Amartya Sen had once quipped that India’s unemployment figures were low enough to put many developed countries to shame. Professor Sen was, of course, not commending the country’s record in employment creation, but instead, highlighting the difficulties involved in measuring employment and unemployment in a developing country.
Unemployment has been at the centre of public debates in India recently. The government’s Periodic Labour Force Survey carried out in 2017-18 revealed that unemployment in the country reached an all-time high rate of 6.1%. What explains this sudden jump in unemployment in India, which had remained at a rather low rate of around 2% for several decades?
Our estimates based on official employment surveys and the Census show that in 2018, there were 471.5 million persons employed and 30.9 million unemployed in India. At the heart of the unemployment problem in India were young, unemployed men aged 15 to 29 years who comprised 21.1 million or 68.3% of all the unemployed in the country. To understand how their numbers rose recently, we need to examine the behaviour of not just labour demand but also labour supply over time.
Rising numbers of job seekers
First, the size of labour supply in India is getting a boost from the rapid expansion of the working-age population in the country — the population of 15-59-year-olds increased at the rate of 14 million a year in the 2000s.
Second, the nature of labour supply is changing too, with increasing enrolment of young adults for education and their rising job aspirations. Of all 15-29-year-old females in India, 31% had been attending schools or colleges in 2018, up from 16.3% in 2005 (although, it needs to be mentioned here that there have been questions on the quality of education received and skills acquired by these young people).
Third, the size of the workforce engaged in agriculture (and allied activities) has been declining in India: from 258.8 million in 2005 to 197.3 million in 2018 (which still accounted for 41.9% of the total workforce in the country). This decline has been partly due to the ‘push’ from low-productivity agriculture, which has suffered due to stagnant public investment from the 1990s onwards. The decline has also been driven by the ‘pull’ of new opportunities that emerge in the towns and cities. A significant number of people who are ‘employed’ according to official statistics could actually have been in ‘disguised unemployment’ in agriculture (consider a person who does no job but occasionally assists his family in cultivation). Young persons in rural areas will be increasingly keen to exit disguised unemployment in agriculture.
As a result of the above-referred factors, there has been a significant increase in India in the supply of potential workers for the non-agricultural sectors. These are 15-59-year-olds who are not students nor engaged in agriculture. If provided the relevant skills, they could possibly work in industry, construction and services. Our estimates show that the potential non-agricultural workforce in India grew at the rate of 14.2 million a year between 2005 and 2012, which rose further to 17.5 million a year between 2012 and 2018.
How has the growth of labour demand matched up to the job challenge in India? Between 2005 and 2012, construction had been the major source of employment in India, absorbing men who exited agriculture in rural areas, especially in Uttar Pradesh, Rajasthan, Bihar and Madhya Pradesh. The growth of construction jobs was associated with a revival in agricultural incomes and rural wages during this period.
Labour demand lagging behind
However, the growth of agricultural incomes and the rural economy in India slowed down markedly after 2012. New employment opportunities in construction created in rural India amounted to 18.9 million between 2005 and 2012, which fell sharply to 1.6 million between 2012 and 2018. The size of the manufacturing workforce in India declined by one million between 2012 and 2018, with micro and small firms in the informal sector suffering severe setbacks. At the same time, some segments of the services sector, especially education and professional, business and allied services recorded acceleration in employment growth after 2012. The crisis in the rural economy appears to have been moderated to some extent by an increase in governmental spending in 2016-18.
Even from 2005 to 2012, job creation in industry, construction and services in India (at the rate of 6.3 million a year) was inadequate to absorb the increase in potential job seekers into these sectors (at the rate of 14.2 million a year). Between 2012 and 2018, while the supply of potential workers into the non-agricultural sectors accelerated (to 17.5 million a year), actual labour absorption into these sectors decelerated (to 4.5 million a year). Thus, the mismatch between potential supply of and demand for labour deepened after 2012. While only the women suffered due to the mismatch during 2005-2012, young men were also affected after 2012. In fact, 30-59-year-old men managed to secure 90.4% of all new non-agricultural employment opportunities that emerged in India between 2012 and 2018, leaving too few new jobs for women and younger men.
Faced with the inadequate number of new jobs generated in the economy, women withdrew altogether from the labour market. Of all 15-59-year-old women in India, only 23% were employed in 2018, down from 42.8% in 2005. Correspondingly, there had been a sharp rise in the proportion of women who reported their status as attending to domestic duties in their own households. At the same time, the response of young men to the slow job growth in the economy was to continue in the labour market as job seekers. Among 15-29-year-old men, there was an unprecedented increase in the number of the unemployed, from 6.7 million in 2012 to 21.1 million in 2018. This was indeed the main contributor to the sudden increase in overall unemployment in India.
India faces a tough challenge in creating decent jobs for its growing young population. To tackle this, action will be needed on multiple fronts including investments in human capital, revival of the productive sectors, and programmes to stimulate small entrepreneurship. If the country is unable to make effective use of the strengths of its young women and men now, it can perhaps never do so. Within the next two decades or so, India’s population will gradually start getting older, and it will be tragic for millions of poor Indians to grow old before getting even moderately rich.
Jayan Jose Thomas is Associate Professor, IIT Delhi. Views expressed are personal