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Business News/ Opinion / Blogs/  The jobs debate

The jobs debate

What explains the mystery of job growth slowing so drastically just when growth spiked up so rapidly?

The raw employment numbers during the UPA’s reign indeed look depressing even though economic growth was higher in the UPA than in the NDA period. Photo: Mint Premium
The raw employment numbers during the UPA’s reign indeed look depressing even though economic growth was higher in the UPA than in the NDA period. Photo: Mint

The health of the economy occupied the centrestage of the political battlefield this week, as the ruling United Progressive Alliance (UPA) and the opposition National Democratic Alliance (NDA) engaged in a spirited debate on India’s economic performance. A major bone of contention was the slower pace of job growth in the UPA’s 10-year reign compared to the preceding five-year period, when the NDA was in power.

The raw employment numbers during the UPA’s reign indeed look depressing even though economic growth was higher in the UPA than in the NDA period. In the seven years between 2004-05 and 2011-12, when gross domestic product expanded at an average rate of 8.5%, there was new work for only 15 million people, compared with 60 million in the five years to 2004-05, when the country’s economy clocked an average 5.7% growth, data from the National Sample Survey Office (NSSO) shows.

What explains the mystery of job growth slowing so drastically just when growth spiked up so rapidly? The answer lies in the data itself. A closer look at the data suggests that the aggregate numbers mask two structural shifts in India’s labour market: a massive withdrawal of women from the labour force in recent years and steady growth in non-farm jobs, primarily in building and construction.

Roughly 30% of new jobs during the NDA period were poorly paid agricultural jobs, which women took up in distress. As rural incomes went up, many women quit such distress jobs, leading to a fall in the labour force participation rates. As a result, if one looks at the unemployment rate, it has not risen during the UPA period. The withdrawal of women from the labour force also partly explains why rural wages have risen sharply during the UPA era, with casual wages for rural women outpacing those for men.

Unfortunately, just like the debate on the poverty line in India, the popular debate on the issue tends to gloss over the nuances involved in evaluating labour market changes in a developing labour market such as that of India.

Does all this mean the UPA has a shining record in job-creation as UPA spokespersons would have us believe? Well, that would be stretching things a bit too far. The net additions to non-farm jobs in the seven years to 2011-12 at 6.9 million was indeed higher than the corresponding number for the 11 years between 1993-94 and 2004-05, when the economy added a net 5.9 million new non-farm jobs each year. But if one looks only at the NDA period (1999-2000 to 2004-05), one finds that the pace of job creation in the non-farm sector was higher than in the UPA period. During the five years leading up to 2004-05, the economy added a net of 8.4 million new non-farm jobs each year.

The UPA’s employment record is not as bad as Yashwant Sinhawould have us believe. Still, the NSSO numbers show that employment generation in the non-farm sector was slower in the UPA period than in the NDA era. The key to this slowdown is the manufacturing slump in India. As the labour economist Jayan Jose Thomaspointed out in a Mint opinion piece, the pace of job creation in the unorganized manufacturing sector decelerated markedly in the past decade: from 12.6 million new jobs between 1993-94 and 2004-05 to just a little over a million new jobs between 2004-05 and 2011-12.

The UPA would have a far better legacy to defend had it focused on creating decent manufacturing jobs rather than seeking to artificially protect employment through an ill-designed rural employment guarantee program. As Pranab Bardhan, emeritus professor of economics at the University of California, Berkeley, argues, the brains behind UPA’s marquee welfare schemes did not pay enough attention to improving delivery mechanisms, leading to a wastage of public resources.

While most economists agree that growth in the UPA period has not been entirely ‘jobless’, they are a divided lot when it comes to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). MGNREGA votaries (and there are several of them in the economics profession) tend to point out its role in empowering women and the deprived: things that are very hard to quantify even if sophisticated econometric techniques are used. Opponents tend to attack it as an artificial boost to the minimum wage level in India that has created labour scarcity, driven up rural consumption, and fed inflation: things that may as easily have been caused by factors other than MGNREGA.

I would think both proponents and opponents tend to exaggerate the labour market impact of MGNREGA, given that the implementation of the scheme has been extremely patchy in most states and has led to large leakages . The past few years have seen several other changes in rural India: an expansion in the rural road network, growth in agricultural productivity (partly owing to better weather), higher educational enrollment and growth in construction jobs that have shrunk the agricultural workforce, and an unprecedented boost in farm support prices, all of which have combined to drive up wages and incomes at the bottom of the pyramid. As Indian Statistical Institute-Delhi economist Kanika Mahajan pointed out in a Mint opinion piece, adjusting for agricultural productivity growth alone could explain much of the rise in wage growth that is ascribed to MGNREGA.

MGNREGA also appears a much more leaky strategy to empower deprived social groups compared to conventional development strategies, which encourage rather than stem rural-urban migration. It is not for nothing that B.R. Ambedkar, an economist by training and the greatest champion of Dalit empowerment, believed that the solutions to India’s agricultural and rural problems lay in urbanization and industrialization.

Analyzing the problems of low labour productivity in agriculture and fragmentation of landholdings in a 1918 paper, Ambedkar argued that solutions to agriculture might well lie beyond it: “A large agricultural population with the lowest proportion of land in actual cultivation means that a large part of the agricultural population is superfluous and idle…this labour when productively employed will cease to live by predation as it does today, and will not only earn its keep but will give us surplus; and more surplus means more capital. In short, strange as it may seem, industrialization of India is the soundest remedy for the agricultural problems of India."

Ambedkar, quite unlike Gandhi, was deeply aware of how constraining rural life could be, which is why he warned: “The love of the intellectual Indian for the village community is of course infinite, if not pathetic… What is a village but a sink of localism, a den of ignorance, narrow-mindedness and communalism?"

Ambedkar’s description of intellectuals appears to apply quite well to the group of advisers the UPA government had over the past decade, which refused to accept that urbanization and industrialization could be effective empowerment strategies even for people currently living in rural areas.

Economics Express will run every Friday, and feature interesting reads from the world of economics and finance.

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Updated: 04 Apr 2014, 08:21 PM IST
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