CHAPTER 8

Unemployment: Forms, Magnitude, and Policy

Unemployment is a chronic issue India has been facing. Economic growth is meaningful only as long as it creates new nonagricultural jobs. Job growth leads to an increase in consumer demand, which has the effect of sustaining GDP growth and reducing volatility in the output growth rate. There is no silver bullet to solve the problem of unemployment. The challenge of creating jobs has moved to the center of the political stage all over the world, and India is no exception. The scale of the problem in India is, however, not easy to measure. The unemployment situation is becoming increasingly acute as demographic transition pulls young people into the workforce at an accelerated pace. India’s biggest concern is a paucity of enough jobs to provide gainful employment to people who join the labor force every year. Well over half of the population is dependent on agriculture, which gets some 14 percent of national income, a clearly discriminatory situation. In a flexible job market, jobs get created and destroyed dynamically, making it harder to track job growth. Besides, there is the large-scale phenomenon of casualization of labor, and growth of the informal sector.

Conceptual framework of key employment and unemployment indicators: Broadly speaking, the National Sample Survey Office (NSSO) surveys divide the entire population into three categories:

Category 1 consists of people who were involved in economic activity (or work) during the reference period of the survey. These individuals are labeled as “Employed” and can be subdivided into categories such as self-employed, salaried employees, and casual laborers.

Category 2 consists of people who were not engaged in any economic activity during the reference period of the survey but were looking for work if work was available. These individuals are labeled as “Unemployed.” Taken together, categories 1 and 2 form the country’s “labor force.”

Category 3 consists of people who are neither engaged in work nor available for it. This category—labeled as “Not in the labor force”—would have a large number of people, including those who have retired, those studying, those unable to work due to disability, and those attending “only” to domestic duties.

Labor force participation rate (LFPR): Labor force refers to the population that supplies or offers to supply labor for pursuing economic activities for the production of goods and services, and therefore, includes both employed and unemployed persons/person days. LFPR is defined as the proportion of persons/person days in the labor force to the total persons/person days.

Unemployment rate (UR): UR is the ratio of number of unemployed persons/person days to the number of persons/person days in the labor force (i.e., the number of employed and unemployed persons/person days). Estimates of UR are obtained by the three approaches used for classification of the activity status of the person.

Problem of getting authentic employment data: For any meaningful analysis of India’s employment problem, the least one requires is accurate data. There has been a lot of debate on job creation. The discussion on jobs and employment policy has been muddied not only by the lack of data but the uncertainty that technological change has introduced. The Labor Bureau conducts two major surveys on the employment scenario—the Annual Employment–Unemployment Survey (AEUS) and the Quarterly Employment Survey (QES). The AEUS was later replaced by the Periodic Labour Force Survey (PLFS) conducted by the Ministry of Statistics and Programme Implementation (MoSPI). PLFS was initiated by the NSSO beginning April 2017. This initiative followed the recommendations of the Task Force on Improving Employment Data. The PLFS would not only have annual data on employment–unemployment in the rural sector but will also have quarterly data on employment–unemployment in the urban sector based on a larger sample size. The corresponding AEUS data set would, therefore, be comparable. Besides, the Employees Provident Fund Organization (EPFO) has started releasing monthly payroll data. Several data points on jobs have caused some kind of confusion (Nanda 2018). It is somehow difficult to decipher what’s trending on jobs. There is no proper measurement of agricultural jobs. There is no reliable data from the informal sector.

Analyzing payroll data is a good way to go beyond the survey-based data and to that extent the study by Ghosh and Ghosh (2018) should be welcomed as it moves the debate in the right direction. A key imperative toward bringing more clarity would be for the government to take steps that improve payroll data and create a unique identifier to weed out duplication across databases. The payroll data for India based on administrative records will become more meaningful and useful if its reporting format is extended to reconcile the stock and flow measures (Soman 2018). The Union Government has set up a committee headed by T.C.A. Anant, former chief statistician of India, to bring in transparency in the calculation and presentation of jobs data (Nanda 2018). Unfortunately, much of the debate on the employment performance of the government has been mired in ambiguity due to the absence of credible employment data.

