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How will Modi fix the terrifying jobs crisis?

By Shankar Acharya
December 03, 2019 12:41 IST
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'The rise in unemployment, underemployment, discouraged workers and job insecurity is likely to continue, with very adverse consequences for the nation's economic well-being and social cohesion,' warns Shankar Acharya.

Illustration: Dominic Xavier/

Illustration: Dominic Xavier/

India's large and growing working age population, currently numbering close to a billion, is her greatest potential resource for rapid and sustained economic development.

Sixteen years ago, I had warned that this demographic dividend could be squandered in the absence of the right policies.

Since then, successive governments have persisted with wrong or weak policies and programmes, including a poor public education and skilling system; an extremely complex and anti-job-creation maze of labour laws; trade and exchange rate policies that discourage labour-using exports and import-competing domestic production; poor infrastructure that undermines productivity and connectivity; a chronically weak edifice of public sector banks; and avoidable major policy shocks like demonetisation.

The recently published (June 2019) Periodic Labour Force Survey for 2017-2018 brings out the dismal consequences.

The table shows the serious worsening of India's employment situation in the 13 years between 2004-2005 and 2017-2018, according to nearly all key indicators, especially after 2011-2012:

The open unemployment rate has almost tripled since 2011-2012 to 6.1%.

Since the poor can rarely afford to be unemployed, much of this increase reflects a surge in educated unemployed.

The youth (15 to 29) unemployment rate has also tripled to an unprecedented 17.8% in 2017-2018, reflecting the growing paucity of jobs.

Interestingly, and as one would expect, the youth unemployment rate in 2017-2018 rose steeply with the level of education, from 7.1% for illiterates to 14.4% for secondary school and further to a staggering 36% for graduates and post-graduates.

This data is fraught with potential for serious social and economic distress and discontent.

Perhaps even more distressing than the trends in open unemployment are those in labour force participation rates (LFPR).

This refers to the ratio of those employed or seeking employment to the working age population (above 15).

The LFPR has fallen substantially, from 64% in 2004-2005 to just below 50% in 2017-2018.

That means less than half of India's working age population have jobs or are seeking work!

Unsurprisingly, total employment in India actually fell by a few million between 2011-2012 and 2017-2018, for the first time since 1972-1973, when the official national sample surveys of employment conditions was first conducted.

Much of the decline in the overall LFPR is because of a steep fall in the female LFPR, from 43% in 2004-2005 to a pathetic 23% in 2017-2018.

This compares poorly with female LFPRs (in 2018) of 61% in China, 52% in Indonesia and 36% in Bangladesh.

Nor can this precipitous decline in female LFPR be explained away by higher rates of female enrolment in education, since the 20 percentage point drop in LFPR is observed among both the 30+ age group (down from 46% to 27%) and female youth (down from 37% to a heartbreakingly low 16%).

The current and future implications for overall female economic and social empowerment are deeply saddening.

In their paper (see table for full reference), Santosh Mehrotra and Jajati Parida (henceforth MP) attribute the steep declines in India's LFPR to the phenomenon of discouraged workers (they call it 'disheartened labour force'); that is job aspirants simply drop out of the labour force because of persistent failure to get jobs.

Focusing on youth (15 to 29), they define this category as equal to the PLFS-based numbers on youth 'Not in Labour Force, Education and Training (NLET)'.

This number has increased from 70 million in 2004-2005 to 100 million in 2017-2018.

Taking their maximalist definition of disheartened labour force to its logical conclusion, and adding NLET both to the usually defined labour force and unemployment, we would have 125 million 'unemployed' out of an 'adjusted labour force' of about 240 million, giving an 'adjusted youth unemployment rate' of 52% in 2017-18!

Even if only half the NLET were taken as 'disheartened workers', one would get a youth unemployment rate of nearly 40%.

The trajectory of sectoral employment shares over time also shows distressingly slow shift of labour from low productivity agriculture to higher productivity industry and modern services.

Even in 2017-2018, agriculture still accounted for 44% of national employment, much higher than in all other G-20 countries.

Worse, the share of industry (including construction) was stagnant between 2011-2012 and 2017-2018.

Most disappointingly, the share of manufacturing stalled at a lowly 12% between 2004-2005 and 2017-2018.

The share of self-employed and casual labour in national employment still totals nearly 80%.

As Radhicka Kapoor points out ('Understanding India's Jobs Challenge:, September 6, 2019), this is worrying for several reasons.

These categories are typically characterised by widespread work-sharing arrangements and associated underemployment.

They also tend to have low average earnings, often well below recommended levels of the national minimum wage.

On the plus side, the share of regular salaried workers in employment has risen from 14.4% in 2004-2005 to 22.8% in 2017-2018.

However, the percentage of regular salaried workers in non-agriculture with no written job contract has risen from 59% in 2004-2005 to 71% in 2017-2018, reflecting rising insecurity even in this category.

In sum, the jobs situation in India has worsened seriously over the past 15 years.

Furthermore, today, in mid 2019-2020, it is almost certainly worse than the numbers discussed above, since economic growth has slowed sharply in the 18 months since PLFS (2017-2018).

What can be done to reverse the bleak trends outlined above?

There is no silver bullet.

In fact, there really is no viable alternative to tackling the policy and programme weaknesses sketched in this column.

Until we make serious progress along those lines, the rise in unemployment, underemployment, discouraged workers and job insecurity is likely to continue, with very adverse consequences for the nation's economic well-being and social cohesion.

Shankar Acharya is honorary professor at ICRIER and former chief economic adviser to the Government of India.

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