Dealing with the job creation challenge

From 1983 till 2011, Unemployment rates in India averaged 9 percent reaching an all-time high of 9.4 percent in December 2010 and a record low of 3.8 Percent in December 2011. Recent trends look less favourable. The Labour Bureau’s annual Employment-Unemployment Surveys show an increase in unemployment from 3.8 per cent in 2011-2012 to 5 per cent in 2015-16.

Job creation is considered to be the most serious development challenge that India faces. It is also a major source of contention in the political space.

Assessment of current trends in employment

Identifying a job-creation strategy requires some assessment of current trends in employment generation.

A recent study provides the trends from 1999-2000 to 2011-2012, a period that covers a high-growth phase:

  • The annual growth of the labour force fell from 1.8 per cent during 1983-84–1999-2000 to 1.4 per cent during 1999-2000–2011-2012, attributable partly to the lower labour participation rate of children and women.
  • Despite a youth bulge in the population, there was no corresponding youth bulge in the workforce and therefore no demographic dividend.
  • Relative to comparable countries India has a disproportionately large number of poorly educated workers (26.6 per cent illiterate or near-illiterate in 2011-2012) and a disproportionately large number with tertiary education (12.2 per cent in 2011-2012)
  • Employment conditions improved with an increase in the share of the organised sector
  • Earnings per worker increased by 2.3 per cent per year in the organised sector and 4.2 per cent per year in the unorganised sector between 1999-2000 and 2011-2012.
  • Gender inequality in work declined between 1999-2000 and 2011-2012 as the improvement in employment conditions for women was larger than for men.
Recent trends and possible strategies

Recent trends look less favourable. The Labour Bureau’s annual Employment-Unemployment Surveys show an increase in unemployment from 3.8 per cent in 2011-2012 to 5 per cent in 2015-16.

Export driven manufacturing

Export-driven manufacturing growth has traditionally driven job creation in China.

However, the prospects for export growth as the driver of employment look less attractive now because of the slowdown in the major OECD markets. There are also growing protectionist threats.

A major concern also comes from the growth of robotics and automation, which will slow down the employment creation.

Make in India and Skill India

India has launched a major drive for growth in manufacturing output with Make in India and for skill development with Skill India.

We need to connect the two so that manufacturing growth is oriented to absorb labour and skill development. It also creates the capacities needed for the industries and services of tomorrow.

Infra-push

India should be promoting jobs in infrastructure construction, urban development, and housing. These sectors are inherently large scale and labour intensive.

We should also expect employment opportunities in the technology development and deployment, particularly in the info-tech sector and in accelerated investment in the energy transition that it is already taking place.

Strengthen the unorganized sector

The organised sector cannot deliver jobs on the scale required. Job creation will require skill development for productivity enhancement in the unorganised sector as well. Anything which galvanises entrepreneurship and improves working conditions to attract skilled labour in this sector will contribute towards this end.

Finally, reforms in the labour market

Creating jobs is not enough. India’s labour markets are far from competitive. Labour reforms are required to ensure not just competition but also fair wages and decent work conditions.

A very limited proportion of workers are able to exercise market power through trade unions. But despite that the wages of production workers as a proportion of gross value added declined from 15.4 per cent in 2000-01 to 8.5 per cent in 2011-12 in the organised sector.

The vast majority of workers in the unorganised sector lack any form of security and are subject to local monopsonies of employers.

There is a strong need for labour reform in ensuring greater security and more just and fair wage determination processes in the unorganised sector.

We need a labour policy that addresses inequities and exploitation vigorously and also takes care of excessive protection.

Concluding remark

India can meet its job-creation challenge. But for that it needs a growth strategy centred on modernising its labour market and galvanising the large hidden potential of the unorganised sector.