Issues in Indian Labor Market

Source-This post on Issues in Indian Labor Market has been created based on the article “A digital public platform could boost labour market efficiency” published in “Livemint” on 3 July 2024.

UPSC Syllabus–GS Paper-3– Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context– The article discusses India’s labor market complexity, noting how labor shortages and high unemployment coexist. It points out that search frictions contribute to this paradox and suggests that digital public infrastructure may help address these challenges.

What are the reasons behind India’s labor market complexity?

1) Skills Gap- Employers often find it difficult to hire suitable workers because of the skills gap—many graduates do not possess the specific skills that companies need. For ex- Larsen & Toubro chairman reports a shortage of 45,000 workers and engineers. This contrasts with national concerns about lack of quality jobs for the young population.

2) Search Frictions-It is a situation in markets where buyers and sellers don’t automatically find each other. Search involves costs and risks, especially in unorganized labor markets like India’s. As per nobel laureate,these inefficiencies lead to both job vacancies and unemployment coexisting in labor markets.

3) Low-Wage Worker Behavior– David Autor’s research indicates that low-wage workers frequently accept the first job they find because they lack information or are hesitant to take risks. This results in a reduced ability to negotiate better terms.

Read More- Labour Reforms

What should be the way forward?

A) Social Networks in Job Search: -In informal job markets, social networks (village or caste groups) help reduce search costs. For ex- One person finds urban employment, then brings others from their community.

2) Leveraging Digital Public Infrastructure (DPI) –

A) The expansion of digital public infrastructure (DPI) in India lowers transaction costs using platforms such as the United Payments Interface and the Open Network for Digital Commerce.

B) Digital platforms that connect employers and workers, possibly integrated with welfare programs, can raise wages and productivity.

Question for practice

What factors contribute to the complexity of India’s labor market? What steps should be taken to move forward?