Growth in an economy is often equated with rising employment. A growing economy translates into better opportunities for individuals to earn a living. But is it possible that in a growing economy, jobs become stagnant? In this article, we shall explore this anomaly where economic growth does not translate into the growth of jobs.
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What is Jobless Growth?
Jobless growth is when the economy experiences growth but unemployment remains stubbornly high. In other words, the economy is expanding but this is not translating into an increase in employment.
This usually happens when a large number of people lose their jobs during an economic downturn and are unable to find a new jobs when the economy recovers.
What is the data telling us?
India experienced job growth of 3% p.a in the 70s at a time when our economy grew at 3-3.5% p.a but over the last 3 decades our economy grew at over 5-8% p.a but our job growth has been close to 1% p.a.
Employment elasticity has fallen from close to unity in the 70s to 0.4 in the 90s to less than 0.1 today. Hence, the phenomenon of India’s jobless growth.
Employment Elasticity is defined as the percentage growth in employment for one per cent growth in GDP.
According to the Centre for Monitoring Indian Economy (CMIE) in India to meet the current demand for employment, we need to create 20 million new jobs each year in India and employment needs to grow at 5% per annum.
But currently, we are adding less than 2 million jobs a year with an employment elasticity close to 0.1. If we continue to grow our economy and even accelerate it further without dealing with the issue of employment elasticity, the jobs crisis is not only going to intensify.
What factors are leading to Jobless Growth?
First, India has failed to create enough jobs in the manufacturing and services sector. For an emerging economy, the path to higher incomes, productivity and growth must lead workers away from agriculture. However, the transition has failed to happen in India.
In fact, the share of manufacturing in employment has been declining. According to CMIE, the manufacturing sector employed 51 million Indians in 2016-17, which had come down to 27.6 million in 2020-21. The manufacturing sector in India has been capital-intensive rather than employment intensive. Moreover, most of the jobs in manufacturing and services are limited to skilled or semi-skilled professionals.
Second, India’s poor system of education and job training means that graduates have limited skills and are not valued by employers. In large-scale surveys, employers have said that less than 50% of the college graduates entering the workforce have the cutting-edge skills they need or the ability to pick them up in the workplace. So many would-be job seekers decide instead to
- Continue their studies
- Join family members in farming (this enhances disguised unemployment)
- Just stay home, surviving on rental income, pensions received by elderly household members or government transfers.
Third, India has not witnessed an export boom of low-skill, labour-intensive products. India’s economic growth has been largely services led in contrast. A leap from the primary to the tertiary sector hasn’t been able to generate sufficient jobs.
Further, the bulk of the jobs in the service sector case is in petty retailing, small eateries, domestic help, sanitation, security staffing, transport and similar other informal economic activities. They seldom provide reasonable pay and adequate social security benefits.
Fourth, the enhanced adoption of new technologies like AI, Automation etc. is decreasing the demand for manpower. With these technologies, companies are able to generate higher revenues with minimum manpower. Some economists worry that this may worsen the jobless growth scenario.
Fifth, the Government has made efforts to generate jobs but these are hindered by legacy issues of poor infrastructure, complex and variable rules, skill deficiencies, hidden costs and more.
Last, many women are opting for unpaid work at home, taking care of elderly relatives and kids. In most Indian families, care work is the exclusive responsibility of the female members.
Why should we be worried?
First, India has the advantage of youth, half the population is under 30; but it will start ageing in the coming decades. Therefore a significant number of jobs are desired to reap this demographic dividend.
What is more worrisome is that the rate of unemployment among the youth (20-24 years) is much higher than the overall unemployment rate.
Second, in the absence of meaningful livelihood opportunities, society will be susceptible to social unrest. This was evident by the protests that erupted in June over the Agnipath Scheme.
Third, to sustain growth and attract global investments, India needs to ensure there’s a trained workforce for the industry.
Fourth, jobless growth can lead to reduced productivity, as workers who are unable to find employment become discouraged and drop out of the labour force, reducing the overall level of economic output.
Lastly, high levels of unemployment can lead to increased social spending on unemployment benefits and other social safety net programs, putting pressure on government budgets.
What steps have been taken to improve the situation?
- The Union Government has announced plans to hire a million people by the end of 2023 to fill vacancies in government departments. Read More: Here
- National Education Policy, 2020: The Aim of the policy is not only be cognitive development but also to build character and create holistic and well-rounded individuals equipped with the key 21st-century skills.
- Sector Skills Councils were set up from 2009-10 onwards, and competency frameworks were prepared for short- and long-duration skill programmes. Industrial Training Institutes (ITIs), polytechnics and other skill-oriented institutions were brought on a common platform. As a result, apprenticeships increased. Over 100,000 training institutions came forward to work with 55 million youth to prepare them for the job market. Read more: Here
- Pradhan Mantri Kaushal Vikas Yojana (PMKVY): It is a flagship program of the Ministry of Skill Development and Entrepreneurship (MSDE) implemented by the National Skill Development Corporation (NSDC).
Under PMKVY, training and assessment fees are paid completely by the Government. Pay-outs are provided to the Training Providers (TPs) in alignment with the common norms.
What more steps are required to address Jobless Growth?
First, the private sector should be given greater support in form of subsidies and tax rebates, especially the budding start-ups which have the potential to generate multiple jobs.
Effective implementation of current schemes like MUDRA, Startup India etc. could be a game changer in this regard.
Further, the commercial dispute redressal mechanisms need to be strengthened in order to attract more investment into the industrial sector. Currently, India has 163rd rank in enforcing contracts as per Ease of Doing Business reports.
Second, a more focused approach is necessary with respect to skilling and educating the youth according to the demand of the 21st century. They should be encouraged to learn new-age skills like 5G technology, Big Data, Digital Marketing etc. that would enhance their probability of employment.
Third, the Government should also focus on boosting the social security net apart from creating 1 million jobs. This includes enhancing days under MGNREGA, introducing an urban MGNREGA and taking a decision on Universal Basic Income.
Fourth, the focus should also be placed on tackling the inefficiencies of government setup which includes corruption, maladministration, red tapism etc. This will ensure the optimum utilization of resources and ensure the creation of more jobs with minimum inputs.
Further, it should avoid the sudden introduction of reforms and policies. For instance, since 2017, the dual impact of demonetisation and the rushed introduction of goods and services tax has caused many small and medium businesses to shut down.
Fifth, educational institutions must focus on inculcating an entrepreneurial mindset in the students. This will ensure that students become job givers rather than job seekers in future thereby helping to solve the unemployment crisis.
Sixth, local governments and community organisations like women’s self-help groups and youth organisations should be fully involved in the skilling plan for a local area. A database of all men and women seeking employment or enterprise support needs to be drawn up for each and every local body, rural or urban. Equally important is a detailed micro credit plan for each and every household developed after assessing the asset base of a poor household.
Conclusion
Jobless growth remains the single biggest challenge to the Indian economy. To create jobs on a mass scale there is a need to boost manufacturing that hinges on creating infrastructure, removing red tape and reviving investor sentiment. A robust manufacturing sector is a must for absorbing the excessive workforce of the agriculture sector as well as enabling the nation to reap its demographic dividend.
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