Insights into Editorial: Job growth at a snail’s pace
11 May 2016
Jobless growth in India has been more dramatic in the last two years. It is probably the main issue of the Indian economy today. It is largely responsible for demonstrations by young Patels of Gujarat and Jats of Haryana in the name of reservations. Since they can’t get jobs in the private sector, they fall back on government jobs.
- It is true that 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% in 2002-2003 to 38% in 2007-2008 and investment from 25% to 39% of GDP.
Job growth in India since 1999:
Between 1999-2000 and 2004-2005, around 12 million people were joining the labour force every year. However, only 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.
- Also, 7.5 million new non-agricultural jobs were created annually between 1999-2000 and 2004-2005. An additional 7.5 million new industrial and service sector jobs were created annually between 2004-2005 and 2011-2012.
What led to higher Employment Rate between 1999 and 2005?
Increase in infrastructure investment was the main factor behind this growth. 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 rose from 17 million in 1999-2000 to 26 million in 2004-2005.
- Investment in infrastructure rose strongly thereafter, and during the 11th Five Year Plan, infrastructure investment in the public and private sector together grew by $475 billion. The result was that employment in construction jumped from 26 to 51 million in 2011-12, trebling from the turn of the century.
Job growth since 2004:
After 2004, real wages increased significantly until 2012 and share of agricultural jobs came down. The combined effect of non-agricultural job growth plus real wage growth led to a boom in consumer demand 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.
- However, job growth has been much slower since 2012. According to Labour Bureau’s latest figures, 1.35 lakh jobs were created in 2015, the lowest figure since 2008, lower than the 4.9 lakh new jobs in 2014 and 12.5 lakh in 2009.
- Also, according to the report underemployment remains a major problem in the country. Only 60.5% of persons aged 15 and above who were available for work for all the 12 months were able to get work during 2015.
- 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. Unemployment for 15- to 17-year-olds is 10.2% and for 18- to 29-year-olds is 9.4% in 2013, but 0.8% for over- 30-year-olds.
Reasons for slow pace:
- 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.
- 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.
- Since 2004-2005, for the first time in Indian history, 5 million agricultural workers have been leaving agriculture per annum. They are mostly absorbed in low-skilled construction employment.
- 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.
- Education enrolment levels of youth joining the labour force have been increasing every year since 2010 or so. As a result, secondary gross enrolment ratio has increased from 62 to 79% between 2010 and 2014. The educated youth are unlikely to join agriculture and will look for non-agricultural jobs in urban areas.
Efforts by the government to revive the growth rate:
- The Ministry of Labour is finalising the scheme to offer to pay 8.33% 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.
- 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.
- 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.
What else needs to be done?
As we all know, 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. Also, ease of doing business improvement and infrastructure investment increases should improve the economic environment.
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 and reducing volatility in the output growth rate. India has already demonstrated an ability to generate at least 7.5 million new jobs annually over a 12-year period from 1999-2000 to 2011-2012 — or at least the same number as new entrants to the labour force. Going ahead, the revival of infrastructure investment will certainly create more construction jobs.