Counting formal jobs

Two recent studies suggest organised sector has been an impressive job-creator but the validity of these estimates is open to question

There is a widely-held view that India’s rapid economic growth has been failing to bring about rapid improvement in employment conditions mainly because the organised sector, which has been leading the growth process in India’s dual economy, has been a rather poor performer in terms of job creation. Two recent studies — Ghosh and Ghoshi, and The Economic Survey 2018 — question this view and present new estimates of formal employment, based on EFPO/ESIC/NPS (Employees’ Provident Fund Organisation/Employees State Insurance Corporation/National Pension Scheme) data to show that the organised sector has been an impressive job-creator.

If these estimates can be taken as valid, it would have to be accepted that both formal and total employment in the organised sector had been seriously underestimated in the past. However, the validity of the estimates is very much open to doubt. As discussed by Kapoorii, given the nature of the EFPO/ESIC/NPS data, it is very difficult to derive reliable estimates of formal jobs from them. This indeed is the reason why these sources of data have remained little-used.

Estimates of formal jobs and organised sector employment, derived by using the data on employment available from the NSSO (National Sample Survey Organisation) surveys together with the data on population available from the Censuses, are given in Table 1. The corporate sector includes all private corporations, public enterprises, and government establishments; the unincorporated enterprises are private enterprises that are not registered under the Companies Act. The organised sector is taken to be composed of the corporate sector and the unincorporated enterprises that employ at least 10 workers. Formal employees are regular waged/salaried employees in the organised sector with entitlement to some form of social security. Regular-informal employees are regular waged/salaried employees without any entitlement to social security. Casual employees are recruited on a daily basis and receive only a daily wage.

The estimates for 2004-05 and 2011-12 have been derived directly from the data in the NSSO surveys while the estimates for 2015-16 and 2017-18 are projections. The method of projection is as follows. For the period 2004-05 to 2011-12, employment elasticities (ratios of employment growth to output growth) relating to formal employment and total employment are estimated separately for the corporate sector and the unincorporated enterprises (employment growth rates have been estimated from the data in Table 1 and output growth rates are estimated by using the National Accounts Statistics). The elasticity estimates are then used together with output growth rates for the period 2011-12 to 2015-16 to derive estimates of formal jobs and all jobs in the corporate sector and the unincorporated enterprises for 2015-16. Since the last year for which the relevant output data is available is 2015-16, the estimates for 2017-18 have been derived by assuming that output growth in the corporate sector and in the unincorporated enterprises from 2015-16 to 2017-18 was the same as those observed from 2011-12 to 2015-16. Finally, it is assumed that the share of regular-informal employees among all informal employees in the organised sector remained unchanged from 2011-12 to 2017-18.

According to these estimates, the organised sector employed 102 million persons in 2017-18, but only about 39 million of them were formal employees. Remarkably, the estimated number of informal employees is 63 million, which is not very different from the estimated number (67 million) given in the Economic Survey even though the definition of the organised sector used in the Survey is quite different. But the estimated number of formal employees derived from the NSSO survey data is far lower than the estimated number of 60 million given in the Survey (this estimate, of course, is derived from the EFPO/ESIC data).

Between 2011-12 and 2017-18, formal jobs increased by 4.5 million while organised sector employment grew by 24.6 million. It can be deduced that in 2017-18, the organised sector created 4.1 million jobs but only 750,000 formal jobs (a far cry from the estimate of 590,000 formal jobs created every month by Ghosh and Ghosh).

What do the estimates, derived from the NSSO survey data, say about the performance of the organised sector in terms of job creation? To answer this, we need to bring total employment into the picture. The relevant estimates are presented in Table 2. The estimates of the population are based on the data from the 2001 and 2011 Censuses. The estimates of the labour force/employment for 2004-05 and 2011-12 are based on the data from the NSSO surveys while the estimates for 2015-16 are based on the data from a Labour Bureau Surveyiii (which was modelled on the NSSO surveys). The estimates for 2017-18 are projections that are derived by using UN projections of adult population together with our projections of LFPR (labour force participation rate) and UR (unemployment rate). The LFPR has been declining throughout the period while the UR increased between 2011-12 and 2015-16. We assume that the LFPR continued to decline while the UR remained unchanged from 2015-16 to 2017-18.

From 2004-05 to 2017-18, formal employment grew by 2.4 per cent per annum and organised sector employment grew by 5.3 per cent per annum while total employment in the economy grew by just 0.6 per cent per annum. So, the share of formal employment in total employment increased from 6.5 per cent in 2004-05 to 8.3 per cent in 2017-18, and the share of

organised sector employment increased from 12 per cent in 2004-05 to 22 per cent in 2017-18. Thus, the organised sector’s performance with respect to job creation looks rather impressive in this period.

However, what makes the performance look so impressive is the very slow growth of total employment in the economy. This basically reflected the very slow growth of the labour force (0.7 per cent per annum), which resulted from the declining LFPR. Analysisiv has shown that the declining LFPR is explained, to a small extent, by the increasing pursuit of education for longer periods by the young and, to a much larger extent, by the progressive withdrawal of the poorest and least educated women from very poor-quality jobs in the unorganised sector. This second trend indicates lack of improvement in employment conditions in the unorganised sector. The very slow growth of employment in the economy, therefore, can be said to have resulted from a growing lack of job opportunities in the unorganised sector, which in turn can be attributed to a failure of the organised sector to create jobs at a rapid enough pace.

The other important fact is that many of the jobs being created in the organised sector are informal and rather poor-quality (not much better that many jobs in the unorganised sector).

These are the two facts that underpin the argument that the organised sector has not performed well in terms of job creation.

i) Soumya Kanti Ghosh and Pulak Ghosh “Towards a payroll reporting in India” ii) Radhicka Kapoor, “Jobs euphoria may be misplaced” (Business Standard, 24 January 2018); and “Waiting for jobs” (ICRIER Working Paper) iii) Fifth Annual Employment-Unemployment Survey iv) Ajit K. Ghose, India Employment Report 2016 (New Delhi: Oxford University Press)

The author is Honorary Professor, Institute for Human Development, New Delhi