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Where are the jobs?

By Shankar Acharya
Last updated on: December 18, 2009 12:10 IST
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How widespread is under-employment? What sort of job security do workers enjoy? What are the trends in real wages, asks Shankar Acharya.

Job adsWhat's happening to employment in the country? We know that every year there are nearly 13 million new entrants into the nation's labour force.

Are they getting half-way decent employment opportunities? What proportion of the labour force is unemployed?

How widespread is under-employment? What sort of job security do workers enjoy? What are the trends in real wages?

The truth is we don't know, at least not for any year after 2004-05, the last year for which the National Sample Survey 61st Round gives us reasonably good employment information.

Those inclined to paint a rosy picture point to the unprecedented, rapid growth of total employment at 2.9 per cent a year between 1999-2000 and 2004-05 (according to NSS data), which was far higher than the 1 per cent per annum growth recorded during 1993-94 to 1999-2000.

They go on to note the remarkable acceleration in GDP growth in the years 2004-05 to 2007-08 and infer that employment trends must have been equally bullish. Yes, the global crisis of 2008-09 took its toll on output and employment, but that seems behind us now. Just look at the improved placements from elite institutions like Indian Institutes of Technology and Indian Institutes of Management.

But that's only part of the story. There is a darker side. First, even the 2.9 per cent growth in employment between 1999-2000 and 2004-05 is marred by the fact that nearly all the increment in employment occurred 'in the least productive, unorganised and often informal part of the economy', as the 2007 OECD Survey of India put it.

Indeed, although total industrial employment grew by over 6 per cent annually, organised industrial sector employment fell by 1 per cent per year, bringing the share of organised industrial sector employment down from 18 per cent (of total industrial employment) in 1998 to only 10 per cent in 2004.

Thus, India's industrial work force was severely 'casualised' during the employment boom in the first half of this decade.

Second, if one takes a longer view of employment trends in India, the most striking fact is the slow shift in the composition of the labour force from agriculture to non-agriculture, especially in comparison to other developing countries.

SHARE IN LABOUR FORCE (%) 1960 1980 2000 2006
India -2740 73 69 60 56
China -5420 75 71 50 43
Indonesia -3570 75 58 45 42
Thailand -7880 84 76 49 42
Brazil -9270 52 30 19 19
Mexico -13910 55 36 18 14
India - 50 37 25 18
China - 28 31 16 12
Indonesia - 54 26 17 13
Thailand - 41 25 10 11
Brazil - 16 10 7 5
Mexico - 16 10 4 4
Note: Figures in parenthesis denote GNI per capita in PPP$ in 2007
Source: World Development Indicators (2009), Key Indicators for Asia and the Pacific 2009 (ADB),
Key Indicators of the Labour Market 2009 (ILO) and China Statistical Yearbook 2008

Thus, between 1960 and 2006, the share of agriculture in total labour force fell from 75 per cent to 42 or 43 per cent in China and Indonesia and from 84 to 42 per cent in Thailand.

In India, the decline was much smaller, from 73 to 56 per cent. And this despite a rapid fall in agriculture's share in GDP, from 50 per cent in 1960 to 18 per cent in 2006.

The reasons behind this slow structural transformation of India's labour force include heavily anti-foreign-trade policies (until the 1990s) and small-scale industry reservation policies, both of which greatly retarded the rapid expansion of labour-intensive manufactured exports of the kind exemplified by East Asian development.

They also include India's exceptionally restrictive labour laws which discourage fresh employment in organised industry.

The broad numbers certainly suggest that there is a huge pool of under-employed labour, constrained to eke out a living in low productivity agriculture or informal urban occupations because of limited opportunities for decent, low-skill jobs in industry and services.

This broad general view is vindicated by anecdotal evidence. For example, in April 2008 there were more than 11,000 applicants for three (yes, three) posts of peons advertised by the Haryana Electricity Regulatory Commission .

Last month, Shyamal Majumdar reported that there were 3.4 million applicants for 11,000 clerical posts (paying Rs 8,000 per month) in the State Bank of India.

The fact that the majority of the candidates had engineering or MBA degrees suggests that the job market for "skilled" labour (except the ones from a handful of elite institutions) also remains pretty horrible.

These stark supply-demand mismatches in the labour market contribute significantly to some of the major social and economic problems in contemporary India.

The prevalence of rural distress and growing 'Naxalism' in large swathes of the country is surely not unconnected to the slow growth of decent employment opportunities for low-skill entrants to the labour force.

Similarly, there are growing signs of labour market dualism in India's cities and towns, with a minority of well-skilled graduates earning high and rising pay packets, while a majority of semi or unskilled aspirants struggle to make a living at low and uncertain wages. The dangers posed for social and political cohesion are obvious.

Labour market mismatches are also part of the explanation behind India's unfulfilled industrialisation. Manufacturing accounts for only 16 per cent of GDP in India, in contrast to 33 per cent in China, where GDP is nearly three times larger.

That means China's manufacturing sector is about 6 times larger than India's. Why is China the 'workshop of the world' when Indian labour is even cheaper and her entrepreneurs admired worldwide? There are many reasons, including (until recently) the anti-foreign-trade policies and small-scale industry reservation policies, noted earlier, as well as poor infrastructure in power, roads, water and ports.

Perhaps even more important are the restrictive labour laws and certain other regulations, which encourage Indian manufacturing units to 'stay small', thereby forgoing the classic industrial economies of scale and scope.

Finally, the continued prevalence of weak demand (relative to supply) for low-skill workers tempts successive governments into overspending for very inefficient safety net programmes (such as the NREGA) and food/fertiliser subsidies, thus diverting scarce public resources away from more growth-enhancing projects and programmes and helping to sustain a prolonged pattern of high fiscal deficits.

So what's to be done? Revival of high economic growth should certainly help. As would improvements in infrastructure and other policy impediments to rapid industrial expansion. But to make that growth more inclusive and 'jobfull', the best way is to reform the restrictive labour laws that discourage employment in organised industry.

Over the years, numerous academic studies and official reports, including the Second National Labour Commission Report (2002), have recommended major reforms of India's labour laws.

The problem is absence of political will. Until that will can be mustered, the expansion of decent non-agricultural jobs will continue to fall far short of burgeoning supply (the 'demographic dividend'!), condemning many millions to insecure and ill-paid, informal urban employment (or even unemployment) and mounting underemployment and distress in rural India.

The author is member, board of governors, and honorary professor, Indian Council for Research on International Economic Relations

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Shankar Acharya
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