Utilization of surplus rural labor in developing economies--a flexible spreadsheet model.

AuthorErrington, Peter


This article is an update of one that appeared in the April 2009 issue of The Indian Journal of Industrial Relations, titled "Utilization of Surplus Rural Labor in Developing Economies - a Model" (Errinton, 2009). The spreadsheet illustration, to make the case very strongly, was based on assumptions such as three shifts a day which may not apply to a real-life situation. Hence the introduction of flexibility, through parameterization in this article.

The Basic Model

The socio-economic model presented in this paper concerns utilization of surplus labor (the disguised unemployment phenomenon) in rural communities in developing economies. The economics in the model are very simple--a couple of wrinkles, but still very simple. The social considerations are less so.

It is assumed that the families supporting the disguised unemployed want to be able to use this labor, which at present has zero or near zero opportunity cost, to leapfrog through time to a significantly better way of life. (Think of villages in India, which are aware of economic growth in which they are not sharing.) Moreover, these families are aware of the dangers of causing envy and resentment among the people in their vicinity who do not have such supported labor as a resource.

The course of action taken by our collection of families is to induce a business to partner with them in establishing a particular kind of enterprise. The labor, the individual families, has shares in the enterprise, along with the business. This in lieu of wages. The enterprise is modestly sized to start with, but because of product/technology choice, scales upward without great difficulty according to an agreed-on investment schedule. The investment is done by the village families from most of the income from their shares, with the individual families acquiring an increasing proportion of the shares as the result.

Basically, what is happening here is that the villagers are investing their surplus labor in their own job creation. Of particular interest from a national standpoint, the afore mentioned situation where villagers feel they are not sharing in economic improvement. Consider, for example, Indian national elections in recent years. From a regional standpoint, a region where substantial industrialization is taking place fairly nearby very densely populated rural areas (South Karnataka/Kerala?)

Defusing Envy & Resentment

The key initial decision, when planning was being done for the new enterprise, was that the participating families must not compete with ordinary wage earners. (Which they could do, very effectively, because of the family support.) But it would be terrible to undercut the wages of people who mostly have great need for all the wages they earn. The villagers realize that their plan should combine business with an acceptance strategy. The new enterprise must coexist decently with what is already there in the local economy. Although taking advantage of labor intensity, it should not decimate existing labor-intensive operations. The new industry should not pollute the village. Some charitable activity by the enterprise certainly would not hurt. It will be argued later that some of the workers' profits should go for present consumption (health and morale reasons) rather than being included in the investment schedule. But of course anything remotely ostentatious would be avoided, at least during the early years when working for acceptance.

Meeting the Needs of Participating Families

The usefulness of some present consumption should be recognized. Merely from a morale standpoint, it would be counter-productive to postpone all consumption. In fact, without some increase in present consumption, it could be argued that the villagers would never become interested in the new arrangement in the first place. Moreover, there is one area where more than morale is involved...

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