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Employment in India
August 2011
With millions of people employed today either retiring or losing their jobs, new job hiring will have to exceed 55 million by 2015.
For growth to be inclusive, employment intensity of production will have to increase. 2005.
Employment
intensity the number of employed persons per lakh of real GDP declined to 1.05 in 2010 from 1.71 in
Appropriate policies are needed to complement high growth for facilitating the required job creation. Easing demand constraints in manufacturing through labour reforms and supply constraints in services through fasttrack reforms in higher education will be the key for future job growth.
Between 2005 and 2010 the addition in jobs was 27.7 million but the number of self-employed people decreased by 25.5 million. This restricted the increase in number of employed people to 2.2 million.
The pattern of employment generation was lopsided during 2005-2010. In manufacturing - a crucial source of jobs for relatively low-skilled labour - employment declined by nearly 7 per cent, despite a faster growth in manufacturing output. In services, employment growth slowed in financial intermediation and business services a key source of salaried jobs. In contrast, employment grew by almost 70 per cent in the construction sector, but it was mainly in casual jobs.
Employed
Unemployed
Self employed
Jobs
Regular
Causal
The estimates presented here are based on data from principal activity status (ps) and subsidiary activity status (ss) of employment. As per the NSSO definition, the usual principal status (ps) includes persons who have worked for a relatively long part of the 365 days preceding the date of survey. The subsidiary status (ss) includes those persons from among the remaining population who had worked at least for 30 days during the reference period of 365 days preceding the date of survey. 2
65.5
27.7
27.2 2.2
The fall in self employment between 2005 and 2010 can majorly be attributed to fall in self employment in agriculture. Some of those who were self-employed in agriculture could avail of the limited employment opportunity in other sectors (mainly in construction) moved out of agriculture. This movement of labour out of agriculture into other jobs in rural areas lends support to the belief that availability of jobs in other sectors encourages excess labour to move out of agriculture. Despite the fall in agriculture employment between 2005 and 2010, there continues to be excess dependence on agriculture for
3
employment given its diminishing share in Indias GDP. The trend of a shift of labour out of agriculture into nonagriculture needs to accelerate.
Table 1: Changes in employment, in million
2004-05 to 2009-10 Self employed Rural Urban Total -23.8 -1.6 -25.5 Jobs Regular 0.2 5.5 5.7 Casual 17.6 4.3 21.9 Total 17.8 9.8 27.7 Self employed 46.7 18.8 65.5 1999-00 to 2004-05 Jobs Regular 4.9 13.7 18.6 Casual 5.4 3.2 8.6 Total 10.3 16.9 27.2
Net addition to jobs between 2005 and 2010 was marginally higher as compared to the previous 5 years (Table 1). The job additions should have been significantly higher, given that the Indian economy had expanded at the average rate of 8.6 per cent between 2005 and 2010 compared to an average growth of 6.0 per cent between 2000 and 2005. The lower-than-hoped for addition to jobs during 2005 to 2010 could partially reflect the impact of the economic slowdown on private sector jobs during the last 2 years of the NSSO survey, following the global economic crisis. But it also reflects the exiting constraints to accelerating employment generation in India. With regard to pattern of job creation, the trend clearly shifted in favour of casual jobs during the second of the 2000s as compared to the first half, with nearly 22 million out of 27.7 million addition to jobs coming from casual jobs (Table 1).
Sectoral-pattern of employment
Decline in employment intensity, especially in manufacturing, is a concern
Figure 3: % share in employment
Agriculture 61.7 56.7 Industry Services
51.8
22.5 15.9
24.5 18.8
21.9
26.3
1999-00
2004-05
2009-10
In services, addition to employment stood at a mere 8.6 million in the second half of the 2000s as compared to over 30 million in the first half though all service sectors grew faster in the second half of the decade(Table 2 & 3). In industry, too, addition to employment dropped to 14.7 million in the second half of the decade from 28.1 million in the first half. Within industry, manufacturing employment increased sharply from 39 million to 56 million in the first half of 2000s, but it dropped by nearly 4 million thereafter. As a result, the share of manufacturing in total employment declined to 11.4 per cent in 2010 from 12.2 per cent in 2005 (Figure 4) Construction was the only sector in which net addition to employment was higher in the second of the decade (18.2 million) as compared to the first half (10.2 million). The construction sector, which accounted for 8 per cent of Indias GDP in 2009-10, therefore raised its share in employment to 9.6 per cent in 2010 from 5.5 per cent in 2005 (Figure 4). It appears that in rural areas social sector schemes such as MNREGA and rural road programmes have substantially increased construction jobs.
5.7 4.3
1999-00
2004-05
2009-10
As a result of weak employment growth, employment intensity - measured as the number of employed persons per lakh of real GDP declined to 1.05 during 2005-10 from 1.7 in the preceding five years (Figure 5). This remains a serious concern for a country that has the second largest working age population in the world, most of which continues to be low-skilled. For the much-desired inclusive economic growth, it needs to translate into a significant increase in jobs, especially in the manufacturing sector.
Figure 5: Employment Intensity = Number of persons employed per 1,00,000 Rs real output
5.43 5.11 4.30 1.18 0.80 0.73 1.24 0.75 1.71 0.47 1.05
0.97
1.08
2004-05
2009-10
2004-05
2009-10
2004-05
2009-10
2004-05
2009-10
2004-05
2009-10
2004-05
1999-2000
1999-2000
1999-2000
1999-2000
1999-2000
Agriculture
Industry
Manufacturing Construction
Services
Self-employment in manufacturing and services declines In addition to lower-than-hoped-for job creation, another area of concern emerging from our analysis is the apparent decline in entrepreneurship in the second half of 2000s. An analysis of data from the NSSO surveys reveals that, in the first half of 2000s, self-employment had surged by 65.5 million, while agriculture employment had increased by only 34.2 million (Table 4). This suggests that self-employment, or entrepreneurship, in other sectors had also increased substantially over this period. A study of industry-wise data indicates that the increase could have been driven by trade and hotels, and manufacturing sector. These two sectors had witnessed significant net additions to employment during this period. In the second half of 2000s, however, self-employment in sectors other than agriculture also appears to have declined.
Table 4: Changes in employment in million
2004-05 to 2009-10 Self employed Agriculture -25.5 -21.3 1999-00 to 2004-05 65.5 34.2
1999-2000
GDP
2009-10
would have to be to the tune of 88 million. Achieving this will pose an overwhelming challenge without appropriate policy support. Our analysis boils down to two questions - What policies would persuade existing firms to hire more? And what policies would create more number of firms across India and across sectors? The answers to these questions are well documented from the experiences of other countries including China. Large scale labour-intensive manufacturing units are a rarity in India, since the real cost of employing labour is high in manufacturing. For example, it is virtually impossible for a manufacturing company with more than 100 employees to fire any employee even if it is facing bankruptcy. Hence, demand for labour has not increased fast enough in manufacturing. In contrast, in the service sector, especially high-skilled services such as financial intermediation and business services, it is shortage of skilled labour that is constraining job creation. This is evident from the fact that wage growth in recent years in skill-intensive sectors has been strong. Understanding and alleviating constraints in labour demand in manufacturing and skilled labour supply in services would be the key for job growth. Indias economic policy urgently needs to address these issues to make the growth inclusive.
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