A hazy picture on employment in India

News: This article says that the employment data in India is not consistent and does not show a clear pattern.

The two important indicators of structural transformation in any economy are rates of growth and changes in the structural composition of output and the workforce.

India has experienced fairly consistent changes in the first indicator, especially after the 1991 reforms, but the trend in employment has not revealed any consistent or clear pattern.

What are the challenges associated with the pattern of employment as revealed by the PLFS survey?

Between 2019-20 and 2017-18, 56.4 million new jobs were created but 57.4% of this were created in the agriculture and allied sectors, 28.5% in services, and 14.5% in industry.

This shows only a small increase of jobs in the manufacturing sector and labor shift out of agriculture is not happening.

The growth of jobs in the agriculture sector reveals that among the young educated labor force only a few succeeded. This is due to the capital-intensive nature of industries and labor-displacing technologies.

The rising share of industry and services in national income without an increase in employment share raises questions on the relevance of conventional models of economic growth and development.

What are the problems/challenges in creating jobs?

One, there is no clear separation between agricultural, manufacturing, or services and formal or informal business. For example, agriculture is consolidating and gradually becoming partly manufacturing and partly services too.

Similarly, most manufacturing companies have realized the need to redefine themselves as service providers in order to deliver customer value. Hence, it is difficult to devise policies for job creation in specific sectors.

Two, fixed-term labor contracts were introduced in the 2018 budget. But it did not result in growth in employment over the last four years. Hence, there is a question of whether job creation initiatives work.

Similarly, Incentives are given for formalizing jobs through subsidies on social security contributions. But it is not known that the rise in payroll employment is creating additional jobs or a mere transfer from informal to formal jobs.

What is the way forward?

First, labor laws should be amended to encourage industries to adopt labor-intensive production and provide employment-linked production incentives.

Second, the prime minister’s economic advisory council should include corporate and business data analysts with access to real-time data from not only government sources but also private players.

Third, the government should increase investments in information flows about jobs and skilling. For example, releasing monthly payroll information to know formal jobs.

Fourth, the government should first understand how the economy works and how jobs are created, what skills are in demand, then only better policy responses can follow.

Source: This post is based on the article “A hazy picture on employment in India” and “Govt can’t create jobs” published in The Hindu and Business Standard on 1^st Feb 2022.