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Economic Development Could Be Led by Policy-Supported Services
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Context
The future of developing countries lies in the services sector, as traditional industrialization faces challenges due to the increasing skill and capital intensity of manufacturing. Enhancing productivity in labour-absorbing services has become crucial for sustainable growth and equity.
Challenges in Manufacturing:
- Skill-Biased Innovation: New technologies like automation and 3D printing reduce demand for low-skilled labor, making it difficult for developing countries to compete globally using labor-intensive techniques.
- Limited Labour Absorption: Competitive manufacturing sectors in developing countries have become like 'enclave sectors', unable to absorb significant amounts of labor, similar to the mining industry.
- Global Standards and Competition: High-quality standards in global value chains limit the extent to which unskilled labor can substitute for physical capital and skilled labor.
Importance of Labour-Absorbing Services:
- Productivity and Growth: With the majority of jobs in services, productivity in these sectors is essential to support income growth and overall economic development.
- Skill-Intensive Services: Sectors like banking, infotech, and BPOs are productive and tradable but do not absorb much labor due to their skill-intensive nature.
- Focus on Service Sector: Increasing productivity in labor-absorbing services such as retail, care, and personal and public services is crucial for job creation and economic equity.
Strategies for Expanding Productive Employment:
- Incentivizing Large Firms: Encourage established large firms, including retailers and ride-sharing platforms, to expand employment either directly or through local supply chains.
- Supporting Small Enterprises: Enhance the productive capabilities of small enterprises through public inputs like management training, loans, customized worker skills, and specific infrastructure or technology assistance.
- Leveraging Digital Tools: Provide digital tools or new technologies that complement low-skill labor, enabling less educated workers to perform tasks traditionally reserved for more skilled professionals.
- Vocational Training and Wrap-Around Services: Combine vocational training with additional support programs to enhance employability, retention, and promotion of less-educated workers, modeled after successful initiatives like Project Quest.
UPSC Mains Questions
Q. Analyze the role of vocational training and digital tools in improving the employability and productivity of low-skilled workers in the services sector. Provide examples of successful initiatives in this context.
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