India’s low-skilled labour force is rapidly growing while governments of all levels are changing labour laws drastically, which could have profound ramifications on India’s overall reform program and economic prospects.
However, these trends don’t come without risks: neither employment nor GDP growth is sustainable without strong productivity growth.
Employment Trends in India
The employment rate is an essential economic indicator that fluctuates depending on prevailing economic conditions. It tends to decline during economic expansion and growth periods, while it may increase during a recession or slowdown. Overall, it shows how many people are working, with higher numbers signalling a healthier labour market.
India boasts an extensive workforce, but it is essential to understand employment trends and their effect on GDP. According to data from the Periodic Labour Force Survey (PLFS), overall employment has increased while workforce composition is shifting. Specifically, younger Indians increasingly opt for casual and temporary work that does not guarantee secure income sources. At the same time, older workers drop out due to family responsibilities or debt obligations.
Noteworthy is India’s high percentage of informal sector employment; according to PLFS reports, more than half of employed individuals in the country are engaged in informal work, typically featuring low wages, insecurity and poor working conditions. Yet, this type of work has become more formalized in recent years and plays an increasing part in India’s economy.
Employment rates have been boosted by the agricultural recovery, assisted by better rains. This has increased crop production and enhanced rural economies, while in urban areas, employment rates have dropped since pre-pandemic times due to decreases in construction and retail trade jobs.
PLFS data shows that salaries are on the rise across most industries. Financial services, tech media and gaming, pharmaceuticals and biotechnology, chemicals and retail are anticipated to experience the largest salary increases by 2023; manufacturing durable goods manufacturing non-durable goods manufacturing, outsourcing business process outsourcing may experience lower increases due to greater dependency on outsiders for meeting their workforce requirements.
Unemployment Rates
Unemployment rates are one of the primary indicators of economic health. A high unemployment rate can impede economic progress and lead to social unrest; low rates indicate a healthy job market and a growing economy. Following employment trends closely is essential in making informed decisions regarding economic development.
As India’s economy expands rapidly, it is essential that it creates enough jobs for its ever-increasing population. Unfortunately, however, creating sufficient employment is no simple task, and according to a report by Azim Premji University, youth unemployment is on the rise, and many young Indians cannot find work. This alarming trend threatens India’s position as one of the premier global economies just when its development appears poised for a breakthrough.
The COVID-19 pandemic has made accurate employment data difficult to come by in India. Still, according to data from the Centre for Monitoring Indian Economy (CMIE), unemployment rose to 8.3% in March – its highest point since December 2018! Labour participation also dropped significantly as millions left the labour force to harvest rabi crops again.
The decline of the labour market can largely be attributed to the decline in construction and retail trade employment. According to estimates by CMIE, construction employment dropped by 7.8 million between December and March alone. As India continues its rapid economic development, India must create enough jobs to keep pace with population growth and prevent unemployment from increasing further. But in practice, creating enough jobs to keep pace with economic expansion is no simple task. Ajit Ghose of the International Labour Organization estimates that India requires 12 million new jobs annually to accommodate its workforce entrants.
Skilled Labor Force
India is home to an enormous workforce; India boasts the second-largest domestic labour market behind China and is larger than those in both the United States and the EU combined. Unfortunately, however, many individuals lack key employable skills. While the government aims to upskill through vocational training programmes, its efforts are often hindered due to a shortage of available jobs.
Even when jobs are available, they often provide low wages and poor skills training. A recent survey indicated that of the 3.5 million students undergoing skills training who remained unemployed after attending skills institutes were often frustrated with wages and working conditions in any jobs they found; many who found employment have reported frustration over wages and conditions as a result of inadequate management at vocational training institutes that offer mundane courses like fixing car engines using carburettors formerly phased out in the 1990s.
India relies heavily on employing its young people, which will boost its future economic growth prospects. India must leverage its demographic dividend, with 12 million newcomers entering the workforce every year over the next decade – but without skilled personnel available, hundreds of billions in potential growth may be missed out on.
There may be various reasons behind the mismatch between skills and jobs in India. One is that its system rewards knowledge over practical skills; this may be compounded by caste-based prejudice against manual work in certain communities. Another cause could be that vocational training providers provide subpar vocational courses; according to government research, only about 50% offer high-quality vocational courses.
Government plays a vital role in matching employers with qualified candidates. It does this through job fairs and its Employment Guarantee Scheme, which offers minimum wages to those unemployed for six months or longer. A more systematic approach would include tracking labour markets regularly to reduce any skewness in data and create a clearer view of economic dynamics.
