Opinion Where are the high productivity, better quality jobs in India?

A high and rising unemployment rate is evidently not a potent political tool in India. Between inflation and unemployment, the two economic indicators conjoined theoretically by the Phillips curve, it is inflation that wields political power.

Inflation hurts almost the entire population. Equally importantly, high inflation rates can upset financial markets that in turn exert pressure on regulators to keep inflation in control. The unemployment rate does not have such a constituency.

Unemployment directly impacts only the unemployed, who don’t count much. A 7 per cent unemployment rate impacts less than 3 per cent of the population. Worse still, society perceives being unemployed as an individual shortcoming, and not an outcome of a macroeconomic malaise. The victim suffers the ignominy, not the system. The unemployed are seen as inadequately educated, awkward or not smart. Implicit in this thinking is the fallacious belief that if these people were to work harder and be sharper, they could all find jobs.

While unemployment cannot be a political tool, employment can be one, and this potential manifests in the form of demands for jobs reservations. The dearth of employment opportunities, of course, lends potency to reservations as a political tool. Lack of adequate jobs is an economic problem that merits more analytical and policy attention than the political attention it gets in India.

The unemployment rate is not the most important labour market indicator for a country like India. The unemployment rate is a measure of the economy’s inability to provide jobs only for those who seek work. But, in India, very often people do not look for jobs in the belief that none are available. Technically, this shows up as a low labour force participation rate (LFPR). India’s LFPR is at around 40 per cent when the global rate is close to 60 per cent. It is important that this belief in the futility of a job hunt is overcome by an explosive creation of new good quality formal jobs. Good quality formal jobs are so few that nothing short of explosive growth in their numbers will help overcome the current otiosity.

In a country of over a billion adults, there are less than 80 million salaried jobs. Where would the remaining 920 million go to find employment? More than half opt to not seek any work. The remaining are self-employed as farmers, daily wage labourers and entrepreneurs of all kinds. For the farmer or the daily wage labourer or the small entrepreneur, the status of being unemployed or opting not to seek work is dynamic and even fuzzy. When jobs start to become scarce, does the daily wage labourer become unemployed or does she drop out of the labour force? This is a state of the mind that is a jumble of hope, effort and ennui. Seen from the lens of this often-blurred status, interpreting the unemployment rate is challenging.

Employment can be real if we don’t reduce its meaning into a laughably relaxed definition as the official system does. You are declared employed if you are engaged in some economic activity for just one hour in any of the past seven days.

A useful labour market metric for a country like India is the employment rate. This measures the proportion of the population over 14 years of age that is employed. We use CMIE’s definition of employment that requires a person to be employed for a better part of a day to qualify.

India’s record in providing employment to its people has been abysmally poor. In 2016-17, only 42.8 per cent of the working age population was employed. This fell to 41.7 per cent in 2017-18 and further to 40.2 per cent in 2018-19, and then to 39.5 per cent in 2019-20. In the year of the pandemic, it fell to 36.5 per cent. It did not recover from this low level in the first five months of 2021-22.

The count of the employed was 408.9 million in 2019-20. In August 2021, employment was much lower at 397.8 million. India still provides 9.2 million jobs less than it provided before the pandemic. And, employment continues to fall. It fell by nearly 2 million from 399.7 million in July 2021. A reverse-migration is underway. People are moving away from factories as manufacturing jobs shrink, to farms that provide shelter largely in the form of disguised unemployment. In August, even the farms could not absorb the excess labour spilling out from factories and offices. Labour moved to providing odd services to the household sector and into retail trade presumably as delivery boys.

With due respect to all forms of labour, it cannot be the desire of a nation to move people away from high productivity, better quality jobs in manufacturing to low productivity employment in agriculture or as gardeners or security guards in the household sector. Employment opportunities need to expand in areas where labour is deployed to deliver higher productivity for enterprise and higher returns to labour. This is not the direction we see.

A large part of the solution to this lack of adequate jobs is in increasing investments. For this, the investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.

This column first appeared in the print edition on September 18, 2021 under the title ‘A job to do’. The writer is Managing Director & CEO, Centre for Monitoring Indian Economy.