IMF says moving jobs away from manufacturing can boost growth

In what could be a lesson for Prime Minister Narendra Modi’s flagship Make in India, the International Monetary Fund (IMF) on Monday said shifting of jobs from manufacturing to services would not affect growth adversely.

In its analytical chapter on World Economic Outlook, the IMF said such a shift should not hinder productivity growth. Instead, it would boost the prospect of developing economies to gain ground. 

In a chapter, released ahead of the annual meeting with World Bank meeting next week, the IMF said some service industries have higher productivity levels and growth rates than manufacturing. 

“Since the early 2000s, the rise in the services sector’s share of employment has contributed positively to economy-wide productivity growth in most developing economies,” the IMF said. It added that productivity levels in services tend to converge to the global frontier (that is, to the productivity level in the most-productive countries), just as in manufacturing. 

“The rise in the employment share of those service sectors therefore can boost growth of aggregate productivity and aid the convergence of income per worker across countries,” the IMF said.

The IMF report found average productivity growth in services in many developing economies, including China, India, and some in sub-Saharan Africa, has recently exceeded that of manufacturing. Make in India is primarily a manufacturing initiative, for both domestic and export markets. 

The report has come at a time when India was trying hard to generate jobs. Political battlelines have been drawn to score points and different reports are cited to prove opponents wrong. 

According to the Labour Bureau’s latest quarterly report on employment, job creation in the organised sector rose two-fold to 136,000 in the July-September quarter of 2017 compared to the previous quarter, largely driven by an uptick in the manufacturing sector. In comparison, job creation stood at 64,000 in the April-June quarter of 2017 and at 32,000 in the July-September period of 2016.  

On the other hand, a recent survey by the Centre for Monitoring Indian Economy (CMIE), in partnership with the BSE, has said the unemployment rate in the country’s urban areas in the four quarters of 2017-18 has risen steadily — from 4.7 per cent in the first quarter to 5 per cent then 5.7 per cent and finally 6.6 per cent in the last quarter.

At Princeton University’s Woodrow Wilson School, Congress Vice-President Rahul Gandhi had admitted that the United Progressive Alliance government had been unable to deliver on the 30,000 jobs it promised to create every day, but was quick to point out that it is a goal the Bharatiya Janata Party-led National Democratic Alliance will also fail to meet at the current rate.

“Those same people who got angry with us because we couldn’t deliver on those 30,000 jobs (a day) are going to get angry with Narendra Modi,” said the Congress leader.

However, the IMF cautioned that displacement of workers from manufacturing to services in advanced economies resulted in disparities in earnings across all sectors. This was the lesson India could learn. 

It said while labour earnings in manufacturing are indeed somewhat higher and more uniformly distributed than in services, the main driver of the rise in labour income inequality in advanced economies since the 1980s has been an increase in inequality within all sectors.

The IMF suggested that the equality could be brought about by policy efforts to raise productivity across all sectors and make the gains from higher productivity more inclusive. 

Facilitating the reallocation of labour to productively dynamic sectors, including by removing barriers to entry and trade in the service sector and supporting the reskilling of workers affected by structural change, is crucial to raise productivity and combat inequality, the IMF said.