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Jobs and the population

India's labour laws come in the way of hiring. A multilateral approach is needed to enable industry to hire 110 million more workers by 2020. Abhijit Patnaik writes. Hiring sentiment in industry and services

delhi Updated: Oct 20, 2010 01:13 IST
Abhijit Patnaik

This year's economics Nobel Prize, awarded to Christopher Pissarides, Peter Diamond and Dale Mortensen, has put the focus back on unemployment.

Nuanced questions such as why unemployed workers coexist with vacancies and the length of spells of joblessness have been answered by the awardees by recognising the prevalence of 'search' costs in terms of the time needed to look for jobs and for employers to fill vacancies, money, lost opportunities, etc.

Job seekers in India face similar issues in their hunt for that ideal position. However, we have another problem that affects our unemployment figures – more serious than the prevalence of 'search' costs.

The problem of job creation
India is going to add 110 million new workers in the labour force by 2020, according to a report by Goldman Sachs (GS). To put this in perspective, the International Labour Organization projects China's labour force to increase by merely 15 million over the same period.

The figure highlights the unique demographic advantage India will have – a young, productive workforce able to push India's growth. But challenges lie ahead. Unemployment among the youth (age 15-24 years) in rural areas was a high of 12-15 per cent in 2004-05, according to the "Report to the People", released by the Ministry of Labour and Employment in July 2010 – particularly worrying since this is what will comprise the demographic dividend.

Approximately 8 million potential jobs could not be created because of economic slowdown in 2008, according to the same report. The GS analysis suggests that industry alone would need to create some 40 million jobs over the next 10 years to absorb part of this 110 million additional workforce.

All this leads us to ask the 10-million Kronor question: How will India be adding these many jobs in the next decade?

Online job site tracks white-collar jobs through monthly indices. The September 2010 Job index registered a 22 per cent jump over September 2009, underscoring a positive hiring sentiment. But this is mainly led by the services sector.

In the past two decades, India has seen a large increase in this sector (average growth of 9 per cent over the last 10 years). Is the service sector-led growth in employment going to be India's salvation?

"In manufacturing, more and more capital is being employed. With liberalisation, technology was easy to access through imports beginning in the 1990s. Capital is accumulating in the system but labour is not getting skilled enough, and as a result capital productivity too has gone down," says Gunajit Kalita, researcher at the Indian Council for Research on International Economic Relations (ICRIER).

"Bypassing manufacturing is a wrong growth trajectory for a labour-surplus country like India. The share of industry has been around 17 per cent for the last ten years – evidence that it is being bypassed," says Kalita.

Skill gap
As highlighted by the Nobel awardees' research, thousands of jobs also remain unfilled because candidates do not possess the required skills.

"Employment in India is growing – but the real challenge is the pool of qualified talent. Skill-sets are a challenge faced by corporates," says Sanjay Modi, MD, Monster India, another online Job portal.

There are 19 ministries and departments that have something to do with training and creating skills. Two years ago, the National Skills Development Corporation (NSDC) was established under the finance ministry. It has taken almost two years for the NSDC to find a chief executive, let alone achieve any results.

Labour laws
Indian labour laws are some of the most rigid and pro-worker in the world. Will changing them make a difference? After all, the organised sector forms a fraction (6 per cent) of the workforce. Or is this figure low because of the laws?

"Textiles and manufacturing leather goods in India are huge employers, but the products are seasonal. In one season they might need 300 workers, in others 1,000. Labour laws don't give employers the flexibility to hire and fire in such cases," says a pessimist Kalita.

"In the last five years, the more than 6 per cent growth has not made any dent in employment. I think even 13-15 per cent growth in GDP may prove to be insufficient for the kind of employment we need to generate. The demographic liability is even worse if we have a highly educated population that is unemployed," he added.

Given the challenge of employment generation that India faces, enabling Indian industry to hire more and more workers, a multilateral approach addressing these key concerns is the need of the day. After all, demographics alone can contribute about 4 percentage points to GDP growth, according to the GS report, putting India firmly as the fastest-growing economy in what could well be the Indian decade.

Hiring sentiment in industry and services