Employment scenario: It is commonly believed that India needs to provide 10 to 12 million jobs every year for its expanding labor force. But Bhalla and Das (2018) asserted that this conclusion has never been valid. The estimate of jobs needed rests on the estimates of LFPRs, especially for women. If this rises, the requirement for job growth will increase to about 6.5 million jobs a year by 2020, from the 5.3 million level of 2017. Employment elasticity in India has been declining. It declined from 0.44 in the first half of the decade 1999–2000 to 2004–2005, to as low as 0.01 during the second half of the decade 2004–2005 to 2009–2010. Similar trends have been witnessed at the sectoral level, namely, agriculture, services, and manufacturing sectors. The negative employment elasticity in agriculture indicates movement of people out of agriculture to other sectors where wage rates are higher. This migration of surplus workers to other sectors for productive and gainful employment is necessary for inclusive growth. The negative employment elasticity in the manufacturing sector is, however, a cause of concern (GoI 2013, 12th Five Year Plan, Vol. III).

A recent study by Bhandari and Dubey (2019) has highlighted the broad trends for employment in India between 2004 and 2018. A key feature of this study is that instead of focusing on unemployment, it focuses only on the employment data. It is based on three comparable surveys conducted by the NSSO related to the Employment–Unemployment Surveys (EUSs) of 2004–2005, 2011–2012, and 2017–2018.

On the whole, the total employment in the country grew by 4.5 crore (45 million) in the 13 years between EUS 2004–2005 and PLFS 2017–2018; this represents a growth of just 0.8 percent which is less than half the rate at which the overall population grew, which was 1.7 percent. Of the 4.5 crore increase in employment, 4.2 crore (42 million) happened in the urban areas while rural employment either contracted (by 0.01 percent between 2004 and 2011) or was stagnant (grew by 0.18 percent between 2011 and 2017). Over the 13 years, male employment grew by
6 crore (60 million) but female employment fell by 1.5 crore (15 million). In other words, while there were 11.15 crore (115 million) women with jobs in 2004, only 9.67 (96.7 million) crore were employed 13 years later. Women’s share in employment has fallen from an already low level of 27.08 percent in 2004 to 21.17 percent in 2017. LFPRs for women have declined largely because now more women are attending schools and colleges. Social factors alone don’t contribute to the declining trend, as they were there earlier too. “Part of it, in the case of rural women, is due to withdrawal from agriculture due to mechanization, fall in farm incomes, rapid urbanization, etc. The urban rate of 27.2 percent is twice that. This reinforces the fact that women want to work, but lack jobs. There is no dearth of women seeking gainful employment. Indeed, once women take up jobs, factors like work atmosphere, safety, family support etc., influence their duration in the workforce. Also, re-entry into the workforce after a break is often difficult, which partly explains the drop in participation. From lack of family support to the easy availability of labor for low value-added jobs—many are the factors that impede a return to work. In purely economic terms, if more women work, the more they have to spend, giving the economy a fillip. More needs to be done to arrest their decline in the workforce” (Nayar 2019).

The rate of employment growth in the organized sector—in firms that are registered with regulatory authorities and are bound by a variety of labor laws—has been the fastest, and its share in the total employed has risen from 8.9 percent in 2004 to 14 percent in 2017. The unorganized sector, too, has grown. In fact, while its rate of growth has been slower, its overall share in the economy has gone up from 37.1 percent in 2004 to 47.7 percent in 2017. The pace of growth of the unorganized sector has, however, moderated since 2011. Both these sectors have grown at the expense of the agri-cropping sector, where employment has fallen from 21.9 percent in 2004 to 17.4 percent in 2017. In essence, the results show that those who are poor, illiterate, and unskilled are increasingly losing out on jobs. This is summarized in Table 8.1.

Table 8.1 Organized sector increasingly prefers noncontractual labor (all numbers in crore)

Source: Employment and Unemployment Surveys (EUS) by the National Sample Survey Office (NSSO) fielded during the 61st and 68th wave of EUS. The 2004 and 2011 numbers are from the EUS of 2004–2005 and 2011–2012, respectively; the 2017 numbers are from PLFS 2017–2018.

