and persistent high inflation, which is likely to deteriorate in the wake of new pay scale. In the end what we see is that govt programs intended for greater well being expose us to challenges like rising migration, unemployment, inequality and worsening public health.