Revisiting Employment and Growth

The latest and seventh quinquennial survey by the National Sample Survey Organisation (NSSO) (61st Round) throws new light on the employment and unemployment scenario. It shows a reversal of the declining trend in employment growth rate which increased from an annual 0.98 per cent in the period 1993-94 to 1999-00 to 2.89 per cent in the period 1999-2000 to 2004-05. Interestingly there was also a sharp acceleration in the rate of growth of labour force from 1.03 per cent to 2.93 per cent. This unprecedented growth in labour force which was above the population growth rate could have had serious implications for the unemployment scenario, had it not been for the sharp increase in the workforce.

The unadjusted employment elasticity for the latest period is 0.48. Even after adjusting the sectoral elasticities to lower figures, it is seen that with a GDP growth rate of 9.1 per cent, by 2009 the workforce will become equal to the labour force. Economic growth has been a major driving force in achieving a higher level of employment. However the Survey and the projections indicate that a large proportion of the increase in employment is happening in the informal sector and agriculture. This trend is a cause for concern as the relatively low wages and lack of social security here translate into the phenomenon of 'working poor' i.e. workers in the BPL households. The new challenge is one of improving the total factor productivity in the informal sector and in agriculture so that there is a significant improvement in the emoluments of those who are employed, that is, in the quality of employment.

This paper* is divided into four sections. Section I deals with the employment scenario in the country especially with reference to the NSSO's 61st Round results. Section II analyses the sectoral employment elasticities and their implications for employment growth. Section III makes projections regarding the growth rates and their implications for clearing the backlog of unemployed. Section IV makes concluding remarks on these trends and projections.

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* Published in ICRA Bulletin, Money & Finance, September 2007.

(C. Rangarajan is Chairman of the Economic Advisory Council to the Prime Minister and also the Chairman of the Editorial Advisory Board of ICRA Bulletin. He chaired the Twelfth Finance Commission, the National Statistical Commission, and was Governor of Andhra Pradesh and Governor of the Reserve Bank of India. He may be reached at c.rangarajan@nic.in. Padma Iyer Kaul is Director and Seema is Senior Research Officer, Economic Advisory Council to the Prime Minister)