Industry
Finding jobs: What surveys tell us about India’s biggest puzzle
Summary
- Budget 2024: Many have blamed the BJP’s underwhelming performance in the general elections to India not creating enough well-paying jobs. Particularly, the informal sector, which acts as a key buffer between agriculture and the formal sector, is struggling. What can the budget signal?
New Delhi: The shock the ruling Bharatiya Janata Party (BJP) received in the recent general election, where it lost its majority, is likely to influence the shape of the budget to be announced next week. A key focus area will be employment.
Almost the entire previous decade, from 2010 to 2019, was a ‘lost’ decade in terms of jobs. Barely any new jobs were created, according to some estimates. Some estimates even saw a dramatic fall in employment, especially female employment. Indeed, it was covid, and its aftermath, that led to a sharp jump in job creation, as per government data.
A controversial piece of data released by the Reserve Bank of India (RBI) last week (called KLEMS data) reported that about 46 million jobs were created between 2022-23 and 2023-24. The RBI data is based on sources such as the government’s Periodic Labour Force Survey (PLFS) and not on any primary field surveys the central bank itself may have conducted. It’s unclear how the RBI arrived at its 2023-24 numbers, given that it did not disclose a sector-wise breakup, something it did for prior years (the 2023-24 numbers are described as provisional in its report).
Between 2019-20 (the eve of covid) and 2022-23, as per RBI data, 49 million jobs were created. Of this, 23 million were in agriculture, sharply reversing the trend of earlier years, where employment in agriculture fell, as workers shifted to industry or construction.
This shift back to agriculture is widely seen as a marker of an economic crisis, where workers were forced to take any job they could get, even if it paid little. “Within a span of just three to four years, the rise in agricultural employment surpassed the entire decline in employment in the sector from 2000 to 2019," says the International Labour Organization’s (ILO) report on employment for 2024.
The ILO report also outlined the sub-optimal compensatory nature of such jobs. “A significant portion of this increase involved rural women workers, with the majority of them engaging in unpaid work, along with a substantial portion involved in own-account work and casual work. This substantial rise in agricultural employment might be attributed to return to subsistence activities in agriculture that resulted from a shrinking of work opportunities outside agriculture and were exacerbated by the employment crisis brought about by the pandemic."
Beyond agriculture, there is the informal sector, which has its own set of issues related to jobs and productivity.
Difference in Estimates
The RBI data has been generally more ‘optimistic’ about job creation than other sources, even those that use similar methodologies, and the criteria of who is employed or unemployed. The ILO estimates the labour force (the number of people employed or looking for jobs) grew by 99.2 million between 2000 and 2019. The workforce over the same period, or the number of people actually employed, grew at a slower rate—79.4 million people. In contrast, the RBI KLEMS data estimates that over the same period, employment grew by 91.6 million, or 12.2 million more than the ILO estimate.
Between 2012 and 2019, the discrepancy is even more stark. While the RBI estimates an increase in employment over this period of 21 million, the ILO puts it at only 0.2 million.
Other estimates have been even more pessimistic, estimating a fall in employment of 6 million to 15 million between 2011-12 and 2017-18. A paper by Paritosh Nath and Amit Basole of Azim Premji University, for instance, finds that total employment of persons over the age of 25 fell by 9.9 million over this period.
In their study, the decline is driven almost entirely by a massive fall in female employment (over the age of 25) in rural areas. Male employment actually increased by 12.4 million, across both rural and urban areas. “Employment growth has been weak in every demographic group (men, women, urban, rural) and has lagged far behind population growth. The result has been falling rates of labour force participation and rising rates of unemployment in every group. Second, employment has not grown at all, and has in fact fallen for rural women," the authors conclude.
Although discussed less alongside the jobs crisis, the previous decade has also seen a productivity crisis. On the face of it, this is unlikely, even impossible. The average value of output produced per worker (adjusting for inflation) grew by 6.5% per year between 2012-2019, up from 4.8% from 2000-2012, according to ILO data. On the whole, workers became more productive over the 2000s, not less. So, where is the evidence of a productivity crisis?
Informal Stress
Immediately after the 2024 general elections, the government released results from its Annual Survey of Unincorporated Sector Enterprises (or ASUSE). Broadly, these exclude all companies or government entities. Instead, they consist overwhelmingly of small workshops or enterprises, like local grocery shops, small industrial units and even home-based units with a few workers.
Further, the survey does not cover agricultural workers or agricultural households, and, importantly, excludes the construction sector altogether, a major employer of labour in the economy. It also excludes any units in the public sector.
These units that comprise a part of the so-called ‘unorganized’ or ‘informal’ sector are the biggest employer in the economy and are staggeringly diverse. Historically, they have performed the key role of acting as a kind of buffer stock of labour. This is labour that has been unable to find employment in the formal economy, comprised of corporations or large factories.
