What will India’s employment challenge look like going forward?

Labour markets do not operate in vacuum. They are deeply affected by the demographics of an economy. If the working age population is increasing, it means a growing demand for jobs as well.

On March 22, the National Statistical Office (NSO) released the quarterly bulletin of the Periodic Labour Force Survey (PLFS) for the July-September 2021 period. Although quarterly PLFS reports only look at urban employment, the report had a sobering finding: unemployment rate in this period was still higher than pre-pandemic levels despite the fact that GDP in the quarter ending September 2021 crossed pre-pandemic levels. Will this trend reverse ? What will be India’s employment performance in the long term? Here

(AFP (Representational photo))

Headline trend of rising share of working-age population hides regional divergences

The overall number on additions to the country’s working-age population hides significant regional differences. For example, the share of working-age population by latest SRS data is the highest in southern states such as Telangana and Andhra Pradesh, but lowest in states such as Bihar and Uttarakhand. The share of young population is significantly higher in the northern and eastern states compared to in the south. It means the north and east will see a faster growth of working-age population, which will require higher jobs growth. As the population in the southern states gets older, it will add to the dependency burden on those working. A good way to understand the relative burden of job creation and supporting dependents across states is to compare the relative share of different states in India’s working population – the ratio of a state’s share in India’s working-age population and overall population – in 2011 and 2036.

But population levels are not the only factor which shape labour market outcomes

While the share of working-age population is an important factor in labour market outcomes, it is not the only one. Others such as social norms, nature of work, and educational enrolment also play an important role. For example, an improvement in educational enrolment can delay the age at which people enter the labour force, or people from the working-age population who are either working or looking for work. A person with higher educational levels might not be amenable to working in non-skilled jobs (such as farm labour). This means that a lack of concomitant growth in high-skilled or what are perceived as respectable jobs with rising educational levels can lead to a rise in unemployment rates, or even a fall in Labour Force Participation Rates (LFPR). Both factors seem to be at play in India, which has seen a growth in youth unemployment and a fall in LFPR for the young population in the recent period, when growth rates (and perhaps the number of quality jobs) underwent a deceleration. This disturbing trend underlines the importance of producing quality jobs.

There is also the challenge of improving labour market outcomes for women

India has among the lowest LFPR for women among major economies of the world. LFPR for women has seen a reversal in trend in the recent past. World Bank data that uses the International Labour Organisation’s modelled estimates shows that female LFPR was increasing in India until 2005 (except marginal decreases between 1995 and 2000) and has only started declining since . This is ironical because other demographic and socioeconomic indicators such as educational attainment, fertility rates, and age of marriage for women suggest an improvement in the condition of women.

Economists are divided on the reason for the fall in female LFPR. A 2017 paper by Santosh Mehrotra and others reasons that only supply side factors contribute to the declining female LFPR in the long run. They argue women are voluntarily dropping out of the labour force as their household incomes rise and societal norms condition women to stay at home.

However, a 2014 ILO paper by Steven Kapsos and others argues that while both demand and supply side factors are to blame, lack of adequate employment opportunities has played the biggest role in women withdrawing from the labour force. A similar finding was reported in a survey commissioned for the 2018 State of Working India report published by Azim Premji University.

Another 2021 paper by Ashwini Deshpande and Jitendra Singh underlines the need to create more jobs for women to retain them in the labour force for two reasons. One, women are more vulnerable to losing jobs than men. Two, men are taking away women’s jobs in large industries. “The aggregate employment in these industries -- construction and manufacturing -- has fallen both for men and women, but it has disproportionately affected women as female employment has fallen by more than 40%in both (between 2016 and 2019). Most surprisingly, while total employment has increased in the education sector, women’s (absolute) employment has declined in this industry where women are assumed to have a comparative advantage and have been traditionally better represented,” write the authors.