The Nobel Prize in economics of 2010 that went to Peter Diamond and colleagues. Their work on search costs in labour markets provided the theoretical justification for government-operated employment exchanges. The 2012 Nobel Prize that went to Alvin E Roth and Lloyd S Shapley took things even further: their work demonstrated that design is important, because equity markets provide clear analysis on prices and labour markets provide clear analysis on the labour information.

The Indian experience with employment exchanges since the first one began in 1959 has been unsatisfactory but there is a unique opportunity to reinvent them into career centres that focus on the three problems of pipeline (preparing supply for demand), mismatch (repairing supply for demand: preparing job-seekers for interviews, getting their resumes ready, training them in required skills) and matching (connecting demand to supply). Of the three, matching is the lowest hanging fruit. The matching problem is obvious: how does a kid in Hissar find a job in Delhi? Or an employer in Thane find a perfect potential employee from Nasik? This matching problem is amplified in India because of our skewed geography of work, because we have only 35 cities with more than a million people (China has 250) against our six lakh villages (two lakh of them have less than 200 people). In the short run, India cannot take jobs to people but must take people to jobs. This needs employment exchanges.

READ: Is it time to retire our employment exchanges?

Currently, we have 978 employment exchanges which last year gave three lakh jobs to the four crore people registered. Every year about 40 lakh new job-seekers register with employment exchanges across the country but most do not receive any jobs or interview invitations. The cause of the poor performance of employment exchanges lies in the structure and thought world; governments are not recruiting, a supreme court judgement killed their monopoly, unemployability being a bigger problem than unemployment, and private sector participation requiring a client or service mindset rather than the current regulatory one.

India’s skill crisis – more than 58 percent of our youth suffer some degree of unemployability – is emerging as a binding constraint for India’s growth. This is a large challenge because besides the labour supply flow – 10 lakh kids will join the labour force every month for the next 20 years – we have to worry about stock – the 20 crore people who are already in the labour force trapped with low skills and productivity.

Public-private partnerships for employment exchanges were put on the agenda in a budget speech announcement a few years ago. But like most government transformations, this project is suffering from a traffic jam at the intersection of the central and state governments. The central government has defined modernising employment exchanges as better use of technology. But many state governments identify the issue as governance and performance management and have concluded that they are better off shutting them down.

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The central government may have misdiagnosed the problem because fixing employment exchanges requires a lot more than technology; it needs a service mentality, performance management, strong employer linkages and a deep understanding of vocational training. The state governments are wrong because job-seekers need a physically accessible lighthouse for career services information and delivery.

The traditional notion of employment exchanges with a binary outcome – you either get a job or don’t – is redundant in the current context. They do nothing but register job-seekers, do not have easily accessible and well organised databases and are not proactive. However, most of the exchanges are situated in easily accessible locations, have decent infrastructure (though not properly maintained) and awareness of the exchange among candidates is high. Policymakers can use existing infrastructures, so neither the government nor the private party makes higher investments on hardware (infrastructure and other capital intensive requirements) but can divert the resources to software (people, processes, technology, output).

Employment exchanges need transformation at two levels; governance and services. We need to reform their governance through PPPs and rebadge them as apprenticeship and career centres which would offer five services: counselling, assessments, training, apprenticeships and jobs. Assessments are important to judge the opening balance of job-seekers; their strengths, weaknesses, aptitudes, and also help counsellors match the existing skills to the job-seekers’ aspirations. Providing skill development programmes at the career centres will boost the skills of the job-seekers and increase their productivity at their workplaces. Apprenticeship is important because ‘learning by doing’ and ‘learning while earning’ are wonderful vehicles for skill development but India has only three lakh apprentices (much smaller Germany and Japan have six million and 10 million respectively).

Employment exchanges need to become credible clearing houses for labour markets for job-seekers and employers and become the ‘go-to’ place for their manpower requirements. Finally, the PPP contracts should not only incentivise them for their performances but rank or rate them by performance so industry, parents and students can make informed decisions.

Some states have started moving forward with the transformation. Karnataka had taken the lead by converting a few of its employment exchanges into institutions with private partners that offer assessments, counselling, training and jobs. Many states like Kerala, Andhra Pradesh, Haryana, Maharashtra and Gujarat have also upgraded their employment exchanges as career centres or career guidance and counselling centres. Many of these have demonstrated results over the short period. They also provide training to candidates (courses currently include English, soft skills, interview preparation, personality development, etc.) which have been chosen based on local demand from employers. Most importantly, they convert the process of finding job from the episodic job melas to a dial tone which is always available.

India’s demographic dividend is real but we need to fix our 3Es (education, employability and employment). While the reform of universities and schools is complex and takes a long time, the reform of our skill system and employment exchanges is doable, urgent and in the hands of state government. Any takers?

Sabharwal and Sharma are with TeamLease Services Limited.

(The column appears in the November 30, 2017 issue)