Growth without employment equals great risk

Among the biggest policy challenges for India is providing employment to the youth and the growing labor population. Since the mid-1980s, our economic growth has been accelerating but there has been no desired change in the employment situation. However, some aspects have improved. Government employment surveys and studies by independent economic experts have repeatedly highlighted structural flaws in employment outcomes.

A new report by Azim Premji University, which uses data from various sources such as Periodic Labor Force Survey, Annual Survey of Industries, Economic Census and National Family Health Survey, provides a comprehensive assessment of the employment situation. Some of the data and findings are widely accepted, but given the importance of the topic, it requires continued discussion.

As shown in the study, employment in the non-agricultural sector has increased over the years. However, they do not get regular jobs with good wages. Between 1983 and 2019, the share of non-agricultural employment increased by nearly 20 percent. But regular wage employment grew by only three percent. The increase in the organized sector was less than two percent. Effectively, this means that most people coming out of agriculture end up working in low-paid and casual jobs. It is noteworthy that while men were engaged in construction work in large numbers, the withdrawal of women from the agricultural sector meant that they dropped out of the labor force.

Women's labor force participation in rural India has declined from 40 percent to 28 percent in the 2000s. Female labor force participation has increased since 2019 but most of it is self-employed. Low participation of women in the labor force also means that India's overall labor participation rate remains low and this affects overall growth.

Employment conditions are particularly challenging for young and educated people entering the labor force. The study shows that the unemployment rate for graduates is around 15 percent but rises to 42 percent in the case of young graduates.

Unemployment rates are much lower for the elderly and those with less education. It means that India is not able to create enough employment for its educated people. It is also possible that young graduates do not have the right skills. An encouraging finding is that intergenerational mobility has improved, although not for all communities. For example, in 2004, 80 percent of the sons of common workers also took up the same profession. If we talk about Scheduled Castes and non-Scheduled Tribes, then by 2018 this proportion has reduced to 53 percent.

The real problem is that India has not been able to generate enough employment. However, interestingly, according to the study, GDP growth and job creation are not correlated in the long run. Viewed differently, compared to the high growth of previous years, adequate employment has not been created.

According to the study, one of the reasons for this could be the increase in labor productivity which cancels out the effect of employment. It is also possible that growth in India may not be driven by low-skilled manufacturing, as in many other developing countries. While people coming out of agriculture are more likely to adjust to such employment. A major risk of jobless growth is that it will prove unsustainable in the long run. Policy makers should be concerned about this.