Workforce grows, but job creation fails to keep pace

About 26 million people joined the potential workforce in the year to August 2017, while only about 1.5 million people were employed on an incremental basis, according to survey data provided by BSE-CMIE.

The population in the age bracket 15 years or above (the potential workforce) was up from 942 million to 968 million, while the number of employed increased from 403 million to 405 million. BSE-CMIE conducts three surveys in a year on employment – with a sample of 1,01,724 households across 25 States.

According to BSE-CMIE, at least 16 million people are unemployed today. Many economists have said that if the pace of job creation is not accelerated, the ‘demographic bonus’ could become a ‘demographic onus’.

About 12 million people are expected to join the Indian workforce every year till 2050, according to the 2017 UN population estimate, mandating that many jobs to be created every year.

If not for demonetisation, it is likely that the employment figures could have been higher. According to BSE-CMIE estimates, job losses due to demonetisation were about 1.5 million.

Also, to some extent, data indicate that education plays a role in widening the gap. The number of employed in the 15-24 age bracket was down by about 10 million to 44 million in the last one year. This pulled down the overall employed figures as of August 2017.

While it is likely that some of them are studying, one cannot rule out the possibility of some others preferring to be homemakers. After all, labour force participation among women, at 11 per cent (as compared to 72 per cent for men), is among the lowest in the world.

None of the 25 States in the survey managed to create more jobs than the addition to the potential workforce. Uttar Pradesh, Maharashtra, Bihar, Tamil Nadu and Andhra Pradesh were the worst in terms of potential job ‘gaps’. Uttar Pradesh had a ‘gap’ of 4.5 million in the last year, followed by Maharashtra (3.1 million), Bihar (2.5 million), Tamil Nadu (2.3 million) and Andhra Pradesh (2 million).

Interestingly, in a 2011 paper titled ‘The Demographic Dividend : Evidence from the Indian States’, authors Shekhar Aiyar and Ashoka Mody discussed emerging demographic patterns and their opportunities and challenges for India. They pointed out that a substantial portion of GDP growth acceleration experienced since the 1980s was the result of changes in the country’s age structure (and not a result of economic reforms as commonly believed to be).

They expected income convergence to happen among States, with the poorer States of Uttar Pradesh, Bihar and Madhya Pradesh ‘catching up’ by reaping the demographic dividend. Unfortunately, while the number correctly predicted larger addition to workforce from the States of Uttar Pradesh and Bihar, jobs are not being created to that extent.

Among the populous States, Madhya Pradesh and Rajasthan fared better. While Madhya Pradesh added 1.5 million to its potential workforce, it added 1.3 million jobs in the last one year.

According to Anurag Malik, partner–people advisory services at EY India: “The government needs to focus more on sectors with higher employment elasticity to catalyse job creation. Employment elasticity to output has been declining across core sectors with optimisation of technologies and supply chain systems.”

Employment elasticity to output was about 0.2 during the period 1993-2012 indicating that every 10 per cent change in real GDP led to a 2 per cent change in employment. It fell from the level of 0.4 witnessed in the 1980s. Currently, sectors such as construction (1.1), apparel (0.79), leather and leather products (0.64) have relatively higher employment elasticity as against utilities (0.04), trade and transport (0.2).