India will add 160-170 million labour force by 2020: study

Overall, the labour force increased from around 337 million in 1991 to around 488 million in 2013 – an expansion of 151 million in labour force in roughly 22 years. Employment level more or less followed the same trend as shown by the labour force but employment level fell short of the labour force throughout the period, creating a consistent gap between the two. Employment in India witnessed an increase to 470 million in 2013 as compared to 323 million in 1991, the ASSOCHAM-Thought Arbitrage joint study on ‘Employment Generation and Rebooting India’ noted.

Between 2000 and 2010, 64 million jobs approximately were generated in India. On the other hand, labour force participation witnessed an increase of 72 million in absolute terms. The disconnection between economic growth, skilling, education and jobs is growing. This is an alarming situation since in the future India’s work force is expected to increase exponentially. The reason for the decline in India’s employment, especially in the organised sector is due to the relatively low and almost constant share of manufacturing in the country’s GDP, adds the paper.

Despite high GDP growth, indicates lower employment elasticities prevailing in the economy and increasing gap between the labour force and the employment.  In other words, employment elasticity with respect to GDP is declining in India. On the basis of those CAGR, employment elasticities are calculated for respective time periods by dividing employment growth rate with GDP growth rate.

Employment elasticity figure shows the percentage change in employment due to percentage change in output or GDP. In other words, employment elasticity provides the extent to which employment can increase due to an increase in GDP.

Growth rate of employment followed almost the same trend as that of labour force, achieving its peak of 2.80 per cent during 1999-00 to 2004-05, and thereafter declining sharply. However, if one compares the GDP growth rate and the employment growth rate, then a distinct divergence can be witnessed between these two series of data. When Indian economy was enjoying a high economic growth during the latter part of the depicted time series, the employment was experiencing a downfall.

GDP growth rate increased from 4.98 per cent during 1983 to 1993-94 to around 8.7 per cent during 2004-05 to 2009-10. But, employment growth rate reached its lowest level, falling from 2.04 per cent during 1983 to 1993-94 to 0.37 per cent during 2004-05 to 2009-10. Usually, high economic growth is associated with high employment growth in common wisdom, but in India’s case, it is the other way round. This is indicative of low level of employment elasticity. In other words, a smaller proportion of the entire GDP or output increase was getting reflected in the increase in employment opportunities, pointed out the study.

Lower elasticities, as a result, are indicative of what some economists call “jobless growth phases”. Reaching a high of 0.50 in the period between 1999-00 and 2004-05, it came down precariously close to zero at 0.04 during the period between 2004-05 and 2009-10, adds the paper.

In simple words, employment elasticity means that for every Rs. 100 increase in GDP, only 4 new employment opportunities were created in this period, whereas in the period between 1999-00 and 2004-05 for every Rs. 100 increase in GDP, 50 new employment opportunities were created. After that, it showed slight improvement during 2009-10 to 2011-12 by increasing marginally to 0.08 per cent, and is projected to be 0.17 for the year 2014-15. For the year 2015-16, employment elasticity is projected to be around 0.08 indicating a bigger problem in near future.

Given the decreasing trend in employment elasticities over the years, it becomes imperative to study the trend of employment elasticity in the three principal sectors of the economy. Primary sector (agriculture) absorbs bulk of the workforce, but due to stagnant productivity and other factors the ability to create new jobs waned in this sector over the years. This gets reflected in the elasticity figures as well. During the period between 1983 and 1993-94, employment elasticity was around 0.5, implying that 1 per cent growth in GDP used to culminate into 0.5 per cent growth in primary sector employment.

Over the years, the ability of primary sector to create new jobs diminished and it is reflected in the elasticity figures, particularly after 2004-05. Employment elasticity dropped sharply during 1993-94 to 2004-05 to 0.26 – almost half of what was achieved during 1983 to 1993-94. The situation worsened when the employment elasticity became negative (-0.05) during 2004-05 to 2009-10, and further deteriorated to (-0.29) during 2009-10 to 2011-12.

This gross deterioration of employment elasticity in primary sector means that any effort to improve the productivity or output in the primary sector results into net job loss. This clearly means that the primary sector, mainly agriculture, is burdened with disguised unemployment and under-employment.

As a result, the primary sector cannot support any new job creation. Even in rural area, the onus of creating new jobs will fall on rural industry and services. On the other side, secondary sector witnessed a continuous increase in employment elasticity, though the increase has been marginal. During the period between 2009-10 and 2011-12, elasticity in secondary sector (industry) was 0.68, which means that almost 70 per cent employment generation is possible for 100 per cent increase in output/production in secondary sector. Precisely for this reason, policy and other economic boosts for secondary sector (industry) are needed to revive employment generation.

Employment elasticity in the tertiary sector was high during the early 1990s, but since then it has been showing a downward trend. It decreased from 0.57 during 1983 to 1993-94 to 0.10 during 2009- 10 to 2011-12. This result is also significant because it highlights the fact that any rise in tertiary (services) output will not be able to create adequate proportional increase in employment.

Decreasing trends in elasticities of secondary and tertiary sectors points to the conundrum which is probably faced by most of the policy makers of the world today. Due to explosive and rapid improvement in technology, productions of goods and services have become highly mechanised. High mechanisation spurts economic growth but does not result into commensurate employment generation, but most of the business cannot survive without mechanisation as they would then not remain competitive.

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