Macroeconomic Reasons for India’s Jobs Crisis

Syllabus: GS3/Indian Economy

Context:

• Official data sources and reports found that India continues to be going through a jobs crisis.

Key Highlights : Macro-economic reasons Low Labour Demand:

• The Indian economy has historically been characterised by the presence of open unemployment as well as high levels of informal employment (i.e. disguised unemployment) consisting of the self-employed as well as casual wage workers.
  • Economic policy is generally framed in terms of output growth (GDP or value-added), rather than the level of output.
• The labour demand in the formal non-agricultural sector is determined by factors like:
  • Labour demand rises when demand for output rises under any given level of technological development.
  • Introduction of labour-saving technologies like automation enables firms to produce the same amount of output by hiring a lower number of workers.

Growth and Labour Productivity: 

• Employment growth is determined by the relative strength of two factors — the output growth rate and the labour productivity growth rate.
  • If labour productivity growth rate does not change, higher output growth rate increases employment growth rate.
    • In other words, policies that promote higher economic growth would also achieve higher employment growth.
  • On the other hand, if labour productivity growth rate rises, employment growth rate falls for a given output growth rate.

Jobless Growth:

• The employment growth rate of the formal and non-agricultural sector remained unresponsive despite a significant rise in the GDP growth rate and the value added growth rate during the 2000s as compared to the decade of the 1980s and 1990s.
  • The lack of responsiveness of employment growth rate to changes in output growth rate reflects a phenomenon of jobless growth.
• It indicates a strong connection between labour productivity growth rate and output growth rate.
• If the responsiveness of labour productivity growth rate to output growth rate is weak, the possibility of jobless growth emerges exclusively on account of automation and the introduction of labour-saving technology.

• Under weak responsiveness of labour productivity, the positive effect of GDP growth rate on employment would dominate over the adverse effect of labour-saving technologies.

Solution to the Jobs Crisis:

Macroeconomic Policy Framework:

• Implementing the objectives of National Employment Policy (NEP): A separate policy focus is needed on employment, focusing on both demand side and supply side components in addition to the focus on GDP growth.
• Increasing the quality of the workforce through better public provisioning of education and health care, as well as bridging the skills gap.
  • On the demand side, direct public job creation will be needed.
• Other measures like introduction of the Urban Version of MGNREGA, increasing industrialization and investment in agriculture with diversification to generate more employment along with the promotion of agro-processing industries near urban centres.
• There is a need to expand education and healthcare and provide vocational and technical training to enhance the skills and employability of the workforce.

Do you know ? Keynesian revolution in Macroeconomics: – Keynes states that in times of economic crisis, the government needs to increase public spending and cut indirect taxes, to revive the economy. – The public expenditure on capital assets leads to a crowd-in effect. A. The role of aggregate demand is the binding constraint on employment. – Similarly, the cut in taxes induces demand, thereby raising production, leading to the revival of economic activity in the country. The Mahalanobis Strategy: – It identified the availability of capital goods as the binding constraint on output and employment, putting forward the policy for heavy industrialisation. The Kaldor-Verdoorn Coefficient: – The extent to which labour productivity growth rate responds to output growth rate. A. India’s non-agricultural sector is characterised by a higher than average Kaldor-Verdoorn coefficient, as compared to other developing countries.

Conclusion:

• The unemployment rate impacts the Indian economy by influencing spending, growth, and job opportunities. A high rate hinders economic progress and can lead to social unrest, while a low rate indicates a thriving job market and a growing economy.
• Policymakers need to trade-off GDP growth rate with addition of workforce in the economy for job creation and economic development simultaneously.

Additional Information: – The data on Employment and Unemployment is collected through Periodic Labour Force Survey (PLFS) conducted by National Statistical Office (NSO), Ministry of Statistics & Programme Implementation (MoSPI) since 2017-18. Employment prevailing in an Indian economy. 1. Wage employment: It is a result of labour demanded by employers in their pursuit of profits. 2. Self-employment: Labour supply and labour demand are identical, i.e., the worker employs herself. – The wage labour includes all forms of labour done for an employer including daily wage work at one extreme and highly paid corporate jobs at the other. – Jobs generally refer to relatively better paid regular wage or salaried employment. – In other words, all jobs are wage labour, but all wage labour cannot be called jobs.

Source: TH

Mains Practise Question  [Q] What are the major reasons for India’s ‘jobless growth’? Analyse its impact on the Economy of India and highlights the efforts to tackle the issue of jobless growth in India.