Editorial Today – Jobless Growth

What is jobless growth? It is an economic phenomenon.

Problem in India Economy is growing without creating much job.

Quality of new jobs added It is also distressing.

Analysis Economic growth is meaningful only as long as it creates new non-agricultural jobs.

Effect of infrastructure investment As infrastructure investment has picked up the number of workers in construction has increased.

Labour Bureau Report The Labour Bureau under Ministry of Labour has compiled data for job creation in labour-intensive non-agricultural sectors for each quarter since the 2008 global financial crisis.

Some worrying facts Most of the job creation is being recorded in the unorganised sector of industry and services.

Important schemes of government Ministry of Commerce has undertaken the customization of incentives for labour-intensive export sectors.

Two main factors of India’s jobless growth Employability of people and lack of growth of SME.

Importance of SME in creating jobs It is labour intensive.

How it can be tackled? Industrial policy and ease of doing business.

What is jobless growth?

Jobless growth is an economic phenomenon in which a macro economy experiences growth while maintaining or decreasing its level of employment.

Problem in India

The estimated number of entrants into the workforce in the period 2005-10 was an average of 12 million per annum (But some experts believe that only about 7 million have been added to the labour force annually since 2005. This is due to a declining population growth rate and rising educational levels). This was a period when the economy grew at an average 8.7% and at above 9% in three of the five years. But despite this growth, the economy managed to create just 5.5 million jobs annually in the industry and services sectors in the same period. This is after accounting for new job creation through welfare schemes like NREGA.
Further, not all new jobs went to entrants into the work force; a large chunk of it includes previously self-employed individuals from agriculture and trade who moved mostly into construction.
In short, while new job addition in the five-year period was 27.5 million, the number of self employed people also reduced by 25.5 million, leading to a net increase of 2 million in the employed population.

Quality of new jobs added

It is also under distress.
The construction sector has created 18 million jobs, but a major chunk is in the form of casual labour. On the other hand, services has contributed only 3.5 million jobs.
Manufacturing sector has actually lost around 5 million jobs.

Analysis

There will be no demographic dividend without growth in industrial and service sector jobs.
The underlying logic behind a dividend is that as jobs grow, incomes rise and so do savings.
Based on higher savings, the investment rate to GDP grows, resulting in faster GDP growth.
This was the reason behind the phenomenal growth in savings to GDP from 24 per cent in 2002-2003 to 38 per cent in 2007-2008 and investment from 25 per cent to 39 per cent of GDP.
Economic growth is meaningful only as long as it creates new non-agricultural jobs.
Job growth leads to an increase in consumer demand which has the effect of sustaining GDP growth.

Effect of infrastructure investment

One of the most important sources of increased consumer demand since the turn of the century was the increase in infrastructure investment. Starting with the Golden Quadrilateral Highway network which began construction in 2001, infrastructure investment picked up. As a result, the number of workers in construction has increased.
Investment in infrastructure has risen strongly thereafter, and during the 11th Five Year Plan, infrastructure investment in the public and private sector together grew by $475 billion. The result is that employment in construction sector has jumped.
Thus real wages increased significantly till 2012.
The combined effect of non-agricultural job growth plus real wage growth was a consumer demand booming in both rural and urban areas. The combined demand and supply effects of investment plus job growth resulted in sustained economic growth at a rate unprecedented in India’s economic history.

Labour Bureau Report

Job growth has been much slower since 2012.
The Labour Bureau of the Ministry of Labour has compiled data for job creation in labour-intensive non-agricultural sectors for each quarter since the 2008 global financial crisis. According to this,the lowest job creation has been recorded in 2015.
For the first time in any nationwide sample survey, the Labour Bureau’s Annual Employment-Unemployment Survey Report in 2013-2014 showed that underemployment remains a major problem.
Only 60.5 per cent of persons aged 15 and above who were available for work for all the 12 months were able to get work during that year.
More worrying is the fact that for the 7 million young people who are joining the labour force, the open unemployment rate is 10 times higher than that for those 30 years and above.

Some worrying facts

First, while the share of organised sector jobs is increasing, most of the job increases are still taking place in the unorganised segment of industry and services, and in informal jobs.
Second, while construction had been booming from 2000 to 2012, its growth dipped since 2012, and has begun to revive only since late 2015 as infrastructure investment revived. With infrastructure investment tapering off during the fiscal years 2012-2013, 2013-2014 and 2014-2015, construction employment growth is likely to have fallen sharply, compounding the already greater rural distress caused by drought in 2014 and 2015.
Third, education enrollment levels of youth joining the labour force have been increasing every year since 2010 or so. The educated youth are unlikely to join agriculture and will look for non-agricultural jobs in urban areas. The revolution in rising expectations is already causing social movements (the Patel and Jat agitations in Gujarat and Haryana, for instance).

Important schemes of government

First, the Ministry of Labour is finalising the scheme to offer to pay 8.33 per cent of the salary as contribution for a pension scheme for new employees getting formal sector jobs. The scheme will be applicable to those with salary up to Rs.15,000 per month.
Second, the Ministry of Commerce is customising incentives for labour-intensive export sectors. It has already initiated an Interest Equalisation Scheme and the Merchandise Exports from India Scheme to support declining exports, given that exports have been declining for 15 months. In the Budget, the government also announced that 100 per cent FDI in food retail will be permitted on the condition that the goods have to be manufactured in India.
Third, under the Stand Up India scheme, Scheduled Castes, Scheduled Tribes and women entrepreneurs will get support such as free pre-loan training and facilitating loan and marketing. There will be a Rs.10,000 crore refinance window to the Small Industries Development Bank of India (SIDBI), and the National Credit Guarantee Trustee Company will create a corpus of Rs.5,000 crore. SIDBI will engage with the Dalit Indian Chamber of Commerce and Industry and other institutions to take the scheme forward.

Two main factors of India’s jobless growth

First, India has an employability problem. While the services can rather easily recruit skilled white-collar workers (IT engineers, English-speaking people for the call centres, etc), the industry cannot transform peasants into factory workers so quickly. Such a transition requires basic training, which is missing. Moreover the main contributor in India’s GDP is service sector which is not labour intensive and thus adds to jobless growth.
The fact that the government seems to rely on private initiatives in this domain also stands in stark contrast to an obvious reality: No country has developed without a robust public education system.
The second factor according to some expert that needs to be pointed out pertains to the small and medium enterprises (SMEs). Their labour intensity is four times higher than that of large firms. The multinationals are particularly capitalistic, as evident from the commitments/ promises expressed during the last “Make in India Week” in February. While the investment commitments were impressive at $225 billion over five years, the fact that they would translate into the creation of 6 million jobs only was not trumpeted. In fact, the Make in India programme is revealing of the jobless growth syndrome: Highly capitalistic multinationals will start factories in India to sell their products to the white-collar middle class but will not create the manufacturing workforce the country is longing for.

Importance of SME in creating jobs

SMEs, which employ 40 per cent of the workforce of the country and which represent about 45 per cent of India’s manufacturing output and 40 per cent of India’s total exports, are in a better position to create jobs.
But it is not able to do so because of poor infrastructure, lack of skilled labour and also they don’t have easy access to loans.

How it can be tackled?

Government schemes rarely create many jobs. International evidence is that when consumer demand grows consistently, whether from domestic or international markets, that is when jobs grow. That requires an industrial policy.
Ease of doing business improvement and infrastructure investment increases should improve the economic environment.
But most importantly India needs a robust industrial policy.