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A lost decade for India's labour market

The Employees’ Provident Fund Organisation (EPFO) reported a net increase of 6.4 million new subscribers in the ongoing financial year till September (Photo: PTI)Premium
The Employees’ Provident Fund Organisation (EPFO) reported a net increase of 6.4 million new subscribers in the ongoing financial year till September (Photo: PTI)

  • Persisting unemployment crisis among India’s youth and women will need viable solutions at least in the new year
  • The Indian economy has not been able to catch up with the demographic changes in the last couple of decades. Thus, the very real danger that it will be stuck in a middle-income trap looms.

NEW DELHI : Over the past few months, economic indicators have begun to point to an overall recovery in the economy, as businesses recover from the lockdowns of last year. Quarterly GDP in the second quarter rose 8.4% as compared to a contraction of 7.4% last year. Further, and perhaps more importantly from the perspective of job growth, the Employees’ Provident Fund Organisation (EPFO) reported a net increase of 6.4 million new subscribers in the ongoing financial year till September.

That’s an impressive figure. If this monthly pace of subscriber additions continues, more new EPFO subscribers could be added this year than in any previous year. Close to two-thirds of the new subscribers this year were less than 29 years old. “This indicates that many first-time job seekers are joining the organized sector workforce in large numbers," the ministry of labour and employment said in its report on the new numbers.

Whether this trend will persist remains to be seen. Further, at least some of this growth in subscribers may reflect the ‘formalization’ of jobs that were earlier in the informal sector, not new jobs per se. But, in any case, the addition of younger employees to the workforce comes in the aftermath of a massive spike in unemployment among the youth. Between 2005 and 2020, unemployment rates among those in the age-group of 15-29 years rose almost three times.

Jobs jinx
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Jobs jinx

In absolute terms (based on projected Census population counts), this amounts to an increase of 11.5 million unemployed men aged 15-29 years between 2005 and 2020, and 2.24 million unemployed women of the same age over that same time period. In urban areas, as per the latest Periodic Labour Force Survey (2019-20), one in four young women in the labour force has been unable to find a job.

Even these figures are almost certainly underestimates. Statisticians compute the number of unemployed by counting the number of people who do not have a job but are actively looking for one. But a number of job-seekers would have simply stopped looking for work after a while, and would thus not be counted among the unemployed (simply because they gave up). This is especially true of women.

Further, India has witnessed an increase in youth unemployment across the board, among richer and poorer states and high-growth states as well. Youth unemployment in Gujarat—the country’s fastest-growing state between 2012 and 2020—has increased by 3.5 percentage points in rural areas and 5.5 percentage points in urban areas (see Chart).

Thus, the recent rise in youth employment is, in the first instance, just an attempt to claw back the losses suffered over the last decade. Newspaper reports, as in the case of Uttar Pradesh, where over 93,000 candidates—many of them post graduates—applied for 62 jobs for peons advertised by the Uttar Pradesh police which had a minimum eligibility of Class 5, will likely only get more frequent. How did we get here?

Contours of the crisis

The crisis in youth unemployment is, at its heart, an inability of the Indian economy to provide enough manufacturing or service sector jobs to the large number of young men and women who enter the labour force every year. Many of them are from rural areas, for whom working on the farm is not an option.

The decline of the agricultural labour force has been a long time coming. It is one of the most important economic milestones that any country can achieve. China, for instance, saw the share of workers in agriculture decline from 60% in 1991 to just around 25% in 2019, according to World Bank data. In India, the decline has been slower, with the share of agricultural workers in total employment falling by around 13 percentage points since 2005 to around 43% in 2020.

But even this modest shift had enormous implications. It implied a decline of over 33 million farm workers between the ages of 15-59 years, who now had to find jobs elsewhere. The entire story of labour in the last two decades has been about how these new entrants to the labour force—both from agriculture and elsewhere—were “absorbed" by the non-agricultural economy, or not. The shift unfolded in two phases: the first one between 2005 and 2012, and the second one after that till date.

In the first phase, youth unemployment rates barely moved. In 2012, it rose by less than a percentage point from seven years earlier. The employment crisis could have unfolded in this phase itself, if not for two mitigating factors.

The first was that young people stayed in education much longer, and thus out of the labour market. Between 2000 and 2005, the proportion of the 15-29 age-group who were students rose a little over a percentage point. But in the seven years after that—from 2005 to 2012—it jumped by close to 11 percentage points to over 30%.

