For India’s vast army of unemployed, zooming white-collar salaries and fat eight-figure pay packets for management greenhorns must seem like news from another planet.
Actually, it is jobs on shop floors and construction sites that will ensure that more Indians benefit from the economic boom, rather than just those who can write software or make a smart PowerPoint presentation.
The good news is that the era of jobless growth is over. Data from the National Sample Survey shows that job creation grew 2.8% between 1999 and 2004, almost three times the 1% rate we saw between 1993 and 2000.
In a new report, the Asian Development Bank (ADB) says that over the past five years, industry (including construction) has created more jobs than services. New employment in industry grew 5.8% a year over 1999-2004. Jobs in the services sector grew 3.9% a year. This is an important structural shift in the Indian economy.
A bulk of the new jobs have gone to people with relatively less education, perhaps an indication of growing inclusiveness. This proves, as some economists such as Abhijit Sen have already pointed out, that the long-overdue shift of excess hands from farm to factory has begun.
Where are these jobs? Mainly in low-end, low-skill manufacturing sectors like textiles and apparel and industries working with wood, such as furniture. A few of these job- creating sectors are related to construction, which is going through a boom.
It is also very likely that these jobs will have been created in the informal sector, where labour productivity is low. This is in tune with a recent IMF study that finds low rates of job creation in formal manufacturing.
The policy implication is that one way to absorb excess farm labour is to help sectors such as construction and textiles to grow further. India needs more labour-intensive manufacturing that has the ability to give jobs to the unskilled millions.
Will this trend continue? The employment pattern so far, especially in services, throws up some answers. The future will be nothing like the recent past. Manufacturing’s share will grow, as will that of construction. Wholesale trade and transport are on the rise. And, to bust a common myth, the high-end sectors like business process outsourcing, infotech and related sectors are not exactly the honeycombs that they are made out to be. Perhaps they are from the point of view of competitive salary hikes for a handful of workers, but certainly not in the context of the overall economy.
The reason: The share of “the knowledge economy” in total employment, though growing, is very small. Some skill-oriented industries have indeed expanded, resulting in sharp salary hikes, but not well enough to absorb all the educated. Nor is the acute constraint of workers with the right skills likely to ease anytime soon. The education level of workers in all sectors is now higher than before, but the payoff of a better education has reduced.
In fact, according to ADB, a benefit of the growth in India’s IT-enabled and business services, which has doubled its employment in numbers, is the matching growth in complementary low-end businesses such as photocopying and equipment renting, which must have absorbed many people.
Looking ahead, the infrastructure sectors, which are now groaning under capacity constraints and seeking to expand fast, will need many new people. And since demand-driven growth is characterized by supply constraints in many emerging areas too, market-driven temporary responses will come up. The share of the informal sector will expand even further in the hurly-burly of growth.
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