Where are the jobs?

ONE OF the mysteries of the experience with reforms in the past decade is the slower growth of employment alongside a more rapid growth of the Indian economy. Or to put it simply, why did not faster growth translate into more jobs in the 1990s? Another mystery is why when the reforms were supposed to give a major push to labour-intensive growth of the manufacturing sector did the economy instead end up with an expanding service sector, which was also where a larger proportion of new jobs were created. Both phenomena were poor advertisements for economic liberalisation and provide one good explanation for why the reform process is still viewed with so much suspicion by wage workers and job seekers outside the high salary ``islands'' of the service sector.

If one is looking for answers for these very important questions in the report of the Task Force on Employment Opportunities which was submitted earlier this week to the Deputy Chairman of the Planning Commission, then we will find none. This study instead has focussed for the larger part on what needs to be done to accelerate the annual growth of the gross domestic product (GDP) to 8-9 per cent a year. Indeed the report of the task force, which was headed by Mr. Montek Singh Ahluwalia, then Member of the Planning Commission and soon to take up office as the first Independent Evaluator of the International Monetary Fund, comes dangerously close to arguing that there was no problem of ``quantity'' on the employment front during the 1990s and the challenge really then and now is creation of ``high quality'' employment opportunities. The task force was constituted to study the employment/unemployment situation and also to suggest ways in which one crore jobs could be generated every year over the next decade.

The employment trends in the 1990s as revealed by the National Sample Surveys are clear enough. The unemployment rates for all other than urban women increased between 1993-94 and 1999-2000. One can argue with considerable justification that open unemployment - even according to the most inclusive measure - has little meaning in a society where there is no state support for the unemployed. The only alternative to finding whatever work is available at whatever the wage is starvation and possibly death. This explains, as the task force itself observes, the wide difference between unemployment rates (around 7 per cent of the work force) and the official poverty ratio (26 per cent of the population) in 1999-2000.

What cannot be ignored is the deceleration in employment growth during the 1990s, estimated in the report to be just 0.98 per cent between 1993-94 and 1999-2000, compared to over 2 per cent in 1983-94. An incomplete and unconvincing explanation is offered for this slowdown in employment growth. It is that the labour force (the number of people working and those looking for work) grew more slowly in the 1990s. There was indeed a deceleration in the growth of the labour force between 1993-94 and 1999-2000. One reason for a more slowly growing labour force in the 1990s was the decline in the proportion of children who were working, presumably because of rising school attendance which is a good thing in itself.

The slower expansion of the labour force in the 1990s does make the gap with employment growth look smaller than it would otherwise have been. But this still does not explain why new work opportunities were created at a slower pace than before, in spite of the economy growing more rapidly than in the past. All we have in the report is just one bland statement: ``The low employment elasticity in the 1990s reflects the fact that employment growth decelerated in this period while GDP growth accelerated.'' (The elasticity here is the amount of additional employment generated for every unit increase in the GDP.) Why did this happen? What needs to be done to change this phenomenon? These are apparently questions which do not matter. The disconnection between economic and employment growth does not seem to be an important issue. A slowdown in employment growth alongside a faster growth of the economy should have at least led to a sharp increase in wages, indicating a tightening of the labour market. The real wage rate did increase in the previous decade but the rise could hardly be described as reflecting a tight labour market.

The other unusual feature of the task force's discussion of employment trends in the 1990s is the analysis of the reasons for why the labour force was increasing at just over 1 per cent a year even as the population was growing at close to 2 per cent annually. Many explanations are offered, but a discussion of one possible reason is conspicuous by its absence. It is that people may be opting out of the labour force because the employment situation has worsened and there is little chance of finding work even if they looked for it. Such ``involuntary'' withdrawal from the labour force during the 1990s would be consistent with the deceleration in employment in the same period. Of course, the point was made earlier that on the lower rungs of Indian society you cannot afford to opt out of the labour force. But this involuntary withdrawal is feasible within families as long as at least one bread-winner finds some work. The sharpest decline in the labour force participation rates between 1993-94 and 1999- 2000 was among women in the rural areas. That may have happened because the employment scenario in traditional women work areas worsened considerably while the male members of rural households continued to find some work. This is not to suggest that a involuntary withdrawal did happen and was an important reason for the slowdown in the growth of the labour force in the previous decade. But when the report refuses to even discuss the issue, an impression is created that here as elsewhere any (possible) negative trends are best not acknowledged. What you do not want to look at is not happening.

It is self-evident that employment cannot grow in the absence of economic growth. So faster economic growth is necessary for keeping pace with the labour force growth. It is also an unexceptionable argument that India needs ``good quality'' economic growth so that as much as possible of organised and regular work opportunities are created. But there is the old question of whether it is sufficient to just accelerate economic growth. The important issue that needs to be resolved from the experience of the 1990s is what needs to be done to translate rapid economic growth into rapid employment growth. The task force has instead expended a considerable amount of energy to demonstrate what the employment scenario will be if the economy grows at 6.5, 8 and 9 per cent a year during the Tenth Plan. This it does by juggling with the current employment elasticities in each sub- sector of agriculture, industry and services. The exercise naturally ends up showing that 70 per cent of future work opportunities will be created in services. Domestic industry then might as well give up all hope for any revival while India continues on the improbable path to becoming ``a modern post- industrial service economy'' by altogether skipping the development of a mature manufacturing sector.

The task force has also spent a considerable amount of time discussing what macro-economic policies need to be discussed to accelerate economic growth. Therefore the discussion of fiscal, trade, industrial, agricultural and labour policies naturally covers everything possible from subsidies to promotion of foreign investment. It, therefore, reads more like it belongs to the final Tenth Plan document than one that was to focus on employment.