The second offsetting factor was employment in industry and services, which grew at a faster pace than the rate of population growth. It was thus able, to an extent, to absorb the labour released by agriculture. A key sector which was able to absorb the new entrants was the construction sector, as IIT Delhi’s Jayan Jose Thomas points out in a paper in the Economic and Political Weekly. He estimates that the economy-wide construction boom accounted for almost half of the jobs generated outside agriculture between 2005 and 2012.

What made the problem dramatically worse in the second phase was the petering out of both these effects, even as the potentially employable population outside agriculture continued to grow.

While the proportion of students in the 15-29 age-group continued to rise, the effect was less than before—just a 4 percentage-point increase between 2011-12 and 2019-20. Making things worse was that new jobs generated in construction were just a fraction of what they were during the first phase. The growth of non-agricultural jobs was just about able to keep pace with population growth. But this was not enough, since workers continued to exit agriculture at a fast pace, especially among men. So, where did all the young people go?

A country for old men

A remarkable feature of Indian employment in the 2000s is the extent to which jobs have been monopolized by men in older age groups. Says Thomas: “…new job opportunities created in India after the mid-2000s favoured older men far more than women and young men." Combining survey data with Census population projections shows that even between 2005 and 2012, men aged 30-59 years (who account for less than 30% of the population) snapped up almost 65% of the jobs created outside agriculture. By 2020, this had risen to over 72%.

Effectively then, men below the age of 30, and women of all ages, were squeezed out of the workforce. In the case of young men, this shows up in the spike in the number of unemployed—men persisted in looking for jobs. But what likely happened with women is a classic example of why even when unemployment numbers look bad, they often don’t tell the whole story.

Even as the number of women aged 15-29 years employed in agriculture fell dramatically, the non-agricultural economy couldn’t find enough jobs for them. Thus, the proportion of such women employed in manufacturing and services stagnated between 2005 and 2020. Of the remaining, an increasing number remained in education, but a much larger proportion (about half) simply had to drop out of the formal labour force to do unpaid work at home. In labour surveys, such women respondents show up as reporting themselves being occupied in ‘domestic duties’ (the proportion of men doing ‘domestic duties’ is negligible).

For women over the age of 30, the picture was only slightly better. Non-agricultural employment did rise substantially, but the proportion of women reporting ‘domestic duties’ increased too—by around 10 percentage points.

Further, while the proportion of men in the 15-29 age group who are employed in agriculture has declined consistently since 2005, the proportion of women in the sector stagnated after 2012—possibly indicating that a lack of opportunities outside agriculture caused them to stay back. But this is hardly sustainable. As researchers Balukrishna Padhi and Venkatanarayana Motkuri point out in a paper: “The increasing mechanization of the otherwise feminised agriculture is shrinking opportunities for women in agriculture and pushing them out. Meanwhile, educated women, even those with low levels of education, are disinclined towards engaging in casual labour in the agricultural and non-agricultural sectors."

Gig economy in perspective

It is against this context that the excitement about the potential of the ‘gig’ economy must be seen. Even a report as breathless as that by the Boston Consulting Group (BCG) earlier this year, which forecasts the creation of 90 million gig economy jobs, makes that forecast for the “long term". In the short term, the report concedes the job creation potential is a more prosaic 1 million net new jobs over the next 2-3 years.

Even if this were true, this would still be a drop in the ocean compared with the close to 200 million workers in the 15-29 age-group estimated to be available for employment outside of agriculture as of 2020. Further, as the BCG report points out, casual work, informalised work, and work delivered on-demand with no formal contract has, for long, been a feature of the Indian economy. Thus, “…what has changed in the past few years is the use of technology to match and deliver on-demand services at scale."

And like all informal sector jobs, these gig jobs come with a high degree of uncertainty and a lack of job security. In a survey of gig workers, a report by Flourish Ventures, a venture capital firm, found that over 81% of such workers experienced a large decline in income during the pandemic. Because of ongoing shifts in the population structure—falling fertility rates, for example—the absolute number of men and women in the 15-29 age-group is expected to stabilize in the coming years. Between 2021 and 2031, according to Census population projections, the population in the 15-29 years age group will fall by 14 million, while that in the 30-59 age-group will rise by 101 million.

What does this mean in terms of the much-talked about demographic dividend? A young labour force can be harnessed to achieve rapid economic growth, but only if that labour is actually employed to productive uses. As Thomas points out, “It is important for India that it translates the demographic ‘window of opportunity’ into favourable outcomes."

Unfortunately, this has not happened and the window in which this can be changed is rapidly closing. The Indian economy has not been able to catch up with the demographic changes in the last couple of decades. Thus, the very real danger that it will be stuck not just in a middle-income trap, but in a lower-income one, looms.

(The writer is with, a search engine for public data)

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