India does not need 12 million jobs a year, but less than 5 million

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Updated: Jan 05, 2019 6:43 AM

India does not need 12 million jobs a year – it needs less than 5 million. A large part of the so-called jobs crisis is because of demand for government jobs, not jobs per se.

The latter two vary by a significant amount with the former suggesting that around 7-10 million jobs were created in 2017/18, and the latter indicating that virtually no jobs were created (actually a decline of 0.5 million).

As and when the NSSO employment-unemployment report for 2017/18 is released (the new name is Periodic Labour Force Survey) we will learn about the employment situation in India circa 2017/18, i.e. the total number of jobs created between the last NSSO survey of 2011/12 and 2017/18. The survey will not tell us how many jobs were created in 2017/18; for that we have individual non-NSSO surveys and methods, the most prominent being the estimates based on EPFO data and CMIE data. The latter two vary by a significant amount with the former suggesting that around 7-10 million jobs were created in 2017/18, and the latter indicating that virtually no jobs were created (actually a decline of 0.5 million).

Tirtha Das and I, in a report prepared for the PMEAC (available on EAC website and here, indicate that the PLFS data are likely to report that employment (by the commonly used measure according to ‘principal status’) in India in 2017/18 was around 448 million in 2017/18, a 20 million jobs increase between 2011/12 and now. How good is this job creation and how does it compare with what happened earlier? These questions gain salience as 2019 is an election year and one in which job creation is being hotly debated. There are several reasons to expect that job creation between 2011/12 and 2017/18 is to be much less than that created between 2004/5 and 2011/12. As many domestic and international experts have speculated, job creation worldwide is less now because of robots (artificial intelligence) and a decline in global GDP growth. These international factors are not the concern of those looking for a job, who are naturally upset if there aren’t enough jobs in the economy. This can have political consequences, and one has to note only the shrill campaign by the Congress party (and its supporters) in constantly asking—where are the jobs?

The attached graphic provides some background data on the Indian economy for the 40-year period, 1983 to 2023. These data shed some light (only the 2017/18 data are estimates) on the job situation in the economy, past and present, and whether the present conventional (collective) wisdom (CW) on the Indian job economy is supported by the evidence (facts). An important political (and economic) question is—how many jobs need to be created in India to keep the unemployment rate constant at low, historical rates. The CW is that India needs 8 million jobs a year; Raghuram Rajan, distinguished economist and former governor of RBI, believes that India needs to “employ 12 million people coming into the labour force every year” (speech at Berkeley on December 10, 2018). Our analysis shows that both CW and Rajan are way off the mark.

The attached graphic presents some data on India’s employment scene. Column 6 reports the population increase for those >=15 years, the ‘base’ for which employment and related variables are estimated. Between 2004/5 and 2011/12, annual population increases were observed in the 15+ million range. If the Rajan estimate was correct, then 75% of these individuals had a job or were looking for a job; this large ratio has never happened in India, but has been observed on a consistent basis in Bangladesh and Nepal (and some east Asian economies like China and Thailand). Column 7 reports the average increase in labour force (and, therefore, ‘jobs needed’) on an annual basis during NSSO survey years 1983 to 2017/18. The maximum increase in labour force observed was for the period 1993/94 and 2004/5—around 8.6 million jobs a year. During the recent 2011/12 and 2017/18 period, jobs needed were only 4.6 million a year.

What has been observed, and much talked about, is the precipitous drop in women’s LFPR from 29.4% in 1983 to 23.4% in 2011/12. Education is very relevant for calculations of LFPR because of the very definition of labour force. Education and labour force participation are mutually exclusive—if one is above 15 years of age and enrolled in school (or college), one cannot be in the labour force—and vice-versa.

Estimates of labour force are dependent on the labour force participation rates (LFPR) for both men and women. For men, the LFPR is somewhere in the 90s; for women, historically and worldwide, the LFPR is much lower. The LFPR of women has to do with their education and income level as well as societal factors more specific to India than many other economies (marriage, caste, child rearing, etc). Amongst these, education is a very important factor, both for reasons of definition and in determining attitudes towards work (general expectation is that women’s LFPR has a U shape, both with respect to education and family income).

It is the education profile of women that has changed drastically over the years and it is increases in education enrollment that is causing the jobs needed to fall to such lows. For the major education age-group of 15-24 years, only 16 % of the Indian population was enrolled in school or college in 1983, and of these students, women constituted 28%. For 2017/18, the latest year for which reliable estimates are available, enrollment within the 15-24 age-group was more than 50% and within this group, women comprised 48%. Within a very few years, it is very likely that women students will outnumber male students, a pattern already evident in most parts of the world.

This educational expansion has consequences for estimates of labour force, and, hence, jobs needed. Observe the following. Female population above 15 years of age was 412 million in 2011/12, and had a labour force participation rate of 21.3%, a decline of 8.1 percentage points from the level of 29.4% in 1983. If the female LFPR rate had not declined, there would have been (.294*412) or 121 million women in the labour force. Instead, we observe that the labour force consisted of (.213*412) or 88 million. The ‘missing from labour force women’ are, therefore, 33 million. Educational enrollment of women was 7 million in 1983 and 42 million in 2011/12, an increase of 35 million. In other words, the increase in educational enrolment of women explains the entire decline in labour force participation rate of women observed between 1983 and 2011/12!

The above calculations shed considerable light on estimates of labour force growth and ‘jobs needed’. Our calculations show that Indian labour force increased at the rate of only 4.6 million a year between 2011/12 and 2017/18. For these six years, total needed job expansion was only 28 million. Our estimate is that around 20 million jobs will have been provided during these six years. \How good is this job performance? Compared to the super GDP growth era of 2004/5 and 2011/12, absolutely superlative. During those seven UPA years, only 10 million jobs were provided or just 1.4 million jobs a year; the recent six-year period (half these years under NDA) is likely to have provided 3.3 million a year, or more than twice the rate observed in the bumper UPA growth years.

It is political season, so exaggerations of achievements are inevitable. It is interesting to note that, while all the talk about jobless growth is going on presently, in reality, the real jobless growth occurred during the tenure of UPA-I and UPA-II. If we were to divorce ourselves from politics, we will observe the following. Firstly, the labour force in India has educational achievements of the youth heretofore unmatched in our own history, and is very comparable to the best in the world. (This of course abstracts from the important quality of school considerations, a subject on which we have little data). Secondly, gender equality among the newly educated is now a reality, and we should emphasise that fact, and understand its implications, rather than spend ideological time expressing dismay over the lack of equality in India.

The argument should shift from there are no jobs to why does the government continue to provide above market wages, and pensions, and benefits, to several employees—this causes excess demand for government jobs, and the appearance of ‘jobless growth’. A large part of the so-called jobs crisis is because of demand for government jobs, not jobs per se. And yes, let us also appreciate that India does not need 12 million jobs a year—it never has.

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