Employment condition

The new data set raises questions

Employment and income have always been critical issues in the Indian economy. Jobs remain a significant political issue and governments failing to create enough of them can face electoral challenges. In this regard, the recent release of the KLEMS [capital (K), labour (L), energy (E), material (M) and services (S)] database by the Reserve Bank of India has added to the debate. While the provisional estimates indicate a 6 per cent employment growth rate in 2023-24, the highest in the database, which goes back to 1980-81, a deeper industry-wise analysis for labour-intensive sectors raises some concerns. Agriculture and allied activities, the largest employment-generating sector in the economy, have consistently demonstrated the lowest labour productivity — measured as value added per worker at constant prices 2011-12 — among the 27 industries or sectors included in the database.

This underscores the pervasive issue of disguised unemployment within the sector. Labour-productivity growth turned negative in 2019-20 and 2020-21 because of the increase in the labour force in agriculture during the pandemic. Further, the share of labour income in the gross output of the agricultural sector has seen only a marginal increase of 2 percentage points from the levels recorded in 2011-12. Despite an annual growth rate of 4 per cent in gross output since 2017-18, the labour income share has remained at 45 per cent. This stagnation indicates that the benefits of output growth have not significantly translated into improved labour income within the sector. Similarly, the construction sector, the largest employer after agriculture, has experienced fluctuating labour productivity and has yet to return to the levels seen in the 1980s. Although it has generally exhibited a positive growth rate since 2011, 2020-21 was an exception. This anomaly can be attributed to the disruption caused by the pandemic. Notably, the sector’s growth rate peaked in 2021-22, primarily due to the base effect from the previous year’s downturn. Despite these fluctuations in productivity and growth, the share of labour income in the construction sector’s gross output has remained relatively stagnant, consistently ranging between 27 and 29 per cent. This stagnation suggests that similar to the agricultural sector, the gains in output have not been sufficiently reflected in the income earned by workers and largely enjoyed by the capital owners.

In the area of textile, textile products, leather, and footwear, the database revealed a significant rebound in employment growth in 2021-22, following a decade and a half of either negative or negligible growth. Despite this positive turnaround, the employment levels in 2021-22 remained substantially lower than those recorded in 2004-05. Furthermore, akin to the agricultural and construction sectors, the share of labour income in the gross output of the textile industry has not surpassed 15 per cent since the post-liberalisation period. Being one of the most labour-intensive industries and predominantly owned by micro or small enterprises, the failure of the textile sector to generate employment reflects structural flaws in the economy. Further, labour quality, measured by education and earnings, shows negligible improvement across labour-intensive industries. Thus, the concern extends beyond merely generating job opportunities to consider where these employment opportunities are being created and what share of output is allocated to workers. Economic growth at the expense of labour income share will not be sustainable in the long run in a labour-abundant country.