Here's what economists need to talk about: the phenomenon of underemployment
Low wages, fewer working hours, and more qualified for the job at hand? The difficult-to-track trend of underemployment can only be understood by proxy
Dinesh (who goes by only one name) runs a small labour contractor service out of a tiny and seedy office in New Delhi’s Kirti Nagar. His business model is to supply workers on-demand for small and medium-sized factories in the industrial clusters of the National Capital Region (NCR) — daily wage workers get paid anywhere between ₹500-1,000 a day depending on the nature of the work. Recently, Dinesh has found a stream of young people with graduate-level education — even from usual states like Bihar and Uttar Pradesh where several migrant workers come from — seeking daily-wage, menial factory jobs, from him.
These young workers, belonging to poor and lower middle-class households, bagged degrees ranging from bachelors in commerce to diplomas from polytechnic institutions, and hoped to get formal sector jobs in the manufacturing sector such as assembly line managers but find themselves working in casual daily wage jobs such as packers, movers and loaders, often getting paid less than what they hoped to. “They are no other jobs,” Dinesh said, noting that there is less demand for permanent jobs from factories that he caters to.
“Padhe-likhe hain. Degree hai,” Dinesh said. ["They are educated, they have degrees"].
This gap between education and employment was noted in the International Labour Organisation (ILO)’s recent report, India Employment Report 2024, which casts light on the severity and challenge of job creation in India even as the economy is one of the fastest growing globally. About 83% of the unemployed are under the age of 34, the report noted, and unemployment among young people with graduate degrees was about 28.7% in 2022. Yet, the unemployment numbers cited in the report do not include young college-educated workers who sign up for daily work at Dinesh’s bureau — they work and get paid in return.
They are part of a phenomenon called underemployment, which is more prevalent in developing economies.
What is underemployment?
Underemployment is when workers are able to find jobs, but the quality of the job isn’t adequate, meaning either the workers are more educated than the skills required to do the job or they are involved in casual work that pay low wages and lack the social security benefits of formal jobs.
When workers work for fewer hours than they want to, owing to scarcity of decent jobs in the economy, it is called time-related underemployment. According to the ILO, this was as high as 9.1% in 2019 in India before declining to 7.5% in 2022.
But economists say that underemployment is difficult to measure and to get to any real estimates of it, one has to look for proxy indicators. What is also concerning is what it does to a country’s economic future.
In an interview to the Financial Times, World Bank’s chief economist for South Asia, Franziska Ohnsorge said that India “risks squandering its demographic dividend.” Sustained underemployment leads to a rise in inequality and consumption, and affects future growth rates. Additionally, research has found that it is associated with stress and depression, affecting the mental wellbeing of workers.
“People will find whatever they can do. If there is no other work available, they will engage in any kind of manual labour that it is possible to get. What we have seen in the last 10-15 years [in India’s economy] is an increase in incomes, an increase in education and simultaneously an increase in youth unemployment,” said Sonalde Desai, professor of sociology at the University of Maryland in College Park in the United States (US) and principal investigator for the India Human Development Survey (IHDS), India’s first nationwide panel survey of over 40,000 households.
“We are kind of in a strange situation where we don't have a very good understanding of underemployment or the trend in it, because historically even when unemployment rates were notoriously low, underemployment existed because people were picking up jobs that were barely sustainable. [For instance], a worker who is foraging for wood in a forest in return for low incomes but working for 365 days a year,” Desai said.
Ohnsorge told FT that private companies in sectors such as manufacturing and services had not grown enough to absorb workers leaving the agricultural sector.
Less work, less income
According to Santosh Mehrotra, visiting professor at the Centre for Development Studies in University of Bath in the UK, a majority of rural workers — including youth — end up working in the construction sector, where jobs are precarious and wages are low. “Because non-farm jobs are not being created at a scale that is needed, workers have not come out of agriculture. This is a huge measure of underemployment,” he said.
Mehrotra points to the government’s Periodic Labour Force Survey (PLFS). The government provides two statistics in it, among other numbers, that come close to estimating the prevalence of underemployment in the economy: self-employed workers and unpaid family labour, both of which increased between 2020 and 2023.
About 50 million unpaid workers were added to this category after the pandemic, and the share of self-employed workers increased to 57% of the total workforce in 2023 when compared to 52% in 2019.
“This is an alternative measure of underemployment,” Mehrotra said.
Even as women’s labour force participation rate in India is among the lowest, government data showed that it registered an increase in 2019 and the trend continued after the pandemic. Women’s labour force participation rate in India increased to 37% in 2023 compared to about 30% in 2019, according to the government.
However, Mehrotra said that this is a sign of economic distress and most of these jobs were taken up by women as unpaid family labour, where underemployment is persistent. He said that the ILO doesn’t consider unpaid family labour as employment while the Indian government does, this masks the reality of India’s jobs situation.
Additionally, workers who belong to traditionally lower caste groups are engaged in jobs where underemployment is high. For instance, an analysis of government data indicates that a majority of workers belonging to Scheduled Caste (SC) community work jobs in waste management and sewerage, and leather industry.
A 2023 fact sheet titled ‘Unsafe and Underpaid: Working Conditions in South Asia’s Leather, Leatherwear, and Footwear Factories’ put together by Together for Decent Leather, a programme of a European-Asian consortium of seven civil society organisations, found that on average, workers in the leather industry in India earn wages that are below minimum wages, and in workings conditions that are poor and detrimental to their health and general wellbeing.
What must be done about this?
One reason underemployment is prevalent in India is because young people cannot afford to wait for the right employment opportunities because they do not have financial savings, Desai said. “There is a waiting period for a young person, particularly one with a college degree, to get desirable employment. Once you don't get it, you go back to whatever you can get.”
“What do people do in rural areas once they get educated? They want to come to the city and work, even if it is of lower productivity and lower pay,” Mehrotra said, noting that there is a dearth of decent employment opportunities available for them, which pushes them to take whatever is available in the job market.
Mehrotra said that such a large number of workers cannot be absorbed by prioritising investments only in electronics and semiconductor factories. He said that the government should promote investments in labour-intensive manufacturing sectors consisting of factories that employ a large number of workers.
“We are creating employment on a tiny scale in the organised sector. But these workers we have been talking about [the ones who are categorised under unpaid family labour] are not capable of being absorbed in a Foxconn factory [alone],” he said
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