Occupational Structure
As India emerges from a pandemic-induced economic lockdown, recent data from private agencies such as the Centre for Monitoring Indian Economy (CMIE) demonstrates that its employment situation remains poor. For instance, female labour force participation rates have yet to return to pre-pandemic levels, while youth continue to prefer casual over permanent salaried positions.
There are also signs that the labour market is experiencing some structural transformations. Between 2011 and 2015, employment declined overall but increased significantly for non-farming occupations by 33 million workers. Furthermore, agriculture now only makes up 25% of employment while many of its jobs are low-paying.
The growth rates vary across occupations: white-collar jobs in manufacturing, sales and elementary services, as well as construction trade and transport, have higher growth rates; blue-collar employment, like mining, agriculture, and fishing, have much slower ones, while those classified as elementary such as labourers in household industries experience the slowest rate.
Employment data further highlights India’s volatile and precarious employment environment, according to data from the National Sample Survey 68th Round of Microdata on Employment and Unemployment (2019-2020). Job stability has decreased; more than half of full-time positions now count as part-time, contract or informal arrangements.
This trend can partly be explained by the rise of informal sector employment, fuelled by government policies. Since 2017, both the introduction of Goods and Services Tax in 2017 and the demonetization of high-denomination currency in 2016 have resulted in increases in formal wages and employment; however, these gains seem to have had little impact on informal job creation; therefore, the average wage differential has dropped substantially during this period; coupled with falling full-time job numbers, this has encouraged workers to seek unreliable self-employment opportunities instead.
GDP Impact
Heavy labour shortages have had a depressing impact on job growth. Over time, however, an acceleration in economic activity should lead to lower unemployment levels.
Employment and GDP have an inextricable link. While, in general, economic expansion tends to lead to greater employment creation, there can be variations due to various reasons.
Employment Growth
The global labour market is experiencing unprecedented change. Many are reconsidering traditional 9-5 workdays as families opt to have one member shoulder the financial responsibility instead of two. Meanwhile, technology has revolutionized workplace environments by encouraging companies to restructure to be more efficient while simultaneously training employees with new skills.
Employment growth rates tend to be higher in economies with high productivity levels; however, this correlation does not hold for every industry; for instance, agriculture typically experiences lower job creation growth than services.
Studies using regression techniques to estimate the impact of local total employment on industrial employment growth vary due to variations in specification influencing estimated effects. Combes (2000) is notable in using density variables with significant positive effects on industrial employment growth in France; other studies found no such connection. Other explanatory variables like education and health factors also affected the employment-to-GDP ratio.
Unemployment Rate
The unemployment rate is one of the most closely watched indicators of economic activity. When unemployment rates are low, consumers have more money available to spend on goods and services, leading to greater demand and stimulating economic growth, prompting companies to hire more workers and creating a cycle.
The Bureau of Labor Statistics measures unemployment by counting those who neither work nor search for work but reported doing so at some point within the last four weeks – this group is known as the “labour force.” Furthermore, the government tracks underemployment, including those working part-time but who desire full-time work or are “marginally attached” to the labour force.
Historically, GDP and unemployment rates have been linked; a one per cent decline in GDP is linked with less than a 2 percent increase in unemployment – an observation known as Okun’s Law. But since the pandemic began, that relationship has changed drastically.
Employment-to-Population Ratio
Economists closely track the employment-to-population ratio as it provides a more accurate depiction of employment trends than unemployment figures alone. This is because the ratio includes people who are not currently searching for work but have employment themselves, while unemployment figures only include those who are actively searching.
However, this ratio does have its limitations. It does not consider certain key aspects, including how many individuals are imprisoned or hospitalized for mental illness, nor does it distinguish between part-time employment and full-time employment; plus, it doesn’t consider labour used in black markets.
Ratios remain an effective means for understanding trends and comparing countries or regions. High ratios might signal robust economic conditions with low unemployment rates; low ratios often coincide with economic recession.
Productivity
Economics may benefit from increased productivity for many reasons, including economic expansion. Productivity growth enables workers to produce more goods and services without increasing labour hours – this can be accomplished through investing in faster equipment, hiring highly skilled employees or cutting material waste.
Some regions, cities, and firms are known for their outstanding productivity levels. Seattle led Washington State in productivity between 2007 and 2019 by more than tripling it compared to national average growth – contributing over two-thirds of GDP growth!
Paying close attention to productivity trends has implications for all members of an economy, including employees and investors, government policymakers, and tax revenue collections. If productivity decreases, fiscal deficits could emerge; conversely, if productivity rises, then surpluses might emerge – keeping an eye on productivity trends can also help determine how much tax revenue a country receives each year.
