Need of Employment Generation in Indian Economy

Arun Kumar

Economists associated directly or indirectly with the government have been arguing that there is not much unemployment since enough employment is being generated. Further, they argue that the amount of employment required to be generated annually is not too large.

Mr. Bibek Debroy (BD), heading the PM’s Economic Advisory Council, in an article titled, `A top-down code’ (Indian Express, May 11, 2023) argues along these lines. He says that analysts are ignoring the drop in the population growth rate from 1.5% earlier to (possibly) 0.8% now. He asks, `…how many jobs India needs to create every year.’ Further he states, `When one encounters figures like 10 million or 12 million, one often doesn’t realise these are dated figures, … circa 2003-04’. He suggests, `A rough range might be 5-8 million.’

Labour Force

Given BD’s position his statements reflect thinking in the government and need proper analysis. First, how is the current population growth rate relevant to the present increase in the labour force in the country? The labour force counts those in the age group of 15-64 (ILO definition) who are looking for work. The current population increase will impact the labour force 15 years later when those born this year will potentially join it.

So, even though DB discounts circa 2003-04, children born then are precisely the ones that have been entering the labour force since 2018-19 after obtaining a high school degree. In 2020-21, those obtaining an intermediate degree could have joined and in 2023-24, after obtaining an under graduate degree, etc..

Further, even after obtaining a degree, they may not join the labour force since they may be preparing for various examinations – for police, army, civil services, banks and so on. Eventually, all of them will join the labour force. The children of the poor and lower income class cannot afford to remain unemployed for long. Middle class children also have to start working as they face increasing social pressures. Very few of these young become entrepreneurs given the need for capital and skills which very few have, even in the middle classes.

How Many Need Work?

Second, it is the birth rate and not the rate of population increase that is relevant. Population increase equals the births minus the deaths. A vast majority of the deaths occur at a later age and not among the young. Now, with longevity in India at above 70 years, most will die after the age of 50 years. Children also have higher mortality. So, we can subtract from the number of births in a given year the deaths among the under 5 years. Assume a negligible number will die at ages of 5 to 50 years. So, for the number of people entering the labour force, the death rate is not that crucial.

Applying the birth rate for a given year to the population gives the number of births in that year. Subtract from that the deaths among children below 5 years of age. That gives the increase in the potential number of young who can join the labour force 15 years later (at age 15). So, in 2000, the increase comes to 28,061,890, in 2002 the figure was 27,990,015, in 2005 it was 27,783,231, in 2007 it was 27,456,018 and in 2022 the increase was 24,167,206 (See Table 1)

Why are these years selectively picked? They indicate that the potential young are increasing at the rate of 24 to 28 million in the period 2000 to 2022. Further, these years are relevant because it is in those years that children in 2022 would have obtained high school, intermediate, under graduate and graduate degrees and possibly gone out to look for work. They potentially enter the labour force. Education data tells us what per cent of the relevant age group enrolls for each of these degrees. So, those not enrolling would potentially join the labour force.

Calculating this way (Table 2), the numbers potentially joining the labour force in 2022 would be, 17,928,780 from those born in 2007; 2,583,841 from 2005; 5,598,003 from 2002 and 1,403,095 from 2000. The total comes to 27,513,718.

Fewer women are likely to join the labour force for a variety of social reasons so the above numbers have to be segregated between women and men. In 2022, there were 1068 men for every 1000 women. This means that 48.35% of the total number above would be women, that is, 13,304,506. Assume 25% of them will not be able to work for social reasons.

This yields a number of 24,187,591 potential young who could enter the labour force in 2022. Some of them would prepare for various exams. But, those from earlier years who have already spent years preparing for examinations would join the labour force. Actually, if enough work was available, most of them would not appear repeatedly for many of these exams. Some of the young will go abroad for work and/or studies but their number is small compared to the total. Many of them may also not go abroad if work was available.

Unorganized Sector

The organized sector is mechanized and automated and generates few jobs. That is why 94% of the labour force is in the unorganized sector, largely working at low wages. On the e-shram portal 28 crore are registered and 94% report earning less than Rs.10,000 per month. The growth of the organized sector at the expense of the unorganized sector results in rising unemployment.

Unemployment has been characterized as

a) unemployed

b) under employed

c) disguised unemployed

d) those who have stopped looking for work. Simplified assumptions give the figure of those needing proper work at 286 million; all of them from the unorganized sectors.

Only 332 million have proper work and most of them also work in the unorganized sector.

How to generate more work in the economy requires another article. But, the above makes clear that if the policy makers talk of creating work for 5-8 million young that will barely scratch India’s unemployment problem.

Based on the Report of the `People’s Commission on Employment and Unemployment’ set up by Desh Bachao Abhiyan. Launched on October 11, 2022. Author was the Chairperson.

Tables Given below

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Source: India Birth Rate 1950-2022. Macrotrends. Accessed 25 October 2022. 

Notes: Column 2 is based on projections for intervening years. Column 4 is based on projection from 2000 to 2022. Column 7 is based on data in Table 2 Below. 

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Note: Numbers are as explained in the Text.

This article was first published in The Hindu as How much employment generation does the economy need? on July 4, 2023.

Read more by the author: A Comparative Analysis of India’s Economic Progress Under Nehru and Modi