7 PM | Jobless growth becomes more systemic | 12th July, 2019

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Context: Labour force participation and jobless growth in India.

Employment has always figured as an important element of the growth and development process of the Indian economy. India being a highly populated country, employment becomes a crucial element. Employment acts as a link between economic growth and poverty reduction. Employment serves as a significant variable in the attainment of inclusive and sustainable growth. In India, household based Employment-Unemployment Surveys are conducted by the National Sample Survey under Minister of Statistics and Programme Implementation (MoSPI), the Annual Labor Force Survey by Minister of Labor and Employment (MoLE) and the Population Census by Office of the Registrar General & Census Commissioner. The Employment-Unemployment Survey (EUS) is a comprehensive household survey providing labor force statistics in India. It was first conducted in the 9thround of the National Sample Survey (NSS) in 1955. The current format of quinquennial surveys started in the 27thround in 1972-73, based on M.L. Dantwala committee report. Since then, 8 quinquennial surveys have been conducted with the last one conducted during 2011-12. The EUS is carried out over a period of 12 months to account for seasonal variations in employment.

Statistical information with regard to labor force participation and unemployment:

• According to Periodic Labor Force Survey (PLFS) the labor force participation rate in 2012 is 55.5% and in 2018 is 49.7%. (LFS is percentage of people working or seeking work in the above-15 years of age). Women’s labor force participation rate decline from 31% to 24%.
• The overall unemployment rate at 6.1% which is 2.77 times the same figure for 2012.
• Women unemployment: in urban areas it is 10.8% and in rural areas is 3.8%
•  Educated Unemployment: the highest rate among the diploma and certificate holders (19.8%); followed by graduates (17.2%); and post graduates (14.6%).

Reasons behind the Jobless growth in India:

• Services sector: India’s economic growth since the 1990s has largely been on account of an expansion of the services sector, in which exports are seen as having played an important role. The rise in the share of services in GDP was particularly sharp after 1996-97 amounting to 6.8 percentage points over the subsequent 10 years as compared with just 1.9 percentage points during the previous 10 years. In the event, services as a group came to dominate the Indian economy, accounting for more than half its GDP. The share of the services sector in total employment was relatively low, and despite the expansion of services, the growth of employment in this sector has been limited. Between 1999-00 and 2004-05, employment in the tertiary sector increased by only 22 per cent, whereas GDP at constant prices contributed by the services sector expanded by 44 per cent. Tertiary sector employment in 2009-10 amounted to only 25 per cent of the work force, despite the fact that around 55 per cent of GDP came from this sector.
• Agriculture sector: According to the National Sample Survey Office’s (NSSO’s) periodic labor force survey (PLFS) report showed a collapse in agricultural jobs as a key reason behind rising unemployment, particularly in the rural parts of the country. The proportion of people, in the working age group, employed in agriculture fell by 8 percentage points for rural men and 9.3 percentage points for rural women, an analysis of the NSSO’s PLFS report for 2017-18.
• Productivity across all sectors: A large share of India’s workforce is employed in low productivity activities with low levels of remuneration. This is especially true of the informal sector where wages can be one twentieth of those in firms producing the same goods or services but in the formal sector.
• Manufacturing sector: Work Opportunities that are lost in traditional agriculture have to be replaced by work opportunities in some other sector. In the normal course it is the secondary sectors (manufacturing, electricity and construction) that grow much faster than agriculture during transition of an economy. However, in the post reform period the growth of manufacturing industries has been constrained by competition from imports. Thus, in the medium term, the ability of manufacturing sector to replace the work opportunities lost in traditional agriculture is rather limited over the years.
• Role of MSMEs: The MSME sector in India is one of the country’s biggest providers of jobs, right from workers to middle management levels. However, larger companies have sufficient funding to install machinery and automation, which small scale industries do not. The small scale businesses are mostly one-person shows, with the entrepreneur running their company with some assistants and workers. Even marketing is usually done by the entrepreneur. This owner runs a low-cost operation, as profits derive from low-cost of operations. So even though MSMEs had the potential but unable to tap it due to multiple constraints.
• Employment elasticity: Employment elasticity is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth. The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process. The aggregate employment elasticity estimates for India vary from 0.18 (arc elasticity) to 0.20 (point elasticity) during the post reform period (1993-94 to 2011-12).  In India there is very low employment elasticity means economic growth does not leads to needed employment generation.

Measures to improve employment opportunities in india:

• Enhance skills and apprentices: The Labour Market Information System (LMIS) is important for identifying skill shortages, training needs and employment created. The LMIS should be made functional urgently. Ensure the wider use of apprenticeship programmes by all enterprises. This may require an enhancement of the stipend amount paid by the government for sharing the costs of apprenticeships with employers.
• Labor law reforms: Complete the codification of labour laws at the earliest. Simplify and modify labour laws applicable to the formal sector to introduce an optimum combination of flexibility and security. Make the compliance of working conditions regulations more effective and transparent. The National Policy for Domestic Workers needs to be brought in at the earliest to recognize their rights and promote better working conditions.
• Enhance female labor force participation: according to NITI Aayog strategy for new India @ 75 Ensure the implementation of and employers’ adherence to the recently passed Maternity Benefit (Amendment) Act, 2017, and the Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act. It is also important to ensure implementation of these legislations in the informal sector. Further details may be found in the chapter on Gender. Ensure that skills training programmes and apprenticeships include women.
• Rural transformation and agriculture sector: there are immense possibilities for diversification in agricultural sector towards more value added activities such as food processing. This is an area, which has by and large remained unexploited, because reforms in agriculture sector having been very slow, resources have not yet started flowing into food processing industries. Involvement of State Governments in implementing reforms in agriculture and food processing sectors is of crucial importance. Economic returns from States initiatives in transforming the rural economy from traditional agriculture to more value added activities in horticulture, etc. has been demonstrated well in some of the States, such as Maharashtra and Himachal Pradesh. Such diversification has immense potential for bridging some of the gaps in prodcivity levels of workers in agriculture vis a vis other sectors. Besides diversification of agriculture there is a strong need to restructure the rural economy by way of promotion of nonfarm activities in rural areas. Whatever nonfarm activities are being carried out in the rural areas now are more out of desperation to eke out a living rather than an informed choice of a vocation, backed by infrastructural and institutional facilities. A massive improvement in infrastructure is required to promote growth of rural industries on a sustainable basis. This will go a long way in generating good quality employment and meeting many of the consumption requirements of rural people. Many steps have been taken in regard to village connectivity, e.g., Prime Minister Gram Sadak Yojana (PMGSY) and telecommunication. But power sector reforms are urgently needed to set up modern processing facilities. In this rural areas will be self sustained in creating employment opportunities.

Way forward:

Employment generation and improving employability has been the priority concern of the Government. The Government is implementing various programmes in this direction like encouraging private sector of economy, fast tracking various projects involving substantial investment and increasing public expenditure on schemes like Prime Minister’s Employment Generation Programme (PMEGP), Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), Pt. Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY) and Deendyal Antodaya Yojana-National Urban Livelihoods Mission (DAY-NULM). All the schemes must be implemented in true spirit of their objective to generate job opportunities for Indian growing labour force.

Source: https://www.thehindu.com/opinion/op-ed/jobless-growth-becomes-more-systemic/article28391822.ece