Dividend or nightmare

How government addresses the jobs challenge will make the difference.

Written by Santosh Mehrotra | Updated: December 5, 2014 5:15 am
Though the population that crosses over into the working-age group is growing, it is doing so at a slowing pace. India’s demographic dividend will end in 25 years at most. Though the population that crosses over into the working-age group is growing, it is doing so at a slowing pace. India’s demographic dividend will end in 25 years at most.

How many jobs must be created to realise our demographic dividend (or avoid a nightmare)? Half of India’s population is below 25. The worst-case scenario is that enough jobs are not created for the millions entering the labour force each year, and that this semi-educated mass becomes a force driving social conflict.

The reason that East Asian countries (especially China) rode the wave of the demographic dividend and dramatically reduced poverty is that they rapidly created jobs for those with education joining the labour force, as well as those leaving agriculture for better opportunities in industry and services, especially in export-oriented manufacturing.

But now that international demand has collapsed, India will have to rely to a greater extent on domestic demand to create jobs. Can the government’s “Make in India” programme lead to private industry and the service sector creating enough jobs to absorb those entering the labour force?

Fearmongers will tell you that 12 million persons are joining the labour force every year — or that one million entrants must be provided jobs every month ( that’s 30,000 new jobs a day). This myth-creating number derives from a misinterpretation of the National Sample Survey (NSS) estimate that 60 million people entered the labour force in the first half of the last decade, implying that the same number of people have been entering the labour force ever since. This is the modern version of the earlier scare that “population growth will overwhelm India’s economic growth”.

Population growth has slowed to 1.4 per cent per year. In fact, the zero-six age population was not higher in 2011 than in 2001. The implication is that though the population that crosses over into the working-age group is growing, it is doing so at a slowing pace. India’s demographic dividend will end in 25 years at most.

So, how many industrial and service-sector jobs need to be created every year over the eight year period, 2011-12 (the year of the last NSS estimate) to 2019-20 (the terminal year of the new government’s tenure)?

To set the upper limit of the labour force size, we assumed that the labour force participation rate of those with secondary-and-above education would, instead of remaining the same, increase by 5 percentage points. In that case, the size of the labour force would increase by about 63.6 million, an average of 7.8 million per annum. Providing employment to this number is achievable, since in the period 2004-05 to 2011-12, 7.5 million jobs were created in industry and services (the same as over 1999-2000 to 2004-05).

The number of jobs that “Make in India” must create is nowhere close to the 1 million per month that scare-mongers are “warning” us about. The demographic nightmare can be avoided, provided the requisite number of jobs are created. It has been done before.

The second point is that as young people get more educated, they will not want to work in agriculture (currently the biggest employer — it engages half the workforce). They will want semi-skilled/ skilled jobs in construction, which currently employs 12 per cent of the workforce and is exhibiting the fastest growth. They will want jobs (casual, regular or self-employment) in manufacturing or services. So non-agricultural jobs must be created.

The third point is that a rising share of those educated, at least up to the secondary level, will be girls. The labour force participation rate for women in India is one of the lowest in the world. This is set to change, provided appropriate non-agriculture jobs exist, such as in garment manufacturing or modern services. Is the government ready to create the enabling environment to meet the demand for such jobs?

The fourth point is that jobs have to be created, not merely for those just joining the labour force, but also for those leaving agriculture for better-paying construction-sector work. For the first time in India’s economic history, the absolute number of those in agriculture has been falling — since 2004-05. For the new NDA government, this is a very different reality from the one it faced between 1999-2000 and 2004-05, when the absolute numbers in agriculture actually grew by 20 million — a retrogressive development. Roughly five million people left agriculture for non-agri jobs during the UPA period. Jobs will have to be created for such migrants.

However, this last challenge is in some ways the easiest to address. If investment in rural and urban infrastructure, housing and rural public works is sustained, the unskilled who leave agriculture will get absorbed in construction, as they have been for the last decade or more. But the first three challenges are much more serious, especially if the new jobs are to be organised-sector, formal jobs. Are the government and the private sector ready?

The writer is professor at Jawaharlal Nehru University, Delhi, and author of ‘Policies to Achieve Inclusive Growth in India’ (forthcoming)

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