Subir Gokarn: The growth-jobs disconnect

The NSSO survey results should be analysed by all stakeholders and the debate must transit from being conceptual to factual.

During his visit to Mumbai last week, the Prime Minister is reported to have said that labour market reforms, as difficult as they were proving to achieve, were still very much on his government's agenda. As it happens, the unresolved debate on the pros and cons of labour market flexibility now has a new set of facts to draw upon.

The National Sample Survey Organisation (NSSO) of the Government of India recently published the first of a series of reports based on its large sample survey of employment and unemployment conducted during its 61st Round survey in 2004-05. The previous comparable round was the 55th, conducted during 1999-00. Keep in mind that that was only the second year of the current high-growth phase, the data may be somewhat obsolete. But, they are the best we have.

This article is based on the highlights of the first of a series of reports to be published by the NSSO on the survey. These highlights were communicated in a press release by the organisation on September 29. A number of interesting issues emerge from the findings reported in the press release.

First, the process of employment generation in the economy is simply not moving people from one activity to another. Amongst the rural labour force, 67 per cent of male workers are still primarily in agricultural activity. For female workers, the proportion goes up to 83 per cent. Presumably, this does not represent any significant decline from the previous survey, because the press release only provides a comparison with the survey results of 1977-78, when the corresponding numbers were 81 per cent and 87 per cent for males and females, respectively.

This pattern has to be viewed in the context of the fact that the share of agriculture in GDP itself has declined from about 40 per cent three decades ago to below 20 per cent today. But, more importantly, evidence on the structure of the rural economy itself indicates that the share of agriculture has declined to somewhat less than 50 per cent of rural GDP. The 61st round results do support the hypothesis that, even with a significant diversification of the rural economy, non-agricultural activities have not been able to absorb a significant proportion of the workforce. As a consequence, we have a virtually constant proportion of workers dependent on a rapidly shrinking share of economic activity. There are some obvious political economy implications of this trend.

But, relative inflexibility is not confined to the agriculture-industry-services transition. One important finding of the survey is how rigid the barriers are between even more narrowly defined sectors. Only about 1 per cent of workers reported a change in jobs across industry categories in the two years preceding the survey. Similarly, only 1 per cent of workers reported a change in occupational categories in the preceding two years. The proportion of workers who reported that alternative work opportunities were, in fact, available to them varied between 5 and 9 per cent, depending on category (urban/rural, male/female).

This is a picture of extreme rigidity. It appears to be somewhat contradictory to the relatively broad-based growth we are currently seeing. One would imagine that many sectors growing together would offer more and more people both the opportunity and the incentives to move across sectors and kinds of activity. But, this does not seem to be happening, either in terms of actual transitions or perceived opportunities.

Is it that the majority of people are simply too rooted in their "traditional" activities to even recognise, let alone act, on new opportunities? Or, that they are not adequately informed about them? Or, is it that despite the strong growth momentum, there aren't really all that many employment opportunities opening up? These are all important questions that any employment generation policy must address.

Second, in relation to how many people are actually in the job market and the significant differences between males and females in this regard. Among males, 56 per cent of the rural population and 57 per cent of the urban population stated that they were in the workforce, i.e. would accept work if offered it. This is a substantial proportion of the working age population. However, among females, the numbers drop to 33 per cent in rural areas and a rather disturbing 18 per cent in urban areas.

The latter is a manifestation of the textbook scenario of a "backward-bending supply curve". When household income increases, women who earlier worked out of subsistence compulsions now choose to withdraw from the workforce. While the socio-cultural context in which these choices are made cannot be ignored, one also has to ask the question: would a wider choice of employment situations influence their decision in favour of staying on in the workforce?

From a cross-country perspective, episodes of rapid growth have been typically characterised by increases in workforce participation, particularly amongst females. The contribution that this can make to rising household income, consumption, savings, tax revenues and the whole virtuous circle of growth is obvious. Are we missing out on a critical component of a sustainable growth process as a result of such low female participation? The good news, though, is that the participation rate has increased for both males and females in comparison with the numbers revealed by the 1999-00 survey.

Finally, there is perhaps some comfort to be found in the evidence that chronic unemployment is rather low across the country""1.7 per cent for rural areas and 4.5 per cent for urban. However, here again, female workers are disadvantaged with higher rates in both rural and urban areas. Compared to the previous survey, this parameter remained the same for rural males, decreased by one percentage point for urban males and increased by one percentage point for rural and urban females. This, of course, does not take into account seasonality in rural employment and other factors that tend to depress household incomes and make them more volatile.

The dominant impression that these numbers make on me is, as the title suggests, that of a significant disconnect between growth and jobs at the mass level. Rather than expend more energy on conceptual debates on the pros and cons of labour market reforms, I would suggest that the survey results be quickly analysed by all stakeholders and the debate transit from a conceptual to a factual basis as soon as possible. That may not guarantee a good policy outcome, but, on the other hand, a good policy will certainly not emerge without it.

The author is chief economist, Crisil. The views here are personal