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Economic Perspectives

The jobs crisis is real

Print edition : Aug 04, 2022 T+T-

The jobs crisis is real

In Bengaluru on January 3, 2020, accredited social health activists march from the railway station to Freedom Park demanding a hike in wages and permanent jobs. 

In Bengaluru on January 3, 2020, accredited social health activists march from the railway station to Freedom Park demanding a hike in wages and permanent jobs.  | Photo Credit: V. SREENIVASA MURTHY

Three severe shocks to the economy in quick succession damaged the “informal” sector.

India is experiencing a job market crisis. Applicants for preferred jobs outnumber vacancies by numbers that make the process a lottery. The qualifications of applicants for many jobs far exceed the skills or knowledge required. Attempts to influence or rig the appointments process to monetise scarcity are common. And the response to perceived malpractice or suspect policy shifts can be violent, as recently seen in the case of appointments to the railways and the military.

The argument that the same crisis afflicts most market economies, including many developed ones, mitigates for some people the disquiet the crisis should evoke. What is missed is that the nature and intensity of the jobs crisis is not similar across the board. India seems especially hard hit. What is more, a rather expansive definition of what constitutes employment and the varying definitions adopted by different sources make the picture fuzzy and lead to an underestimation of the problem.

Disturbing ‘facts’

The stylised “facts” the available data yield are, however, disturbing enough. Despite questions regarding method and coverage, the National Statistical Organisation’s annual Periodic Labour Force Survey (PLFS) is the best source of information on employment and unemployment trends. According to the latest report, 7.5 per cent of the labour force was unemployed in 2020-21 (July to June), even when a person is defined as employed if he/she worked for at least one hour on at least one day during the seven days preceding the date of survey (current weekly status).

The Periodic Labour Force Survey for 2020-21.
The Periodic Labour Force Survey for 2020-21.

With about 40 per cent of India’s 1.41 billion population in the labour force, this implies that about 42 million people who were available for work were not employed. If computed on a usual status basis (or based on the activity of a person for a relatively long time in the 365 days preceding the date of survey), the unemployment rate fell to 4.2 per cent. That amounts to around 25 million unemployed on a usual status basis. Around 21 million of these unemployed people were in the 15-29 years age group. The crisis is not of absent jobs in general but of employment among the youth in particular. A youthful population swells the number in the age group where people are capable of and wanting to work. But they find it difficult to get into the workforce.

The PLFS is the more recent version of the government’s effort to track the employment and unemployment situation in the country. Before 2017-18, the official statistical system undertook detailed surveys of the employment situation once in five years. On the grounds that an annual assessment was needed for effective policymaking, which has been a complete failure when it comes to employment generation, the government has carried out the PLF surveys since 2017-18. They yield quarterly and annual estimates. Annual estimates are as of now available for the four years ending 2020-21. Since results from these surveys can be compared, the government has taken credit for the apparent rise in employment over these four years when the labour force participation rate rose from 35.9 to 39.2 per cent and the unemployment rate declined from 8.9 to 7.5 per cent on a current weekly status basis. The corresponding figures for usual status employment were labour force participation rates of 36.9 per cent to 41.6 per cent and unemployment rates of 6.1 and 4.2 per cent. The aggregate figures do seem to point to an improvement, however marginal, on the employment front.

Three features of India’s development path have impacted employment generation:
1. The non-agricultural sector has not been able to provide decent jobs to the multitudes who have had to move out of agriculture.
2. The transition from agriculture to manufacturing in terms of GDP and employment generation, key to development, has not taken place.
3. Construction and services have been unable to fill the gap. The revenue growth in IT and ITES, for instance, has been much higher than employment growth.

This improvement may seem surprising because of the well-recognised adverse employment generation consequences of India’s development path and the policy moves that have made a bad situation worse. Among the many features of the development path that determined employment outcomes, three in particular are worth noting. The first is that the non-agricultural sector has proved incapable of absorbing, at least in decent jobs, the multitudes that have had to move out of agriculture because it could no longer serve as the sink for a growing volume of the unemployed.

The second is that manufacturing growth has been so disappointing that the structural transition away from agriculture to manufacturing in terms of shares in total GDP and employment, expected in the early stages of development, has remained incomplete in India. The slow growth of manufacturing meant that the much-needed shift in employment and worker distribution away from low-productivity agriculture to high-productivity manufacturing, which could ensure decent non-agricultural employment, did not occur.

And finally, although construction and services proved to be the much-needed outlets for India’s excess labour force, they proved inadequate to the task of making up for the shortfall in manufacturing. This is especially so because the more dynamic, modern services (including software and information technology–enabled services) have been characterised by a revenue growth that is much faster than employment growth, resulting in lagging employment generation even in India’s high-growth years led by a services boom. Workers must settle wherever jobs are available, irrespective of pay and the conditions of work.

