According to the recent employment data from the Centre for Monitoring Indian Economy (CMIE), India’s job creation problem appears to be morphing into a graver threat: a growing number of young people in India, it seems, are no longer even looking for work.
Between 2017 and 2022, India’s overall labour participation rate dropped from 46% to 40%. Among women, the data have been starker. About 21 million disappeared from the workforce, leaving only 9% of the eligible population employed or looking for positions. See the Figures below to understand the complex (un)employment problem afflicting India’s fragmented labour market. The slide in salaried jobs has been persistent over the last five years, with the last three years being particularly worse.
The Era of 'Jobless Growth'
As India continues to bet on its ‘young’, the latest employment trends point to a chronic crisis – one that has been known and written about for some time now; a few of us have called this the era of “jobless growth” in India. The crisis of job creation was afflicting India’s macroeconomic landscape much before the pandemic. COVID exacerbated it and the government’s inadequate response to the pandemic – without acknowledging how bad the (un)employment situation was – has not helped either.
While a lot that has been happening on the economic front has a clear classical Keynesian explanation (low aggregate demand driving low production capacity and lower employment), most fiscal expansionary measures by the government have been aimed at supply-side reforms for pro-growth projections, or, through larger capital spending-drives in the hope of creating private investment opportunities that will subsequently create more ‘jobs’. But that hasn’t happened.
The problem of ad hoc contractualisation and de-unionisation of India’s workforce has further degraded the quality of secured jobs. What this has done, as per CMIE’s recent data, is made more Indian workers wary of finding the ‘right employment’ in the given labour market conditions, leading to workers either exiting the labour force or becoming reluctant to find work, or becoming ‘self-employed’, which leads to more entrepreneurs than salaried workers (see Figure below).
Many reasons could explain this puzzling if not surprising trend.
'Better to Start a Small Business'
The Periodic Labour Force Survey (PLFS) data for January-March 2021, released earlier this year, showed that unemployment rates for that quarter were close to pre-COVID-19 levels of 2020. Women, as this writer noted in 2020, bore the brunt of the pandemic in terms of the economic fallout. For men, the unemployment rate was 8.6%, both for the January-March 2021 quarter and the corresponding quarter of the previous year. In the case of women, the rate was 11.8% in the January-March 2021 period as against 10.6% in the same quarter the previous year.
The labour force participation rate, or the percentage of people who are working, seeking work, or available for work, was 47.5%. For women, the labour force participation rate has been 18% on average for the last few decades. The worker-population ratio, or the percentage of employed people in the population, stood at 43.1%.
All this obviously has added to the concerns about deepening inequality. Even during the second wave of the pandemic in India, only a few sectors (such as construction) added jobs as the service sector struggled.
Weak work contracts across these job-creating sectors continue to make the conditions of workers more exploitative, explaining why many (with capital access) feel it is better to start a small business (even if it’s in the unorganised informal economy) than work under exploitative, low-wage contracts.
As per the PLFS data for 2020, less than 43% of all employment contracts in India’s organised workforce ensure basic social security such as provident fund coverage, gratuity, healthcare and maternity benefits. Only 40% of regular salaried workers have at least one social security benefit (according to 2019-20 data). Indian workers in health, education and utilities have increasingly been employed on ad-hoc contracts, while those in the lower-paid category (even in the low-end-manufacturing space) continue to be absorbed by the swelling and vulnerable unorganised sector. Those with capital and more privilege than informal workers may prefer to be “self-employed”. But with more “entrepreneurs” than “salaried workers”, the incidence of failure of new ventures is also likely to be higher and may lead to other complex outcomes.
But Has the Govt Even Cared to Diagnose the Problem?
While the biggest macro-fiscal and economic challenge for the government at this point is creating good-quality jobs, the government has failed to acknowledge the issue publicly. The Finance Minister, or any Union Minister for that matter, has failed to even mention the ‘job crisis’ in any of their recent addresses (including in the Budget speeches from the last three years).
Correctly diagnosing the problem at hand is equally important. As Mahesh Vyas recently pointed out:
“The unemployment rate is not India’s most important labour market indicator. The unemployment rate was 7.9 per cent in December 2021. This does not mean that the remaining 92.1 per cent were employed. It does not even mean that 92.1 per cent of all working-age people were employed. The unemployment rate merely tells us the proportion of people in the working-age population who want to be employed to earn some wages or profits through their work, but in spite of their efforts to find employment, are unable to find any. The unemployment rate does not take into account those who do not want to be employed and those who do not try to find work.”
Vyas is right here.
Amidst the many concerns in a disjointed labour market structure within India, one is how most adults do not clearly express a desire to work to earn wages or profits. That makes traditional metrics less significant in interpreting and studying the problem. As discussed earlier, the employment-population ratio becomes a more useful indicator at a macro-level, measuring the ratio of the employed to the total working-age population.
India’s pre-pandemic employment-population ratio of 43% was lower than the global rate (55%) in 2020 as per World Bank data. The employment rate in Bangladesh is 53%, and in China, it’s around 63%.
A Chronic Crisis of 'Good-Quality' Jobs
As per CMIE’s estimates, India’s employment-population rate is below 38%. What this reflects is a chronic crisis of ‘good quality jobs’ in and across India for the working-age population that is entering the labour force every year (the rate of which has continued to be high even during the pandemic).
At the same time, in rural India, the demand for MGNREGA work (seen as a fallback option or a safety net) remains high despite the resurgence of some economic activity in the second half of 2021. Inadequate MGNREGA budgets have made it difficult for states to provide adequate employment to those in rural areas who have fewer or no alternative employment opportunities (see Figure below).
Where the Finance Minister and the Modi government need to get their act right is in defining their allocative spending priority on two things:
On the design of our fiscal policy that needs to be aimed towards creating good-quality jobs through incentives across sectors (from construction to renewable energy production), and do so over a three- to five-year plan to begin with, and
Creating automatic stabilisers in the fiscal policy immediately through a job-based social security net, apart from supporting increased outlays to MGNREGA in rural areas.
The latter can be done through the creation of an urban version of the National Employment Guarantee Scheme (discussed at length here) in cities for temporal relief to those struggling to find employment in both rural-urban areas. I presented a financial plan for funding this if the government is serious about its commitment to secured job creation.
59% of the Working-Age Population Isn't Looking for Work
At the macro-level, if only 38% of the working-age population in India is employed and only another 3% wants to work but cannot find work (unemployed as per cent of the population), then implicitly, as CMIE points out, 59% of the working-age population in India do not want to work. This is a serious concern for a country that is largely endowed with a ‘worker-surplus’ economy and whose economic future depends on getting people to work.
Greater reluctance to work also has a ‘dis-confidence’ multiplier effect, intrinsically demotivating other workers to ‘find’ work in an already difficult and precarious labour market scenario.
The government’s ‘pro-growth’ outlook and vision of ‘Atmanirbharta’, as enshrined in the Union Budgets of 2020 and 2021, will be hollow unless it makes a conscious effort to realise that creating employment for those 3% who are unemployed and willing to find work ignores a significant chunk of the remaining 59% of the population who are becoming increasingly reluctant to work. To reach the global employment rate standards, India needs to employ an additional 187.5 million people every year. Given the current employment of the order of 406 million, that is a long shot.
(The author is Associate Professor of Economics, OP Jindal Global University. He is currently Visiting Professor, Department of Economics, Carleton University. He tweets @Deepanshu_1810. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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