Employment challenge

Economic growth is not creating jobs

One of the biggest policy challenges for India has been employment creation for its young and rising working-age population. Despite economic growth accelerating since the mid-1980s, the desired transformation in employment conditions has remained elusive. Although there have been improvements in certain aspects, employment surveys of the government and studies by independent economists have periodically underlined the structural flaws in employment outcomes. A new report by the Azim Premji University — which has used data from various sources, such as the Periodic Labour Force Surveys, Annual Survey of Industries, Economic Census, and National Family Health Survey — has comprehensively mapped employment conditions over time. While some of the headline data points and conclusions are widely acknowledged, given the significance of the subject, there is a need for continuous debate.

As the study highlights, there has been a significant increase over the years in non-farm sector employment. However, this has not translated into well-paying regular employment. Between 1983 and 2019, the share of non-farm employment increased by about 20 percentage points, but the share of regular-wage employment increased only by about 3 percentage points. The increase in the organised sector was less than 2 percentage points. This effectively means people moving out of the agriculture sector are mostly engaged in low-paying casual work. It is worth noting that while men moved largely to the construction sector, moving out of the farm sector meant an exit from the labour force for women. The female workforce participation rate in rural India dropped from over 40 per cent in the 2000s to about 28 per cent now. The female labour force participation rate has increased since 2019, but largely due to distress, leading mainly to self-employment. A low female labour force participation rate also means that India’s overall workforce participation rate remains depressed, with implications for overall growth.

Employment conditions are particularly challenging for young and educated individuals entering the labour force. As the study underlines, while the unemployment rate is above 15 per cent for graduates, it goes up to 42 per cent for young graduates. The unemployment rate is fairly low for older and less educated people. This means that India is not creating enough jobs for educated people. It is also likely that young graduates lack the right kind of skills. One of the encouraging findings is that intergenerational mobility has improved, though not for all communities. In 2004, for instance, over 80 per cent of the sons of casual workers were engaged in casual labour. For non-Scheduled Castes (SC) and non-Scheduled Tribes (ST), the proportion had dropped to 53 per cent by 2018. The decline for SC/ST, however, was much less.

The real problem is that India has not been able to create enough jobs. However, intriguingly, the study notes that over the long run, gross domestic product growth and employment generation have been uncorrelated. Differently put, higher growth over the years has not been matched by employment growth and it is likely that future growth will have a similar outcome. One reason for this, as noted in the study, could be the rise in labour productivity, which cancels the employment effect. It is also likely that growth in India, unlike many other developing countries, has not been driven by low-skilled manufacturing, which has the potential to engage people coming out of agriculture. The biggest risk of jobless growth is that it will not be sustainable in the long run, and this should worry policymakers.