The growing disconnect between economic growth and jobs

Data indicates a slowdown in job creation and the inability of growth to boost employment opportunities


An eight-sector yardstick of employment in India published by the Labour Bureau showed that job growth in India fell to a six-year low in 2015. Photo: HT
An eight-sector yardstick of employment in India published by the Labour Bureau showed that job growth in India fell to a six-year low in 2015. Photo: HT

Indian gross domestic product (GDP) estimates for January-March 2016 will be released on 31 May and we’re likely to see another round of celebratory back-slapping on the increase in the economy’s growth rate. Unfortunately, though, that isn’t resulting in commensurate job growth.

A huge gap exists between GDP growth and employment generation. Data indicates a slowdown in job creation and the inability of growth to boost employment opportunities.

An eight-sector yardstick of employment in India published by the Labour Bureau showed that job growth in India fell to a six-year low in 2015. The survey shows that in the eight key labour-intensive industries, only 0.1 million jobs were created last year, compared to 0.4 million jobs created in 2014, even worse than the former low of 0.3 million in 2012.

Another worrisome factor is the persistent decline in employment elasticity—which is a measure of how employment varies with economic output. According to HDFC Bank estimates, it is currently very low, at a mere 0.15. While there is conviction that the Indian economy is on its way to a cyclical recovery, buoyed by infrastructure investment and urban consumption, past trends raise doubts on whether that will translate into proportionate employment increase.

Falling employment elasticity has led to a gap between the level of job creation and the rise in workforce and to bridge this gap the current pace of economic growth would not be enough to create adequate number of jobs.

When Mint asked Abheek Barua, chief economist, HDFC Bank, to rate the gravity of this issue (the slump in employment creation) on the scale of 1 to 10, he said, “It would certainly be 8.” Since it is a problem that has been there for more than five decades, it would take time for things to fall in place, he added. While the government has recognized what the problem is, it needs to tweak some aspects of the existing ‘Make in India’ scheme to maximize employment generation, he suggested. In its present form, the Make in India scheme is heavily skewed towards skilled manufacturing and high-end services and there is need to revise its pattern.

A report dated 24 May 2016, authored by Barua and released by HDFC Bank, titled Naukri.kum, highlights the issues that have constrained the development of the manufacturing sector in India, which is seen as one of the key reasons for subdued job growth.

Another reason for lack of jobs is the shortage of skilled labour. The Economic Survey of 2014-15 said that the present skilled workforce in India is only 2% of the labour force. There is need to make technical training more compatible with the needs of the employers. Says Barua, “The growing disconnect between economic growth, education, skilling and jobs is particularly distressing, given the fact India is entering its demographic sweet spot, with entrants into the work force likely to increase exponentially going forward.”

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