Self-employment is a problem rather than solution for India’s job challenge
To be (selling pakodas) or not to be (selling pakodas) has become the Hamletian question of sorts in the great Indian job debate. The opposition has taken to organising protests using pakodas as a prop. The BJP is attacking those who have described it as equivalent to begging. Jokes and memes apart, the issue at hand is worth examining.
Prime Minister Narendra Modi has often reiterated the need for Indians becoming job-creators rather than job-seekers. His speech at the World Economic Forum in Davos also dwelt on this. Does petty self-employment, which is what setting up a pakoda stalls entails, promise a solution to India’s employment challenge? It is a part of the problem rather than a solution shows a statistical analysis. Providing quality employment rather than high unemployment is the biggest challenge in India’s labour market.
A comparison of unemployment rates in India and OECD countries (group of developed countries) shows that it has always been much lower in India (See Chart 1). Latest estimate puts it at around 3.5%, against OECD’s 6.1%. This seems extremely counter-intuitive at face value. If unemployment in developed countries is higher, we should be witnessing reverse migration i.e. British and German people coming to countries like India in the search of work. Why does this not happen?
Unemployment numbers do not tell us anything about earnings associated with jobs people are doing. A PhD holder working as a peon or selling pakodas would be considered employed, technically speaking. A 40-year-old technocrat who has stopped looking for a job after getting laid-off from an IT company would not figure in unemployment calculations. This is because unemployment rates are calculated on the basis of labour force which means persons working or looking for jobs, and not population.
Detailed earnings data is difficult to get to in India. But what is available paints an alarming picture. Latest National Sample Survey Office estimates for 2009-10 show that even people in regular jobs earned less than Rs 7,000 and Rs 11,000 per month in rural and urban areas. Earnings were much less in casual work. Among self-employed persons, the share of those who found their work remunerative was below 50% and 60% in rural and urban areas respectively.
Many among those who found their self-employment remunerative could be case studies in contentment with life. The share of self-employed persons earning less than Rs 3,000 per month who found their earnings remunerative was more than one in five in urban areas and just under half in rural areas. Such earning levels can hardly allow a person to lead a dignified life.
Another database which highlights the dominance of petty employment in India is the 2013 Economic Census. It shows that 45% of workers are working in economic establishments which do not even employ one hired worker. This share is more than 70% in case of number of establishments (See Chart 2-A). When read with the NSSO data on earnings in self-employment, this suggests that most of these people would have abysmally low earnings. A self-employed person is also unlikely to have any social security or retirement cover.
What is even more alarming is that the share of such employment has been increasing in the last two decades (See Chart 2-B). This is more likely to be a result of sluggish growth in better job opportunities rather than an entrepreneurial revolution in India. The fact that most poll-surveys in India list employment as the biggest issue supports such an argument.
Mushrooming of agitations demanding reservations by dominant castes such as patidars, jats etc., is yet another proof of strong preference for regular jobs. Dalit-OBC groups are pushing for reservations in private sector, indicating that there aren’t enough reserved jobs in the public sector.
The opposition made sure that the BJP paid a big political cost for Mohan Bhagwat’s comments against reservations in the 2015 Bihar assembly elections. It would be interesting to see who gains from the ongoing polemics on making a virtue out of poorly paid self-employment.