The presence of a contract makes all the difference when it comes to job security, minimum wages, equal pay for equal work, safe working conditions, and so on. Without a contract, even a worker employed in the organized sector would not have any means of seeking recourse for any injustice. Noncontractual labor earns less in general than contractual labor. That is why the unorganized sector almost entirely employs workers on a noncontractual basis. NSSO data, however, shows a sustained trend of even the organized sector in India preferring to employ workers without a contract. Indeed, between 2011 and 2017, this resulted in the organized sector coming to employ more people without a contract. That firms—whether organized or unorganized—prefer noncontractual employment is bad news for India’s bid to make the economy more formal. In all likelihood, firms are doing so to cut the extra costs that come with complying with inflexible and stringent labor laws. This is more likely to be the case when firms are stressed for money and struggling to grow (Bhandari and Dubey 2019).

Not only are enough employment opportunities not being created for the millions entering the labor market and for those shifting out of agriculture, but even the jobs that are being added are of the noncontractual kind, calling into question the quality of jobs created. The slowdown in economic activity, especially in the nonfarm labor-intensive sectors in both rural and urban areas, coupled with the terms of trade shifting against agriculture, would have pushed workers to seek employment under the Employment Guarantee Scheme. There are indications that a shift toward informalization of work relations has taken place even in the organized sector. This inability to create enough quality jobs will have long-term repercussions for the Indian economy.1

Some of the factors contributing to unemployment in India are:

1. The rising population
2. Some people don’t take jobs that are below their qualification level
3. Many big industries look for skilled candidates only, preferring ­experienced candidates and not freshers
4. Not enough or new jobs in the government (sarkari naukri); number of new government jobs is decreasing every year; because of the prevalent corruption, some people get the job by giving a bribe, even though they are not qualified
5. Advanced technology has cut off the employment of many
6. Suitable investment is not coming in at the rate required for the number of jobs to increase
7. Other factors are slow business expansion, education not employment oriented (making young ones unemployable), dearth of vocational and technical education leading to skill mismatch in the job market

There is a widely held view that India’s rapid economic growth has been failing to bring about rapid improvement in employment conditions mainly because the organized sector, which has been leading the growth process in India’s dual economy, has been a rather poor performer in terms of job creation. The creation of fewer jobs between 1991 and 2013 was largely because of the nature of growth the Indian economy experienced. It was mostly services-led growth, with low-employment intensity. Many of the jobs being created in the organized sector are informal and rather poor quality (not much better than many jobs in the unorganized sector). India has an employability problem. While the services can rather easily recruit skilled white-­
collar workers (IT engineers, English-speaking people for the call centers, etc.), the industry cannot transform peasants into factory workers so quickly.

Government initiative to promote job creation: The government has taken a number of initiatives for the creation of jobs. Some of them are as follows:

1. A good beginning has been made in skills training program for young people under the National Skill Development Mission. Toward that goal, the Pradhan Mantri Kaushal Vikas Yojana, skill loan scheme, and the national policy for skill development and entrepreneurship 2015 were launched. In all, 25 organizations, including key ministries, are currently involved in the daunting task of skilling youth for jobs.
2. The government has put in place several schemes to help generate employment. These include the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), MUDRA ­Yojana, Prime Minister’s Employment Generation Programme, and ­Pradhan Mantri Rojgar Protsahan Yojana. Additional initiatives aid job creation through providing skill development, easing access to credit, and addressing sector-specific constraints. The government also made the EPFO premium portable, so that workers can change jobs without fear of losing their provident fund benefits (NITI Aayog 2018b).
3. The Ministry of Commerce is customizing incentives for labor-
   intensive export sectors.
4. The Stand-Up India Scheme involves free preloan training and facilitating loan and marketing for Scheduled Caste, Scheduled Tribe, and women entrepreneurs.

The government has undertaken several economic reforms. Some reforms have been specifically geared toward employment generation, for example, the emphasis on road construction (a labor-intensive activity); the MUDRA initiative (provision of loans to small entrepreneurs); the housing initiative as well as the policy to increase employment via a wage subsidy to employers (this was achieved through lowering the provident fund contributions of employers). But two major economic reforms were demonetization and GST, which introduced uncertainty, and hence, in the short run affect economic growth and employment generation (Bhalla and Das 2018). Government schemes rarely create many jobs. International evidence is that when consumer demand grows consistently, whether from domestic or international markets, that is when jobs grow (Mehrotra 2016).

