If the government is worried about India's jobless growth, there are enough reasons for this. Consider the figures: the country's labour force growth of 2 per cent a year needs 8 million new jobs just to keep unemployment frozen where it is.
With an employment elasticity of GDP of 0.15 and an incremental capital output ratio of 3.75, creation of 8 million jobs needs a sustained nominal GDP growth of 13.6 per cent and investments of $125 billion according to Manish Sabharwal, chairman of Teamlease, India's largest staffing solutions company.
"These numbers are practically impossible to achieve and we can't have massive job creation unless we raise the employment elasticity of GDP," says Sabharwal. A Teamlease white paper on India's labour market has some startling numbers to prove how the country is moving towards an unemployment explosion.
For example, India is the only country in the world growing younger and more than 60 per cent of the unemployed are youth. Also, the employment elasticity of GDP for agriculture is negative, that is, we could increase production while reducing the number of people employed.
This represents massive underemployment due to the lack of an alternative in rural areas. The rural job growth is 25 per cent of that in urban areas and has fallen more than half since 1980.
There are quite a few other warning signals as well:
Also, the expectations of huge job creation from the manufacturing sector are at odds with the increased capital intensity of manufacturing over the past few years, and the attempts to reduce dependance on labour.
For example, Bajaj Auto produced 2.4 million vehicles last year with 10,500 workers. In the early 1990s, the company made 1 million vehicles with 24,000 workers. Tata Motors made 31,500 vehicles with 21,000 workers in 2004; in 1999 it made 1,29,400 vehicles with 35,000 workers.
So what's the solution? One immediate solution could be to merge the ministries of HRD and labour and rename the new entity Ministry of Employment. Sabharwal feels this would help reorient the focus from preserving jobs to creating jobs.
Since in their present avatar, the ministries are not doing anything to improve the supply side, the merged entity could perhaps have a better coordinated approach to improve employability and increase the scope for reversing the current labour law situation of over-regulation and under-supervision.
"The employability pipeline isn't looking too great," Sabharwal says. He seems to be bang on if the figures are any indication.
Sample this: over 40 per cent of the Indian workforce is illiterate and only 5 per cent is estimated to have the vocational skills for credible employment. The percentage of the labour force with skills/vocational training is among the lowest in the world at 5.06 per cent. Also, 40 to 45 per cent of children drop out of school.
The Ministry of Employment could also look at temporary staffing (temping), which hires almost 10 per cent of the labour force in some countries, as an important component of the job market.
A detailed study by Lawrence Katz of Harvard University and Alan Krueger at the Princeton University found that temping was responsible for 50 per cent of the reduction in unemployment in the US in the 1990s. Temping increased European Union employment by 0.1 per cent and accounted for around 11 per cent of the total new job creation in the late 1990s.
Temping also acts as a bridge to permanent employment. A global survey of temp workers found that about 40 per cent find a long-term job within a year of starting temping.
For example, 30 to 40 per cent of the 9,000 regular positions created at Microsoft in the past four years were filled by workers who at one time had worked for staffing companies. Temping can flourish in India too if the government deletes the current provisions of Section 10 of the Contract Labour Regulation Act and Section 25 B of the Industrial Disputes Act, which virtually ban employment of contract workers. If the goal is to become a knowledge economy, that's not too much of an ask.