'Educated youth prefer to be unemployed rather than under-employed'

'When manufacturing or even services cannot generate the kind of employment they are looking for, they prefer to be unemployed rather than under-employed.'

The Indian economy has been growing at an impressive rate for more than two decades.

But why is it that it is not generating enough jobs?

Is it because India is adding more people into the labour market than the number of jobs it offers?

There have been many studies on the employment scenario in India, but the recent collaborative research by researchers of Indian Institute of Management-Lucknow, the Birla Institute of Technology and Science Pilani, and the ministry of agriculture and farmers welfare, is quite different and unique.

They analyse 'the nature of labour force participation in the context of changing demographic trends, and the relationship between pace and pattern of employment generation and economic growth to underscore the phenomenon of jobless growth' using data from the National Sample Survey Office (NSSO) Employment and Unemployment Survey, as well as the Periodic Labour Force Survey Dashboard, spanning four decades beginning from 1983 to 2021.

The results of the study which was published in the Indian Journal of Labour Economics say that 'while there was a surge in economic growth during 2004-05 to 2017-18, employment generation lagged behind among the country's working-age population, and the period between 2004-05 to 2011-12 can be characterised as jobless growth'.

The study finds some very interesting conclusions;

*Indian economy indeed has jobless growth;

*There is relatively low participation of women in the labour force;

*There is higher unemployment among the more educated.

"Educational level of young people increased, so also family income. This probably made the younger population between the ages of 15 and 29 stay away from lower skilled employment. They looked for jobs that matched their skill set," Dr D Tripati Rao Senior Professor of Economics at IIM-Lucknow, tells Shobha Warrier/Rediff.com.

Unlike many other studies done over the years, your study looked at the Indian economy and the employment scene from a very long-term perspective. Any particular reason why you decided to do such an extensive study?

Yes, we looked at the data from 1983.

India is one of the success stories in achieving impressive economic growth until the global financial crisis of 2008, and thereafter till 2017-2018.

Therefore we wanted to look at India's demographic dividend from the mid 1990s reforms, the sectors that were driving growth, how far these sectors provided employment opportunities, and finally whether the growth was inclusive.

This was the biggest motivation for us to look at India's economic growth from a long-term perspective.

So, we looked at the pace of employment rate, the pattern of employment, its sectoral composition, and educational attainment of labour force along with economic growth rather than just the numbers.

It took us more than 3-4 years to come out with the study.

India was growing at a good rate over the years, but it was jobless growth. Why?

Usually when you have such higher sustained growth over a longer period, you expect to observe structural transformation in the economy, that is, a shift from agriculture to industry to services in terms of their relative contribution to growth and employment.

However, what we witnessed was while growth came more from the high value-added service sector, employment generation was not coming from the expected employment intensive sectors like industry and services.

Though there was a surge in output growth and also employment growth in 1987-1988 and 2011-2012, it was followed by jobless growth especially from 2004-2005 to 2011-2012 and from 2012 to 2018-2019, employment generation was sluggish.

When we looked at the structural composition, though agriculture has the least contributor to growth among all sectors, it still accounts for 43.7% of overall employment.

It means agriculture continues to employ more in terms of number, but its contribution to economic growth is minimal.

Though the manufacturing sector performed better relatively, it is not able to absorb more labour force adequately. This rebuts the ‘slow' structural transformation!

Why is it so?

Because we saw that in this period, educational level of young people increased, so also family income.

This probably made the younger population between the ages of 15 and 29 stay away from lower skilled employment. They looked for jobs that matched their skill set.

When manufacturing or even services cannot generate the kind of employment they are looking for, they prefer to be unemployed rather than under-employed.

Another reason is, when manufacturing and services sectors get mechanised and become capital intensive, the capacity of the sectors to employ people become low. Of course, this is good in terms of productivity driven growth, but their employment absorption capacity becomes less.

See, India, by and large bypassed industrial growth for some pretty good amount of time and moved on to a growth that is driven majorly by the services sector, and employment stopped adding more labour force.

The employment elasticity (percentage change in employment to percentage change in output) of manufacturing and services sector had fallen significantly during 2004-2005 to 2017-2018.

Between 2004-2005 and 2018-19, employment elasticity had fallen from -0.5% and to -0.7%.

Employment elasticity depicts how much employment a country's economic growth generates.

In essence, even when we are creating more employment opportunities, we are also adding much more people into the labour market.

While the working age population is increasing, the net addition to the job market is inadequate to match the numbers.

Earlier you said, jobless growth is mainly felt in the developing economies. Do you think China escaped this because the stress was on the manufacturing sector?

Yes, India missed the manufacturing bus earlier.

The present effort of GoI, in the emphasis on Made in India is expected to create a sustainable industrial growth, mainly through various GoI schemes the small scale and micro enterprises which are labour intensive, can get a fillip, then we will notice an inclusive growth.

As the Nobel Laureates have emphasised on ‘endogenous growth’, not so much driven by exogenous reasons, for that, education and health have to be the primary drivers as only that can result in sustained growth but will lead to human capital formation and will in turn result in skilled employment generation.

Therefore, public investment in education and health has to happen in a major way. Then, the human capital formation will complement technological growth which in turn will create inclusive and equitable growth. This has been the effort by GoI in recent times.

Would you say the Indian labour market is an unfinished frontier in economic reforms?

Yes. Not only our study, many other studies also have found that there are structural difficulties in the labour market, be it lack of required and matching skill sets or gender disparity or appropriate labour laws.

I will put it this way. The reforms in the labour market is an unfinished or incomplete agenda. This has added to the problem of jobless growth.

Your study says 55% of the employed are self-employed in India compared to 33% in the US. Is it mainly because of jobless growth that more than half working force are self-employed?

Yes. In 2021, the total labour force was estimated to be 556.1 million and out of that, 292.2 million were self-employed which is 54.9% of the total labour force.

Only 121.1 million which is 22.8%, were on regular employment. 118.6 million (22.3%) were casual level workers.

The starling fact is that more than half the labour force are self-employed.

In 2017, when I interviewed a recruiter, he said the gig economy was the future. But it also means no job security and no benefits for the workers...

It is inevitable that these kinds of structural transformations will take place in an economy.

In fact, globalisation has opened up newer opportunities for the labour force.

What we can do is, we can complete the incomplete labour reforms, and fix the structural issues that plague the labour market which we spoke about earlier.

When an economy is driven by the gig economy, platform economy, etc, we have to fasten legal reforms that the labour market urgently needs.

Then, we can look at the employee-employer relationship from a different perspective.

You looked into data spanning almost four decades. What did you find interesting from your study?

*One is gender disparity in the labour market. If you look at unemployment in general, the incidence of unemployment is higher among women.

From 2011-2012 to 2017-2018, the unemployment rate among women increased from 1.6% to 3.85% especially among the working age group of 15 to 59 while from 2011-2012 to 2021, the urban male unemployment rate increased from 6.5% to 9.24%.

This shows the female unemployment rate increased more than the urban male unemployment rate. Also, the unemployment situation is noticeably higher for urban women than urban men.

Another interesting revelation is, within the working-age category, the incidence of unemployment rate was the highest in 2017-2018 at 16.8%, and among the highly educated population, it was 14.7% in 2020-2021. It means the highly educated are experiencing difficulty in getting a suitable job.

Feature Presentation: Rajesh Alva/Rediff.com