Employment policy—issues and priorities: A critical issue is the growth of employment in the organized sector vis-à-vis the unorganized sector and particularly in terms of formal and informal employments. It is generally opined that unorganized sector employment is of low quality compared with organized sector employment. In a market economy, jobs are created primarily by private market participants. If the regulatory regime is coming in the way of job creation by market players, its review and reform should get the highest priority. The policy should focus on demand-aligned skill development, and aim at significantly stepping up growth in employment in manufacturing, so that the underemployed labor force can speedily move from low-paid farm jobs to the better paid, more productive manufacturing and services sectors. Simultaneously, there is a need to improve the working conditions for women and focus on greater organized sector jobs that will meet the aspirations of the rising number of educated and skilled youth in the country. The employment contribution of labor-intensive manufacturing—textile and garments, leather and footwear, gems and jewelry, food processing industries, and so on—can be greatly enhanced provided the government puts supportive policies in place.

Incentives will have to be improved for expanding employment in the organized sector. Services like information technology, finance and banking, tourism, trade and transport are going to be major generators of employment in the future. Sector-specific strategies need to be adopted to ensure sustained expansion of employment opportunities in these areas. The multiplicity of labor laws administered by both the central and the state governments are not conducive for the congenial development of the factory sector. The organized sector is overburdened with regulatory interference at all levels. There is a need to simplify labor laws at both the center and the state levels.

Creating large-scale local employment will be essential for inclusive growth, and is a key agenda for the country over the 2020s. Employment opportunities will require focus on smaller districts that house a majority of the population and still remain rural or semiurban and in some cases tribal. Even if large-scale manufacturing and traditional information technology services can be relocated to these districts, automation is reducing the number of jobs they produce. Employment generation requires district-level efforts for job creation that link local entrepreneurs to markets, with solutions that use local resources.

Creating a suitable architecture for jobs: Jobs elude deft economic handling. The government wants to create jobs, not the environment in which job-creation flourishes. While creating jobs is not the government’s primary responsibility, it should act as a facilitator by molding an environment that enables rapid economic growth, new investments, and expansion of jobs.2 Maira (2016a) has suggested the following four what to dos for policy:

1. Promote the growth of stronger clusters and networks of small enterprises
2. Promote the growth of a life-long learning system
3. Develop better social security systems
4. Promote the rapid use of technology as an enabler

And three how to dos to accelerate the generation of more jobs and enterprises:

1. A whole of government approach is necessary to create jobs
2. Job creation must be a principal goal
3. Apply best methods for consultative policy development and implementation

The future of India will depend on how fast leaders of institutions, in government and in the productive sectors, learn and apply a new approach for a new jobs policy for India (Maira 2016b). Sound economic policies can go a long way toward creating new jobs. Now a degree is not what it used to be; employers are shifting their focus to employability and skills. This means candidates can differentiate themselves through certifications, soft skills, apprenticeships, projects, work experience, career growth, and more. Apprentices are turning out to be the brightest spot of Skill India.

Areas for more gainful employment: The McKinsey Global Institute Report (June 2017) suggests three ways to create opportunities for more gainful employment:

1. More appropriate statistical measurement of employment
2. Targeted government programs
3. Removing hurdles that stand in the way of investment and innovation

The report emphasized that building industrial townships, focusing on manufacturing, and the development of tourist circuits, all through government programs, could create more opportunities for gainful employment.3 The government should focus on economic policies to support sectors of economic activity that are likely to generate the most employment. Various sectors, such as the following, can create sizable job opportunities:

