Employed but Unhappy?

A report by the Institute of Applied Manpower and Research indicates that the country witnessed job creation at an unprecedented rate over the past twelve years

Creating more jobs has been a constant refrain among party manifestos for the Lok Sabha elections. However, according to the latest report by the Institute of Applied Manpower Research, in spite of the slow rate of growth, the number of jobs has gone up manifold between 2000 and 2012. It’s an important document that not only analyses the trends in employment across different sectors, but also points out the shortcomings in policy based on the findings.

The paper also studies the effect of the contribution of women in the labour force. Between 1999 and 2005, there had been a sudden spurt in the labour force by almost 20 million. It was found that such an increase was largely due to women joining the workforce, in what came to be known as ‘distress employment’. In fact, women joining and withdrawing from employment has been responsible for some of the biggest fluctuations in the employment statistics over the past ten years, and the paper advises policymakers to factor in their return to employment in the future while striving to create more jobs.

Another important reading of the paper has been about the consequences of the rise in real wages of the bottom pyramid. This has resulted in increased consumption and decline in poverty levels. Lastly, the report also points out the difficulty faced by small and micro enterprises when they’re looking to expand their capital. Most firms like to confine themselves within the small and micro category even if they wish to expand, as government schemes cease to apply to a firm the moment it crosses over into the medium category. The same applies to labour laws; there is a strong disincentive for firms to limit their worker strength to 100, owing to the constraining aspect of the Industrial Disputes Act.

What’s also baffling is that the incumbent UPA government has not yet used these statistics to stem the tide of accusations about slowing down growth and lowering the employment rate in the country. Perhaps the government thinks it’s already too late to rescue the mother ship.

Following are the key trends in employment over 2000-2012, and the paper attempts an explanation of each. Executive summary of IAMR's Occasional Paper No.1/2014 titled, "Why a jobs turnaround despite slowing growth?" authored by Santosh Mehrotra, Sharmistha Sinha, Jajati K Parida and Ankita Gandhi

• A shift away from agriculture to non-agricultural employment has gained momentum. Prior to 2004-05, only the share of agriculture in the workforce was falling (from 60 to 49 percent between 1999-2000 to 2011-12). For the first time in India’s post independence economic history, there has been an absolute fall in the numbers employed in agriculture – by 36.7 million during 2004-05 to 2011-12 – because the number of non-agricultural jobs is growing.

• Non-agricultural employment grew by 52 million to reach 242.3 million in 2011-12, as against 190 million in 2004-05. While non-agricultural employment grew by 7.5 million per year over 1999-2000 to 2004-5, it also grew by 7.5 mn. pa over 2004-5 and 2001-12. However, the numbers joining the labour force during 2000-2005 was 12 million pa., but fell to 5.5 million between 2004-05 to 2011-12. The result was that the rate of open unemployment fell.

• Increase in employment in construction sector along with increased infrastructure investment gave a major boost to total employment attracting agricultural workers, contributing to a rise in rural wages.  The biggest increase in non-agricultural employment has been in construction, both rural and urban, from a total of 17 million in 2000 to 50 million in 2011-12, with a doubling in total employment in a matter of seven years since 2004-05.

• Employment in manufacturing sector increased by 9 million during 2010 to 2012, even though it had fallen by 3 million between 2005 and 2010. There has been a recent rise in employment elasticity of manufacturing output, which may well be sustained, since rural consumption has risen significantly over the last decade. The paper identifies the factors underlying the trends:

a)  It finds that with increasing female education, fall in girl child labour, mechanization in agriculture, and increase in household income, girls and women withdrew from the labour force. The withdrawal by women is a major contributor to employment trends since 2004-05 just as their joining the labour force at a time of stagnant agriculture (1999-2000 to 2004-05) had been a reason for the apparent rise in 20 million ‘jobs’ in agriculture in the first half of the decade (when in fact it was distress employment).

b) Fewer people were available to join the workforce due to rising enrolments in school and continuing into education, including for boys and men. This trend significantly intensified after 2004-05, although it had begun earlier.

c) Rise in wages, mechanization in agriculture, and increased investment in infrastructure and housing were the reasons for the shift of workers away from agriculture to non-agriculture.

d)  The decline in manufacturing employment during 2005-2010 was a result of three sets of factors: falling demand for manufacturing exports, rising import-intensity of manufacturing output; and rising wages, with the latter two raising capital intensity. However, just as manufacturing employment grew by 11 million between 2000 and 2005, it grew again most recently between 2009-10 and 2011-12. In fact, it grew much more sharply in these two years (by 9 million) than it had between 2000 and 2005.

e)  Decline in poverty and rise in consumption, as an outcome of the rise in real wages, has driven demand for simple consumer goods at the bottom of the pyramid, driving manufacturing employment in the low-productivity small scale enterprises. Based on these trends, the paper makes the following policy suggestions to increase non-agricultural employment. Fluctuations in total employment in the past decade can in part be attributed to women joining and withdrawing from the workforce. If women are voluntarily withdrawing from work to continue their education, policy-makers should be concerned about providing jobs to these educated girls and women who will join the workforce in coming years.

• Women often do not have access to quality training, especially in rural areas on account of very few training centres (ITIs), infrastructure bottlenecks (safe transportation), and lack of female instructors. Skill development will raise the possibility of increasing women’s labour force participation.

• Developing specific policies towards developing a supportive care economy and women friendly/oriented jobs in and around the village/city will help women to join the labour force.

• Young men too face employability issues that derive from their poor level of skills and need adequate training. India has millions of micro-enterprises, and a small number of large enterprises by size of employment. Thus, there is a missing middle among Indian non-agricultural firms. To address the missing middle there is a need to minimize the disincentives for growth of firms.

• There is an inbuilt disincentive system facing the micro and small enterprises (MSEs) to invest in capital and expand. The criterion of investment in plant and machinery is used to determine whether it is a MSME. There are both financial and non-financial incentives and benefits from the various government schemes for the first two categories: micro and small enterprises. These incentives disappear, and the enterprise loses all the benefits if it grows (increases its investment) beyond Rs.5 crore.

• Indian firms have been exposed to labour laws for over three decades, and have learnt to survive with them and have adjusted their operations in line with the requirements of various labour regulations; hence, in enterprise surveys conducted by the World Bank, firms say that labour laws are 4th or 5th in the constraints faced by firms. However, firms face over 50 central government and several dozen state laws in addition. Moreover, firms tend to operate in smaller sizes or hire contract labour rather than permanent labour to stay out of the ambit of the Industrial Disputes Act. Factories employing less than 99 workers are about two thirds of all factories surveyed under ASI. There is a cliff at 100+ workers; a visible fall in the percentage of factories with over 100 workers. Concerted efforts are needed to support transition of smaller enterprises to medium ones with government support or tax incentives.

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