Explained: India’s labour market and PLFS data

Published: June 20, 2019 1:30:44 AM

There are no easy answers on how to create quality jobs for India’s population. The recent PLFS data provide an opportunity to understand the nuances of India’s labour market, identify constraints to creating formal, well-paid jobs, and design appropriate policies to address these challenges.

While workers are moving away from agriculture into industry and services, it’s happening at a slow pace. Also, wages are rising, but not at the pace that is required for double-digit growth

By Atisha Kumar

As early as 380BC, the noted Greek philosopher Plato cautioned that politicians seeking elections take advantage of citizens’ desire for easy answers. The warning held true in India in the context of the leaked Periodic Labour Force Survey (PLFS) ahead of the 2019 general elections. During the elections, the headline unemployment rate of 6.1% from the survey dominated the discourse on jobs, but it did not capture the complexities of India’s labour market.

The PLFS report was released on May 31. The availability of the data is, in itself, a huge boon for policymakers and researchers. Until now, the latest official employment data being used were from as long ago as 2011-12. Policymakers relied on outdated labour market parameters.

The unemployment rate of 6.1%, while a significant increase over that in 2011-12, remains well below that in some other emerging economies. For instance, in 2018, as much as 12.3% of Brazil’s labour force was unemployed. In South Africa, unemployment was a whopping 26.9%. Advanced economies such as the US and Germany also had unemployment rates close to 4%. Yet it is important to note that the unemployment rate is but one indicator of India’s jobs situation. To understand the nature of India’s employment challenge, we must also look at indicators of the quality of jobs, their distribution across sectors, and their firm size distribution.

Progress, but not enough

While the quality of jobs is improving, there is significant work to be done. First, the informal sector’s share in the economy has shrunken. The share of workers employed in informal enterprises in industry and services, and non-crop producing agriculture, has dropped to 68.4% in 2017-18 from 72.5% in 2011-12. While a four-percentage-point decrease is not trivial, in absolute terms the informal sector still accounts for more than two-thirds of all the employment. Furthermore, about 38% of workers did not have a written contract, and were not eligible for paid leave and social security.

Second, in a similar vein, workers are moving away from agriculture into industry and services, but this movement is happening at a slow pace. The share of workers engaged in the agricultural sector has declined by about five percentage points, from 48.9% in 2011-12 to 44.1% in 2017-18. However, the pace of this migration remains slow relative to that in other countries.

For example, in 1991, India and China employed about 64.6% and 60% of their respective workforces in the agricultural sector. In 2018, less than a third of China’s total employment remained in agriculture, while the majority of India’s employment was concentrated in this sector. In Brazil, Russia and South Africa, less than 10% of the employment is in agriculture. To sustain robust economic growth, India must increase the speed at which it absorbs the country’s agricultural workers into other sectors.

Third, wages are rising across the country, but not at the pace that is required for double-digit growth. As an example, the average daily wage for casual labourers engaged in non-public works in 2017-18 was Rs 256, or about $3.7, almost a 75% increase from the inflation-adjusted wage that the same category of workers received in the 2011-12 NSSO survey. Data from other sources corroborates this trend. In fact, between March 2014 and 2018, the average rural wages increased by about 20% for non-agricultural male labourers in 20 Indian states, according to data reported by the Reserve Bank of India (RBI). While there is no doubt that this is a considerable improvement, in terms of per capita income India remains a lower middle-income country, with a per capita income of $1,979 in 2017. Further wage increases, therefore, are needed to enhance farmers’ livelihoods. These wage increases will only be possible with increases in agricultural productivity.

Achieving size and scale

So, how can we increase wages, create formal employment and enhance the pace at which jobs shift out of agriculture into industry and services? Here, size and scale hold the key to better jobs. However, the majority of India’s workforce remains employed in micro and small firms. In 2017-18, about 57% of all workers were employed in non-agricultural enterprises with five or fewer workers, while about 75% were employed in enterprises with less than 20 workers. Only 16% of workers were employed in enterprises with 20 or more workers, with enterprise size unknown for 9% of workers. Going forward, India must facilitate the scaling up of its enterprises to create well-paying, productive jobs that absorb its young and growing population.

Historically, burdensome labour laws have been one of the constraints to Indian firms remaining small. In a number of states, existing labour regulations impose high costs of employment, preventing firms from hiring and firing workers under reasonable conditions and decrease efficiency in labour-intensive sectors. In addition, inward-looking policies have prevented India from accessing large, global markets. The successful development experiences of the East Asian countries—including South Korea, Thailand, Taiwan and China—highlight that liberal trade policies can help firms become more competitive on a global scale, thereby helping them create more jobs.

There are no easy answers on how to create quality jobs for India’s population. The recent PLFS data provide an opportunity to understand the nuances of India’s labour market, identify constraints to creating formal, well-paid jobs, and design appropriate policies to address these challenges.

(The author is a research scholar at Columbia University. Views are personal)

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