India’s job market suffers from a scarcity of good jobs, with hundreds of millions of people employed in informal, low-wage, insecure and precarious sectors such as agriculture. About 52 per cent of workers are self-employed, having been forced to create their own jobs to earn an income. Casual work makes up 25 per cent of the workforce, while only 23 per cent are regular salaried workers. Labour force participation is 50 per cent, meaning only half the working age population (those aged between 15 to 64 years) work, with an even lower female participation rate of 23 per cent compared to 67 per cent for males.
In 2017–18, 90.7 per cent of India’s employment was in the informal sector, characterised by a vicious cycle of low productivity where too many workers produce too little output. But the trend is not limited to the informal sector. Formal jobs are becoming increasingly precarious due to the growth of part-time, contract and non-union employment conditions.
The demand for jobs is mind boggling. Ajit Ghose, a former International Labour Organisation economist, estimated that India needs to create roughly 12 million jobs each year just to keep up with the influx of new workforce entrants. But open unemployment is a luxury the poor cannot afford — India’s challenge is underemployment. Workers struggle to find adequate hours of work, toil hard with abysmal wages and working conditions and suffer from the indignities of their social position.
India’s large young population is often seen as a demographic advantage compared to ageing societies in the West and East Asia. Fertility rates in those regions have fallen below the level necessary to replace the population, raising the spectre of labour shortages and declining tax revenues. But this demographic advantage might prove to be a burden for India as it struggles to identify sources of employment and create new opportunities.
There are competing views on which sector should be targeted to increase employment — one emphasises manufacturing and the other emphasises services. The conventional route to economic development has involved shifting workers from agriculture to industry. India has partly met this condition since 46 per cent of India’s employment is in low-productivity agriculture compared to 70 per cent in 1960. Given East Asia’s earlier manufacturing success, large-scale manufacturing has been advanced as a solution to absorb labour demand. India’s manufacturing as a share of GDP has remained flat. The expectation is that simple manufacturing can gradually lead to upgrading and diversification to higher-value manufacturing output.
An alternative approach is to leverage the services sector to create jobs. Former Reserve Bank of India governor Raghuram Rajan emphasises services growth such as more back-office jobs for the global IT and business services and the under-developed tourism sector.
From a practical point of view, the jobs question is not an either-or issue. Both manufacturing and services sectors could theoretically generate labour-intensive jobs. The question is how these jobs will be created. The Financial Times bemoaned India’s limited success in jobs creation but completely skirted the issue of why that is the case. From the demand side, investment in a wide range of activities such as infrastructure, textiles, energy or agriculture can raise aggregate demand and thus create more jobs. From the supply side, India’s competitiveness could be enhanced to attract investments by improving the quality of labour, getting rid of rigid labour laws, and fostering high quality infrastructure. Both approaches are reasonable but they ignore the contemporary reality of declining employment elasticity, which dropped from 0.38 to 0.11 between 1991-2000 and 2010-2018, and indicates that employment is not increasing as fast as GDP growth.
The answer to this puzzle is complex and must be sought at the macro-political economy level. There is evidence of premature deindustrialisation and compressed capitalism, a process by which a few sectors leapfrog to a similar level to advanced capitalist countries while the rest lag far behind due to different sectoral growth rates. Both suggest that the world economy is structurally different from what East Asia faced in the 1960s when a smaller pool of workers could be easily absorbed with simpler technologies. There is no easy solution to this puzzle. Today with heightened competition, businesses in labour abundant India are also compelled to adopt capital- and technology -intensive investments for competitiveness, thus generating fewer jobs.
Industrial strategies cannot be the same in a crowded world economy and while the services sector can drive up growth as the IT industry has done, it cannot solve the employment problem. The rewards of working are grossly unequal, favouring the few business owners, large employers, subcontractors and well-educated, skilled workers and professionals in the formal sector. The rest desperately scramble to accept whatever menial jobs come their way, which is not just limited to bellowing Eeb Allay Ooo to chase away monkeys.
Anthony P D’Costa is Eminent Scholar in Global Studies and Professor of Economics at The University of Alabama in Huntsville and Honorary Professor at the University of Melbourne. He is putting together The Oxford Handbook on the ‘New’ Space Economy (forthcoming).