Insights into Editorial: The mega challenge of job creation
Summary:
While on one side the challenge of creating jobs has occupied the centre stage world over, on the other side the latest NSSO report notes that unemployment rate was only 2.2% of the labour force in India. This makes it difficult to measure the scale of problem.
What’s the real scenario?
The data released by the NSSO are misleading because many of those shown as employed in the survey are actually engaged in low-paid jobs that they take up only because there is no alternative. Economists call this “disguised unemployment” or “underemployment”. Besides, many applications to any government job doesn’t mean that unemployment rate is high. Since government jobs at the lower levels pay much better than the market rate, those employed in the private sector want to switch to government jobs if they can.
A recent survey of youth unemployment shows that educated youth face greater problems. The unemployment rate for 18-29-year-olds as a group is 10.2%, but for illiterates it is only 2.2%, rising to 18.4% for graduates. As more and more educated youth enter the workforce in future, we can be sure that unless the quality of jobs available for them improves dramatically, dissatisfaction will mount.
What structural changes are needed to address these problems?
- The workforce employed in agriculture must decline. For the agricultural sector to be productive, it should not be overburdened with the increased labour. This places a huge burden of on non-agricultural employment, which will have to expend sufficiently to absorb the shift out of agriculture plus the normal increase in the total workforce.
- Expectation from manufacturing as a provider of non-agricultural jobs should be reduced. Faster growth in manufacturing has long been central to our economic strategy and must remain so. However, we have to recognize that technological change is likely to make manufacturing less employment generating than in the past.
- Another structural change needed is a shift from informal sector employment to formal sector employment. The NSS data for 2011-12 showed about 243 million people employed in the non-agricultural sector, and as many as 85% of these were in the “informal sector”, including both self-employment and wage employment. However, much of the demand for “high quality” employment opportunities today is a demand for jobs in the formal/organized sector. A shift away from the unorganized/informal sector to the organized/formal sector is desperately needed if we want to meet the expectations of the young.
Creation of more jobs:
- The biggest opportunity for generating more employment in manufacturing lies in exporting simpler consumer goods to the world market, an area which China has long dominated, but which it is now likely to exit, as its wages rise. How well we can do this depends upon our ability to compete with others such as Bangladesh, Vietnam.
- Becoming competitive would involve faster modernization of these industries, which will involve a shift away from labour intensity, but if it allows an increase in the scale of operations, total employment could increase.
- Small and medium enterprises generate much more employment than large capital-intensive enterprises but we have not done enough to encourage this segment. There are too few middle-sized firms, employing between 100 and say 1,000 workers, and it is these firms that can upgrade technology, increase productivity, and demonstrate competitiveness in world markets. The policies needed to develop this middle group include lowering of corporate tax rates and abolition of incentives that favour more capital-intensive units, better public infrastructure and better access to finance.
- Start-ups are a new phenomenon and India has made a good beginning in this area. Technically skilled and business-oriented youth should be encouraged to explore the entrepreneurship option, and create jobs, rather than looking for secure wage employment.
Conclusion:
It is obvious that no single policy initiative can achieve all the structural changes listed above. Multiple interventions are needed at different levels. Job-creation needs to be an essential axis along which economic and social policies are formulated.