“Lagging employment generation means workers have to settle wherever jobs are available, irrespective of pay and conditions of work.”

One consequence of these trends is that “regular” and “formal” employment—or employment that is based on a formal contract, offers a degree of security of tenure, includes paid leave, and is associated with some form of social protection—is more the exception than the rule. In 2020-21, only 21 per cent of those employed were in regular employment. Another 23 per cent were engaged as casual labourers. The remaining 56 per cent were “self-employed”. For most of these workers, being at work does not mean being employed for most of the days or hours a person is available for work. A range of indicators captures the poor quality of even the employment afforded to most workers. Around 64 per cent of regular workers had no written job contract, 48 per cent were not eligible for paid leave, and 54 per cent were not eligible for any social protection. Regular male workers in all occupational categories, who are paid much more than female workers, earned on average between Rs.18,238 and Rs.19,103 over 30 days in 2020-21, or around Rs.608-637 a day.

Despite the extreme inequality that characterises the country, that average for the population as a whole is just around two and a half times the income that supports a family at the official poverty line. The corresponding figures for the self-employed were Rs.11,184–11,976, or Rs.373–399 a day. The average daily earnings of a casual worker, when employed, varied between Rs.311 and Rs.327. What is more, in real terms, or after having adjusted for inflation, these earnings declined between 2017-18 and 2020-21.

People protesting over access to railway jobs, in Gaya, Bihar, on January 26.
People protesting over access to railway jobs, in Gaya, Bihar, on January 26. | Photo Credit: AFP

The difficulty of finding even a half decent job has discouraged many from seeking work and kept them out of the labour force. The labour force participation rates in India of 58 per cent for men and 25 per cent for women in 2020-21 are striking for two reasons: first, they are extremely low by global and even South Asian standards (excluding Afghanistan and Pakistan), and second, the participation rates for women, who are forced by patriarchal norms to focus on unpaid household work, are appallingly low. Given the absolute levels of female participation rates, the evidence that it rose from 17.5 per cent in 2017-18 to 25.1 per cent in 2020-21 is no cause to celebrate. In fact, as argued below, this is likely the result of household distress.

During the years when the annual labour force surveys were conducted and published (2017-18; 2020-21), the Indian economy moved out of its high-growth trajectory, which meant that the poor job-generation record resulting from the weak relationship between output growth and employment growth was made worse by the slowdown in GDP growth. This was aggravated by three “external” factors that devastated the economy during these years.

The first is the damage wrought by demonetisation, which shrank economic activity and led to closures of firms and loss of livelihoods. The second is the badly designed and poorly implemented goods and services tax, which both imposed compliance costs and set operational constraints on economic agents with attendant adverse impacts on both production and incomes. The third is the COVID-19 pandemic and the government’s handling of it, characterised by brutal lockdowns and measly stimulus measures, which too severely damaged economic activity and livelihoods. All these shocks affected more severely the “informal” sector, which is where the majority of working Indians are employed.

Question of survival

Given these long- and short-term trends, it may appear surprising that the PLFS figures for the four years ending 2020-21 point to an increase in the number of workers and a fall in the unemployment rate. However, those trends may be in keeping with what one should expect in a period when growth has been slowing and economic shocks have devastated large sections of the working poor. In a context in which social security or social protection is more the exception than the rule, an unemployed person must, for survival, rely as a dependent on an already underpaid earning member of the family. That option being absent, she or he can only starve. When economic conditions worsen, as they clearly have over the last four years, the ability of earning members to support dependents is considerably eroded. The only option then is for every able person to seek out whatever work is available for however many days even if the terms are poor.

“The only option then is for every able person to seek out whatever work is available for however many days even if the terms are poor.”

This implies that in difficult times “distress employment” will rise, inflating the figures on those reported as being in the workforce and of those employed, when identified using the rather weak definitions adopted in the employment surveys. This is corroborated by the fact that much of the increase in employment over these four years is of female employment and employment in agriculture. A corollary of this distress-driven turn to any available job is a rise in labour force participation and in the number of workers and a fall in the unemployment rate. This is what seems to be happening in recent years. A similar tendency was observed over 1999-2000 to 2004-05—which was a period of extreme distress—when total employment as measured by the National Sample Surveys registered an increase of around 60 million.

What this implies is that using aggregate employment and unemployment numbers to assess intertemporal changes in the employment situation in the country is not warranted. “Improvements” in the number of people employed and the extent of unemployment could be as much a reflection of distress as they could be of advance; it all depends on the economic circumstances. What is clear as far as the Indian labour market is concerned is that the years of high growth have done little to improve a dismal employment picture, and the conditions of work only deteriorated after those heady growth days came to end. The jobs crisis is real.