Squandering India's demographic dividend

Looking at the nature of employment among the youth, we find that a disproportionately large share are self-employed

India is facing a serious jobs crisis. The findings of the Periodic Labour Force Survey or PLFS (2017-18) recently reported by this newspaper, reaffirm the enormity of the crisis. For an economy that has typically been characterised by disguised unemployment and has witnessed open unemployment rates in the range of 2 to 3 per cent, an unemployment rate (UR) of 6 per cent is startling to say the least. What is particularly alarming is that the high UR is largely a consequence of unemployment among the youth (15-29 age bracket). The UR for the youth is reported at 17.4 per cent and 13.6 per cent for rural males and females respectively. The corresponding figures for urban males and females stand at 18.7 per cent and 27.2 per cent respectively. That Narendra Modi came to power backed by the support of the youth on his promise of providing them jobs makes his government’s discomfort at acknowledging the recently released data palpable. But, this is not just an election issue. It is about India squandering its demographic dividend — a once in a lifetime opportunity for a country.

All countries have a demographic “window of opportunity” when the growth in the working-age population is greater than the growth in the total population. The increase in the share of the working-age population is expected to generate more incomes, more savings, more capital per worker, and more growth leading to what is known as a “demographic dividend”. At present, India has the largest young population in the world, with over 65 per cent of the population in the working age of 15-59 years. This share is expected to rise till 2035-40 giving India the longest window of opportunity compared to any other country to exploit its demographic dividend. If we have to seize this opportunity, we need to be able to provide the additional labour force with gainful jobs. With youth unemployment rates peaking, clearly we are doing miserably in terms of harnessing this dividend.

The last officially released Employment Unemployment Household survey conducted by Labour Bureau in 2015-16 allows us to do a more disaggregated analysis and confirms the fact that joblessness among the youth has been festering for some time now. Whilst I would refrain from making comparisons between the PLFS (2017-18) and the Labour Bureau’s Employment-Unemployment Survey or EUS (201516) since they differ in terms of criteria used for selection of households, trends from the latter also indicate the looming challenge of youth unemployment. In the 2015-16 survey, the UR stood at 3.7 per cent (by the usual principal and subsidiary status) and the UR for those in the age of 15-29 years was considerably higher at 10.3 per cent. The data from EUS (2015-16) shows that [as shown in Table 1] the UR for the older workforce (that is, those in the age bracket of 30-59 years) stood at a mere 1 per cent.

A disaggregated analysis of URs of the youth by education levels in the Labour Bureau’s 2015-16 survey is even more disturbing. The data from EUS (2015-16) shows that [as evident from Table 2] unemployment rates are increasing with education levels. The UR for those with graduate and post graduate degrees was close to 30 per cent and reflects the inability of educated jobseekers to find jobs that fully utilise their skills and abilities. On the other hand, those classified as “not literate” reported a UR of just 2.7 per cent. This low figure is not much of a reassurance. It is simply a consequence of the fact that uneducated youth often belong to low income households and cannot afford to remain unemployed for long.

Looking at the nature of employment among the youth, we find that a disproportionately large share are self-employed. Again, data (2015-16) shows that [as evident from Table 3] these are largely unpaid family workers (24.53 per cent) or own account workers (16.29 per cent), not employers who can be considered “job creators”. The next highest share of employed are in the category of casual workers (36.64 per cent). The share of regular salaried workers is relatively smaller (just 17.13 per cent) pointing to the lack of decent productive jobs for the youth. Additionally, over 40 per cent of the youth were employed in the agricultural sector in 2015-16 and a paltry 13 per cent were employed in manufacturing. That such a large number of youth continue to be employed in agriculture even as their education levels rise suggests that the non-agricultural sector has failed to generate enough employment opportunities for them. The inability of young adults to land good jobs at the cusp of their career can not only be demotivating and discouraging leading to what it referred to as a “scarring effect” in the literature but also lead to a higher likelihood of being unemployed later in life and a wage penalty.

There is no silver bullet to deal with youth unemployment. Many suggest reforming the education and skill development sector, increasing emphasis on entrepreneurship and taking steps to increase female labour force participation. But, for any of these recommendations to work, they must be implemented within the context of an overall economic development policy that puts maximisation of employment, and not just maximisation of GDP, centre stage. It is indeed puzzling that India is growing at 7 per cent per annum and yet not being able to generate good jobs for its educated young populace. Political spectacles are likely to unfold in the months to come, but it is imperative that the problem of youth unemployment is tackled head-on. It is not only the economic costs that matter. The social consequences of joblessness among the youth can be even worse. The Arab Spring of 2011 is a reminder of what the frustrations of disillusioned unemployed youth can lead to.