Context: Despite robust economic expansion, the employment ratio of India has fallen more than other south Asian nations. This has re initiated the debate around the phenomenon of jobless growth in India.
Associated concepts:
- Employment rate: It is a macroeconomic statistic that measures the civilian labor force currently employed against the total working-age population of a country. Present employment rate of India is 37 percent.
- Jobless growth: Jobless growth refers to a situation in which an economy experiences economic growth (typically measured by GDP or other economic indicators), but this growth does not lead to a proportional increase in employment opportunities or a decrease in unemployment rates.
Reasons for jobless growth in India:
- Mismatched Skill Sets: There exists a gap between the skills demanded by the industries and those possessed by the workforce. The education system often fails to equip students with the necessary skills for the job market, leading to unemployment or underemployment.
- A study by the National Sample Survey Organization (NSSO) found that a significant percentage of graduates in India were unemployed or underemployed due to a lack of relevant skills.
- Labor Market Rigidities: India's labor laws are often criticized for being rigid and complex, making it difficult for businesses to hire and fire workers. This discourages formal job creation and incentivizes informal employment.
- The World Bank's Ease of Doing Business report consistently ranks India low in terms of ease of hiring and firing workers due to stringent labor laws.
- Informal Sector Dominance: A significant portion of India's workforce is employed in the informal sector, which often lacks job security, social protection, and decent wages. Economic growth may not translate into formal job creation, leading to jobless growth.
- According to the International Labour Organization (ILO), the informal sector in India accounts for a significant portion of employment, particularly in sectors such as agriculture, construction, and small-scale industries. Despite economic growth, many workers remain trapped in low-productivity, informal jobs with little job security or social protection.
- Technological Disruption: Automation and technological advancements have the potential to replace labor-intensive jobs, particularly in sectors such as manufacturing and agriculture, without creating equivalent new job opportunities.
- There are case studies of decline of jobs due to the impact of Industrial Revolution 4.0, AI, ML, Robotics and 3-D printing etc. There are also examples of job losses among urban women due to violence, travel time etc. and rural women due to mechanization of agriculture.
- Slow Pace of Industrialization: India's industrial sector has not grown at the pace required to absorb the burgeoning workforce. This has resulted in a significant portion of the population being employed in low-productivity sectors such as agriculture.
- Population Growth: India has a large and growing population, which puts pressure on the job market. Despite economic growth, the pace of job creation may not keep up with the expansion of the labor force.
- Infrastructure Bottlenecks: Inadequate infrastructure, such as transportation, power, and logistics, can hamper the growth of industries and limit job creation opportunities.
- Manufacturing sector in India faces challenges related to inadequate infrastructure, such as power shortages, poor transportation networks, and inefficient logistics.
- Policy Challenges: Inconsistent or ineffective government policies, including regulatory hurdles, bureaucratic red tape, and lack of investment in key sectors, can hinder job creation and economic growth.
- The implementation of the Goods and Services Tax (GST) in India faced initial challenges, including compliance issues and administrative complexities. These challenges affected businesses, particularly small and medium enterprises (SMEs), leading to disruptions in supply chains and impacting job creation in the informal sector.
- Unemployment rate rising with education levels: With rising education levels, the aspirations of the youth are rising, they are not satisfied with the indecent and low-quality jobs and seek better quality jobs.
- As per an IIM Lucknow study, the unemployment rate for the illiterate and less educated class (below primary) was 0.57% and 1.13% respectively while, for the highly educated class (graduates and above), it was 14.73% in 2020–21 for the age group ‘15–29 years.
Suggestions and way forward:
- Gender-related laws: Legislation promoting gender equality in workplaces, pay, and marriage increases women's labor supply and mobility, based on studies (Braunmiller et al. 2023a, 2023b; Roy 2019), often measured using World Bank's Women, Business, and the Law indices (Hyland, Djankov, and Goldberg 2020).
- Efficient land markets: Policies improving land tenure security, documenting land rights, and transparently resolving land disputes enhance efficiency (World Bank 2007). Success depends on local conditions, implementation quality, and community involvement (Deininger 2003).
- Openness to international trade: Streamlining border procedures, reducing trade barriers, improving logistics, and attracting foreign direct investment can boost trade openness (Ohnsorge and Quaglietti 2023; World Bank 2023b).
- Competitive product markets: Simplifying labor and tax regulations, removing subsidies for state-owned firms, and promoting private sector dynamism enhance competition (World Bank 2020).
- Infrastructure investment: Investing in infrastructure boosts employment by reducing travel costs and times, facilitating market access, and enhancing productivity (Lakshmanan 2007, 2011).
- Improved human capital: Enhanced skills enable easier employment transitions, especially from agriculture to non-agriculture sectors.
- Female labor force participation and exports: Export-oriented sectors, driven by open trade policies, tend to promote gender equality and attract women into the workforce (Hoyos, Bussolo, and Núñez 2012). Examples include Bangladesh's garment sector and India's business processing and outsourcing industry (Jensen 2012). Similar trends are observed in Morocco, Tunisia, and Turkey (Klasen 2019).
India’s economic growth is promising, but job creation remains significant challenges. Addressing these issues requires a focus on mass education, industry specific skill development, conditions for labor-intensive manufacturing along with creating a safer environment for women in the workforce.
