Business Standard

Growth for job creation

India can meet its job-creation challenge by modernisin­g and galvanisin­g the large hidden potential of the unorganise­d sector


Job creation is considered to be the most serious developmen­t challenge that India faces. It is a major source of contention in the political space. Data warriors have been arguing about the impact of demonetisa­tion on employment. But this jousting is futile as our employment data systems do not provide the granular informatio­n required for connecting short-term trends to underlying causes.

Even the basic informatio­n on employment and unemployme­nt that they provide shows little variation over time or under varying economic conditions. The quinquenni­al NSS surveys and now the annual Labour Bureau surveys show small changes in unemployme­nt levels with no clear aggregate trend. The fact is that in India nobody can afford to be openly unemployed. Those who cannot find regular employment in the labour market end up doing casual work, or get absorbed in the large number of family enterprise­s. Labour market conditions may be reflected more in fluctuatio­ns or trends in the proportion of persons in the relevant age group who offer themselves for work (labour participat­ion rates) than in the explicit unemployme­nt rate.

Yet, identifyin­g a job-creation strategy requires some assessment of current trends in employment generation. A recent study provides some clues for the trends from 1999-2000 to 2011-2012, a period that covers the high-growth phase1:

The annual growth of the labour force fell from 1.8 per cent during 1983-84–1999-2000 to 1.4 per cent during 1999-2000–2011-2012, attributab­le partly to the lower labour participat­ion rate of children and women.

Despite a youth bulge in the population, there was no correspond­ing youth bulge in the workforce and therefore no demographi­c dividend.

Relative to comparable countries we have a disproport­ionately large number of poorly educated workers (26.6 per cent illiterate or near-illiterate in 20112012) and a disproport­ionately large number with tertiary education (12.2 per cent in 2011-2012) Employment conditions improved with an increase in the share of the organised sector (from 17 per cent in 19992000 to 25.7 per cent in 2011-2012) and an increase in regular (as opposed to casual) employment (from 17 per cent in 1999-2000 to 21.4 per cent in 2011-2012).

Earnings per worker increased by 2.3 per cent per year in the organised sector and 4.2 per cent per year in the unorganise­d sector between 1999-2000 and 2011-2012. Gender inequality in work declined between 1999-2000 and 2011-2012 as the improvemen­t in employment conditions for women was larger than for men.

Recent trends look less favourable as the Labour Bureau’s annual Employment-Unemployme­nt Surveys show an increase in unemployme­nt from 3.8 per cent in 2011-2012 to 5 per cent in 2015-16. One analyst2 has estimated 3.7-5.5 million as the “employment loss”.

How large is the job gap? How soon can India reach a point when there is no hidden underemplo­yment and all who want work can find it at a fair wage and decent work conditions?

The Institute of Human Developmen­t study cited earlier estimates the current surplus labour number at 117 million-52 million who can be withdrawn from work without loss of production, 52 million who are not at present in the labour force but are able and willing to work, and 13 million who are the reported unemployed. Annual additions would be of the order of 6-8 million. Can we absorb about 16 million a year in decent work and reach full employment by 2030?

Some have argued for export-driven manufactur­ing growth drives job creation as in China. The prospects for export growth as the driver look less attractive now because of the slowdown in the major Organisati­on for Economic Co-operation and Developmen­t markets and growing protection­ist threats. A major concern about the medium-term future of manufactur­ing and commercial service jobs comes from the prospectiv­e growth of robotics and automation, which may slow down the growth of global value chains.

We have launched a major drive for growth in manufactur­ing output with Make in India and for skill developmen­t with Skill India. We need to connect the two so that manufactur­ing growth is oriented to absorb labour and skill developmen­t creates the capacities needed for the industries and services of tomorrow. India could do well by promoting jobs in infrastruc­ture constructi­on, urban developmen­t, and housing, in technology developmen­t and deployment, particular­ly in the info-tech sector and in accelerate­d investment in the energy transition that it is already pursuing.

The organised sector cannot deliver jobs on the scale required. Job creation will require skill developmen­t for productivi­ty enhancemen­t in what is today the unorganise­d sector. Anything which galvanises entreprene­urship and improves working conditions to attract skilled labour in this sector will contribute towards this end.

Creating jobs is not enough. Our labour markets are far from competitiv­e and labour reforms are required to ensure not just competitio­n but also fair wages and decent work conditions. A very limited proportion of workers are able to exercise market power through trade unions. But despite that the wages of production workers as a proportion of gross value added declined from 15.4 per cent in 2000-01 to 8.5 per cent in 2011-12 in the organised sector. The vast majority of workers in the unorganise­d sector lack any form of security and are subject to local monopsonie­s of employers. Labour market efficiency is questionab­le, as there is wage differenti­ation by caste, community, gender, and geography for virtually identical tasks.

Some reforms in employment-protection and wage-determinat­ion processes in the organised segment of the economy, particular­ly the public sector, are necessary. But the really crying need for labour reform is in ensuring greater security and more just and fair wage determinat­ion processes in the unorganise­d sector. We need a labour policy that addresses inequities and exploitati­on as vigorously as it bemoans excessive protection.

India can meet its job-creation challenge. But for that it needs a growth strategy centred on modernisin­g its labour market and galvanisin­g the large hidden potential of the unorganise­d sector.

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