1. Construction
2. Agriculture: This relates to agro-based industries in rural areas.
3. Technology: It should be used to connect specialist expert hubs at state capitals and urban centers with facilities at the district level and below, creating new employment opportunities.
4. Communication: This relates to telecom expansion.
5. Logistics and transport: The expansion of e-commerce and logistics companies to small towns can create new jobs. Logistics and transportation would create a large number of new jobs.
6. Social sector: The health sector has a huge potential to create jobs, given the shortage of nurses and health care workers such as lab technicians and surgical assistants.
7. Human resources: Strengthening of education and training is needed because India needs to expand people’s skills. Nano degrees that give relevant training and retraining linked to clear standards set in industry, with government help where industry bodies are unable to do so, are essential (Goyal 2018).
8. New entrepreneurs: Jobs by startups and self-employments are the biggest source of new jobs. The conditions the government is creating to create a level playing field are obvious.
9. Employment in VCME: Especially in the rural sector, the improvement in road connectivity should lead to a better role of village, cottage, and micro enterprises (VCME). To encourage VCME, the government could consider tax incentives, facilitate financing, provide interest subsidy, and address issues related to technology absorption.
10. Services sector: To improve job opportunities in tourism, the policy would have to consider the specific location of areas, climate zone, and connectivity with city, airport, or seaport.
11. External sector: There is also an opportunity and scope for international collaboration on medical tourism. Collaboration with foreign insurance companies, hospitals, and pharmaceutical companies, especially those in the United States and Europe, would ensure a high volume of medical tourists. Interestingly, yoga tourism, which has gone global, mainly due to the International Yoga Day, could also be explored (Singh 2017).

India and Gig Economy

The gig economy—a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs—is ubiquitous globally, and India is no stranger to it. The meaning of the word job is clearly evolving. One of the ways organizations are adjusting to the changing nature of work is by embracing the gig economy. In addition to providing the freedom of choosing who to work for and for how long, the gig economy model can be great for women who may take a break from a regular 9-to-5 job to raise a child. This model can help keep them engaged during a phase when they are unable to return to work fully. India’s informal employment structure is well suited to align with worldwide changes toward the gig economy, where skills are made available to multiple employers through the Internet, in lieu of formal 9-to-5 jobs. In this context, for example, Internet agencies can standardize and better match a range of domestic services, which may improve domestic services providers quality and salaries (Goyal 2018).

“Technology focused companies linking households to domestic workers through ‘on-demand’ platforms are attempting to disrupt the traditional sector, claiming to offer rapidly accessible, cheap domestic services to households, and flexible, well remunerated economic opportunities to domestic workers” (Hunt and Machingura 2016). Tech-enabled platforms connect the consumer to the gig worker to hire services on a short-term basis. Digital platforms have emerged as enablers for employment creation with the power to easily discover job seekers and job providers in the absence of middlemen. To hire someone for a service, the consumer can simply use a tech-based platform (app). At its core, the platforms that mediate gig work use tools to bring together the supply of, and demand for, domestic workers.

In India the concept of the open-talent or gig economy is in its infancy, although it has definitely become part of a changing cultural and business environment. A highly connected, mobile workforce and the emergence of the millennial generation that values a flexible work schedule so strongly that it would be willing to give up higher pay and promotions for it is driving the change in rules of the employment game. Indian knowledge professionals are increasingly opting for independent gigs as a matter of choice and are seeking flexibility and purpose in their career. While startups were the early adopters, multinational companies, consulting firms, and large enterprises are embracing the concept. Embracing the open-talent economy helps organizations blend full-time employees with short-term consultants, making them nimbler and more efficient (Chaudhary 2018).

The gig economy could have larger benefits for the country, cushioning unemployment, improving labor force participation, stimulating demand, and raising productivity. But workers have to recognize that the key skill they need is adaptability and the preparedness to move across industries and roles. The gig economy is rapidly evolving on the back of digital platforms that facilitate direct and even real-time connections between customers who need a service performed and workers willing to provide that service. In the future, the composition of the workforce will be different. The permanent employees will be those with core skills, while for specialized skills employers would rather pick up from the market. The gig platform is for professionals looking for short-term projects or flexible arrangements with the company. Benefits of the gig platform are as follows:

1. A) Cost savings
2. B) Easy ramp-up
3. C) Scale-downs based on peaks and troughs in business
4. D) Quick ability to tap specialized skills

Advantages aside, the gig economy poses challenges too. But companies do need to reorient processes to be ready for the gig world. There is a gray underside, however, to the gig economy as well. Some critics have likened it to a Dickensian world in which workers are at the mercy of the online platforms they are members of. Others have spoken about digital serfs who have few rights. The reported reasons why Uber and Ola taxi drivers took their cars off the road raise some deeper questions about the role of labor in the gig economy, especially at a time when many thinkers believe that an economy of freelancers is one solution to the global jobs challenge.

