India in 10 years: The jobs challenge

Population in the working-age years is set to expand massively in India. Between 2010 and 2030, World Bank estimates suggest, the population in the 15-59 age group will increase by more than 200 million in India while it is expected to decline in many developed countries as well as in China.

This is both a huge opportunity and a challenge for India. On the one hand, India could account for a substantial share of the addition to the global labour supply over the coming years. India’s young workers could produce more output, consume more goods and catapult the country to the position of an economic powerhouse.

On the other hand, India’s policymakers will find it tough to create jobs for those who enter the labour market. There are three aspects to the job challenge that India faces. The first is on account of the increase in the working-age population. Given the rate at which demographic structures are changing, the largest additions to the population of the young are going to come from some of the poorest regions, mainly the states in the northern and eastern belt, including Uttar Pradesh and Bihar.

Second, India is going to witness a clear shift of its workforce away from agriculture. This shift will be due to both the “push” from a low value-adding agriculture and the “pull” of new opportunities in other sectors.

Third, there has been a steady growth in the number of people enrolled in educational institutions from the 2000s, especially among females and in rural areas. Along with the growing demand for education, workers who join the labour force in rural India will also have greater expectations from their jobs.

Given such challenges, what has been India’s record with respect to creating employment? We have some evidence in this regard from the employment and unemployment surveys conducted by the National Sample Survey Organization (NSSO) and the Census of India. They suggest that between 2004-05 and 2011-12, the population in the age group of 15-59 increased at the rate of 16.2 million a year. During the same period, the population of students 15 years or older increased at the rate of 5.9 million a year.

Students do not form part of the workforce. Therefore, if we subtract the growth of students from the growth of the working-age population, we obtain an estimate of the growth of the potential workforce. This is found to be 10.3 (that is 16.2–5.9) million a year for India between 2004-05 and 2011-12.

During the same period, however, the workforce engaged in agriculture and allied activities declined at the rate of 4.4 million a year. Assume that the workers who shifted out of agriculture sought employment in industry and services. If so, the potential workforce in industry and services in India grew at the rate of 14.7 (that is, 10.3+4.4) million a year between 2004-05 and 2011-12.

At the same time, the actual rate at which employment was created in industry and services during the above period was only 6.5 million a year—or at less than half of the potential rate.

The mismatch between the supply of potential workers and the demand for them has been particularly high in India in the case of women. Given the relative absence of job opportunities, women, especially the urban educated, have been discouraged from entering the labour market. In 2012, labour force as a proportion of population (aged 15 years and above) in the case of females was only 29% in India compared to 64% in China.

The quality of new jobs created in the country has not been high. Almost half of all new non-agricultural jobs added in India during the second half of the 2000s was in one sector, construction, which is characterized by relatively low wages and poor working conditions. Manufacturing—the sector that transformed the labour markets in East Asia and China the most—has contributed only marginally to employment creation in India in recent times.

The Indian economy should urgently seek ways to generate decent jobs in large numbers. A failure to do so would result in frittering away the energies of the country’s young population.

Jayan Jose Thomas teaches economics at the Indian Institute of Technology, Delhi.

This is part of a series of articles in Mint’s 10th anniversary special issue that look at India 10 years from now. The entire list of articles can be found here