LinkedIn's new 'Cities on the Rise' list gives very interesting input about how the job market is changing as far as cities are concerned. Big metro cities like Bengaluru and Mumbai were the prime locations but are losing to smaller cities like Visakhapatnam, Prayagraj, Ludhiana, Surat, and Vadodara.
India's metros are choking on their own success, and the job market is finally responding to that reality. Bengaluru's and Mumbai's rents and traffic, Delhi's polluted air aren't quality-of-life footnotes anymore. They're becoming economic costs, and companies are pricing them in.
According to the basic spatial equilibrium theory workers and firms stay in expensive cities only as long as the wage premium covers the extra cost of living there. Once traffic, real estate and pollution such other factors start eating into that premium, the equilibrium breaks and people leave. This is becoming a reality in India. Visakhapatnam, Ludhiana, Surat, Ranchi, Prayagraj, and Vadodara are becoming the center of attraction for both employers as well as the employees. These cities aren't winning because they suddenly became more attractive. They're winning because metro cities like Bengaluru, Mumbai, and Delhi have stopped being worth the trade-off.
The metro model was always going to hit this wall. It is good that it happened now than late. Four or five cities cannot absorb India's entire workforce forever and make India a developed economy which we had been trying to do for three decades. Land is finite, infrastructure spending didn't keep pace, and eventually the diseconomies of scale such as traffic, housing costs, strained public services and deteriorating quality of life start outweighing the agglomeration benefits that made these cities magnets in the first place.
Companies are not being generous to Tier-2 India. Rather, companies are fleeing a cost structure that has stopped making sense. High-tech and AI talent in emerging cities costs nearly half of what it does in metro cities. Along with the human resources cost, other costs in metro cities are far higher than the emerging cities creating a huge gap. That gap doesn't close on in any way.
This shift is a market correction, not a policy success. Nobody planned this change in the direction. It is happening because the governance in the metro cities failed to keep costs in check, and firms are doing what firms always do. They are following the cheaper option. The growth of Tier-2 cities are good for India. It will make Indian economic well-off than the present model of centralized growth. Economic activities in every part of India will deepen over time making Indian economy more democratic and equitable economy in terms of regional growth and development. This will accelerate government's push for decentralization. However, for the policymakers, Tier-2 growth isn't a phenomenon to celebrate. Rather, they need to introspect and ask why the metros are becoming unlivable enough to force this exodus in the first place.
A large portion of India's informal workforce was already outside the metros and now the new trend will lead to formal workforce going outside metros. This is best thing that can happen to India. In short term, it might seem like a disadvantage for India but in medium to long term, it will be beneficial for the metro cities as well as the emerging cities.
The exodus of talent from metro cities will result into better education, health and civic infrastructure in other emerging cities as the state and local government would have access to more funds because of increased economic activities. The youth will also have better employment opportunities. Not only this, it will improve the civic life in these small cities. On the other side, because reverse migration, the pressure on the civic infrastructure in metro cities will fall leading to improved civic life. Because of very high population density in the metro cities, the civic infrastructure in these cities have almost collapse along with very high pressure in the natural resources like water.
Rajeev UpadhyayIndia's metros are choking on their own success, and the job market is finally responding to that reality. Bengaluru's and Mumbai's rents and traffic, Delhi's polluted air aren't quality-of-life footnotes anymore. They're becoming economic costs, and companies are pricing them in.
According to the basic spatial equilibrium theory workers and firms stay in expensive cities only as long as the wage premium covers the extra cost of living there. Once traffic, real estate and pollution such other factors start eating into that premium, the equilibrium breaks and people leave. This is becoming a reality in India. Visakhapatnam, Ludhiana, Surat, Ranchi, Prayagraj, and Vadodara are becoming the center of attraction for both employers as well as the employees. These cities aren't winning because they suddenly became more attractive. They're winning because metro cities like Bengaluru, Mumbai, and Delhi have stopped being worth the trade-off.
The metro model was always going to hit this wall. It is good that it happened now than late. Four or five cities cannot absorb India's entire workforce forever and make India a developed economy which we had been trying to do for three decades. Land is finite, infrastructure spending didn't keep pace, and eventually the diseconomies of scale such as traffic, housing costs, strained public services and deteriorating quality of life start outweighing the agglomeration benefits that made these cities magnets in the first place.
Companies are not being generous to Tier-2 India. Rather, companies are fleeing a cost structure that has stopped making sense. High-tech and AI talent in emerging cities costs nearly half of what it does in metro cities. Along with the human resources cost, other costs in metro cities are far higher than the emerging cities creating a huge gap. That gap doesn't close on in any way.
This shift is a market correction, not a policy success. Nobody planned this change in the direction. It is happening because the governance in the metro cities failed to keep costs in check, and firms are doing what firms always do. They are following the cheaper option. The growth of Tier-2 cities are good for India. It will make Indian economic well-off than the present model of centralized growth. Economic activities in every part of India will deepen over time making Indian economy more democratic and equitable economy in terms of regional growth and development. This will accelerate government's push for decentralization. However, for the policymakers, Tier-2 growth isn't a phenomenon to celebrate. Rather, they need to introspect and ask why the metros are becoming unlivable enough to force this exodus in the first place.
A large portion of India's informal workforce was already outside the metros and now the new trend will lead to formal workforce going outside metros. This is best thing that can happen to India. In short term, it might seem like a disadvantage for India but in medium to long term, it will be beneficial for the metro cities as well as the emerging cities.
The exodus of talent from metro cities will result into better education, health and civic infrastructure in other emerging cities as the state and local government would have access to more funds because of increased economic activities. The youth will also have better employment opportunities. Not only this, it will improve the civic life in these small cities. On the other side, because reverse migration, the pressure on the civic infrastructure in metro cities will fall leading to improved civic life. Because of very high population density in the metro cities, the civic infrastructure in these cities have almost collapse along with very high pressure in the natural resources like water.
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