Generating employment

Technological changes will increase challenges

The International Labour Organization (ILO), together with the Institute for Human Development, has released a large-scale analysis of available data regarding employment in India since 2000. For the years up to 2012, this survey has relied on the “Employment and Unemployment Survey”; and, for data between 2019 and 2022, the report has considered the National Statistical Office’s Periodic Labour Force Survey as its primary source. Given that these data sources have already been described at length, the empirical content of the report is familiar: Stagnant real wages in the formal sector; a recent return to agricultural employment; and a female labour participation rate, which was first declining but has more recently turned up but is driven mainly by self-employment and unpaid family work; and far too many educated young people out of jobs. The ILO has done a good job integrating two otherwise incompatible surveys, but given the familiarity of the data, the main interest of the report lies in its conclusions and recommendations.

The report identifies five priorities. First, production and growth should be made more employment-intensive. Second, job quality should be improved through investment in support for migration and for new-age sectors like the care economy, as well as ensuring labour rights. Third, inequalities in the labour market — which affect women, young people, and marginalised groups — should be addressed by policy. Fourth, skill training and “active labour market policies” must be increased. And fifth, there should be more and better data on employment. Many of these are unquestionably important. Few can argue with the need for better and timely data, for example. Others, when examined more closely, throw up questions. How can inequalities be directly addressed, for example? It is clear that the inability to increase female employment outside home or the farm is in many cases because of cultural factors in parts of India, and in other cases by the lack of a conducive environment and law and order concerns. Is such large-scale social reform being called for?

Perhaps the most pointed recommendation, however, comes in the matter of making production more “employment-intensive”. The report argues that “the employment benefits of service-led growth alone are likely to be inadequate in meeting the current employment challenge … Industry and manufacturing absorb the relatively low-skilled labour moving out of agriculture at a productivity premium”. This argument must be seen in the context of recent arguments, including those made by former Reserve Bank of India governor Raghuram Rajan, that India’s growth will have to be led by or dependent on the services sector. Those who make this argument point out that manufacturing has been affected strongly by technological innovation, and automation means that it is more capital-intensive, as distinct from labour-intensive, than earlier.

Labour wage arbitrage no longer works as effectively on the international stage. This report points out that similar processes are at work in the services sector, however. It is also argued by many that the services sector will not be able to absorb low-skilled individuals with great effectiveness. This means that there are few good choices facing policymakers in India. Given the rapid technological developments and emerging global order, some of the standard prescriptions for growth and employment generation may not work in the coming years. Thus, a broad openness about the way forward may be necessary, and India will need to be prepared to tap every opportunity and maximise the level of employment generation.