Informal sector workers tend to be far less productive than those in the organized or formal sector. They also earn lower wages and, typically, have much lower job security. An increase in informal sector labour, while boosting overall employment numbers, is also a possible indicator that the formal, organized sector is not creating enough jobs, forcing workers to take up ‘distress’ employment elsewhere, to support their families.
The latest ASUSE report is important because it is the first to be conducted after the three major ‘crises’ that hit the informal sector over the last decade. The first was demonetization; the second was the introduction of the goods and services tax (GST); the third was the covid crisis. Informal sector enterprises are largely driven by cash. Close to 30% of enterprises in the ASUSE report did not maintain a bank account of any kind, as of 2022-23. Only 9% maintained bank accounts in the name of the establishment, rather than the owner themselves.
Earlier, the government’s key employment survey, the Periodic Labour Force Survey (PLFS), had thrown up worrying numbers. The size of the informal sector, in terms of its share of overall employment (not absolute numbers), has actually grown since at least 2017-18, when the government’s annual PLFS started being compiled. It was 68% in 2017-18 and was 74% in 2022-23. So, this is another sense in which the previous decade is a ‘lost’ one, with the gains in terms of moving workers to more formal, larger enterprises being reversed.
As an aside, the ASUSE report reveals that there were 1.65 million fewer workers in the informal sector in 2022-23, as compared with 2015-16, the eve of the demonetization crisis. The survey covers different sets of units than the PLFS and, importantly, does not cover the construction sector. So, the two are not directly comparable in terms of employment numbers.
Productivity Crisis
The government survey on unincorporated enterprises reveals a third sense in which the previous decade was a ‘lost’ one, and this is productivity. If the informal sector is such a large employer, it becomes important to look at how productive informal sector workers are. The ASUSE report estimates the ‘total value added’ by the informal sector units it covers—value of output produced by them minus their cost of inputs—was ₹15.5 trillion.
How large is this output? By comparing this to overall GDP numbers (after excluding GDP numbers for agriculture, government enterprises, mining, construction, etc. since the ASUSE report doesn’t cover those), it is possible to arrive at the informal sector’s contribution to economic output. And that contribution has actually fallen between 2015-16 and 2022-23. The informal sector’s contribution to GDP (excluding construction and the public sector) was 9% in 2022-23, down from 14% in 2015-16, even as it employed a greater share of the workforce.
Manufacturing Imperative
What the numbers reveal is an increasing distance between those 20-25% of workers that are employed in the ‘modern’ organized manufacturing or services sector, and the rest of the economy. This has serious implications for overall economic inequality.
What the data also reveals is the limitation of India’s so-called ‘services-led’ growth model, where the services sector grows at a much faster rate than either manufacturing or agriculture. This is not necessarily a problem, if the ‘services’ in question are IT services, or financial services, or even trade in the organized sector.
Worker productivity, or so-called ‘gross value added’ per worker, rose by an annual average rate of 4.6% between 2015-16 and 2022-23. However, within the overall informal sector, manufacturing sector workers saw productivity rise at a faster rate, at 6.8% per annum, balanced out by much slower growth in the informal services sector.
But these numbers are in nominal terms, and are not adjusted for the increase in the value of output caused purely by price changes. After adjusting for this, growth in productivity of the informal sector as defined in the ASUSE report has been essentially flat since 2015-16. Interestingly, real growth in GVA per worker for manufacturing units did much better, growing at 3.4% per annum. It is the informal services sector, which employs around 75% of all informal sector workers, that has tended to drag overall productivity down.
But this is not where the vast majority of India’s service sector workers are employed. “Moreover, there was a slowdown in employment growth…across most services sectors, including in the modern services like finance, insurance, professional services and information and communications, which were considered responsible for much of the dynamism in India’s services-led growth trajectory," says the ILO report.
It adds: “Industries that were among the largest employers in manufacturing, like wearing apparel, leather, footwear, food products and beverages, experienced a formalization in employment conditions and growth in organized employment. But, they also experienced an overall decline in employment growth and, in some cases, an active shedding of labour. Consequently, there was a stagnation in the shares of manufacturing in [GDP] and employment growth." Even the RBI’s KLEMS data bears this out. Between 2010-11 and 2019-20, manufacturing employment, according to the report, rose by just 1.2 million.
As an aside, if the big jump in the RBI’s KLEMs employment data for 2023-24 is correct, this ironically implies a decline in labour productivity, since real output grew slower than employment.
It is this stagnation that the government has to focus on reversing, with a major drive to increase the share of manufacturing in the economy. The geography of global manufacturing is in flux right now, with corporations looking to de-risk their supply chains out of China. If India can take even a chunk of that business, it could lead to a major boost in employment, especially of high quality.
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