But there are important economic issues. India needs to have these debates—especially at a time when there is a growing belief that micro entrepreneurship rather than employment in modern enterprises is being projected as a solution to the Indian jobs challenge.4 To enable this ecosystem to be fair and sustainable, however, academia, government, and enlightened employers will need to come together to set standards, develop workforce retraining programs, create collaborative learning systems, and ensure no undue exploitation. There exists a trust deficit in the gig economy.

In fine, unemployment in India is a complex problem with numerous overlapping and intertwined causes. There is no denying that India has an acute job crisis. The “jobless growth” has slipped into “job-loss growth,” which, together with rural indebtedness and urban chaos, has made the growing number of aspirational youths restless.5 As per information available on the official website of the Centre for Monitoring Indian Economy (CMIE), there were nearly 31 million unemployed Indians looking for jobs as of 2017,6 which speaks to something deeply disconcerting about the dismal pace of job creation. The problem of jobs entails wages and quality of employment. Underemployment is a major aspect of the problem. This issue is related to skills, not just degrees. Times have changed and today’s young people won’t be content making a precarious living. It is important to strengthen social security for informal workers while increasing flexibility for employers. The economic environment needs to be a lot friendlier.

India is witnessing a rise in the need for supplemental income due to high unemployment amongst the urban youth, increasing cost of living, growing aspirations of students and changing mindsets of women engaged in homemaking. This is exhibited by the existence and growth of gig platforms such as Frapp, Internshala, and Awign (Monga 2020). Therefore, one must recognize that perceptions about earnings and jobs are changing fast in the wake of rapid technological advances. The true meaning of being a worker is shifting toward having stable, productive, and remunerative employment. This aspect must be captured both at the stage of collection of labor data and while interpreting and analyzing the same for evidence-driven policymaking (Subramanian 2019). Investing in employment data will enable more appropriate policy, fiscal decisions, and monetary policy. India has a lot of catch-up to deliver decent work. The government does need to speed up establishing skilling institutes to tackle the problem of providing qualitative employment, rather than just the numbers. Unemployment is not the bigger issue; meaningful employment is. The extent of job creation in India has always been subject to debate.­­­­­

Endnotes

1. 1. The Indian Express. October 31, 2019. “The Rising Insecurity.” https://indianexpress.com/article/opinion/india-job-crisis-mgnrega-economic-advisory-council-unemployment-the-rising-insecurity-6095152/, (accessed October 31, 2019).
2. 2. The Hindu Business Line. May 20, 2017. “Not by Growth Alone,” Editorial Comment. https://www.thehindubusinessline.com/opinion/editorial/not-by-growth-alone/article9708109.ece, (accessed September 28, 2019).
3. 3. MINT. June 15, 2017. “Non-farm Jobs on the Rise in India: McKinsey Report.” https://www.livemint.com/Politics/bJXxja7w4CEULowONK0UgO/Nonfarm-jobs-on-the-rise-in-India-McKinsey-report.html, (accessed September 26, 2019).
4. 4. MINT. March 30, 2018. “The Working Class in the Gig Economy,” Editorial Comment. https://www.livemint.com/Opinion/HTpIgsVqUaQPTImV6bUhFI/The-working-class-in-the-gig-economy.html, (accessed September 28, 2019).
5. 5. Money Control. n.d. “Jobless Growth, Rural Indebtedness, Urban Chaos Have Made Aspirational Youths Restless: Manmohan Singh.” https://www.moneycontrol.com/news/india/jobless-growth-rural-indebtedness-urban-chaos-have-made-aspirational-youths-restless-manmohan-singh-3549111.html, (accessed September 28, 2019).
6. 6. The Economic Times Online. March 6, 2018. “Unemployment Rate in India: Nearly 31 Million Indians Are Jobless.” https://timesofindia.indiatimes.com/home/education/news/unemployment-rate-in-india-nearly-31-million-indians-are-jobless/articleshow/63182015.cms, (accessed September 1, 2019).