Can unicorns solve India’s youth unemployment problem?

Photo: iStock
Photo: iStock


Recruitment by startups will help but not to the extent needed to make a significantly big difference

Over the past several years, the Centre for Monitoring Indian Economy’s (CMIE) data on unemployment has regularly been reported in the media. In August 2021, India’s unemployment rate stood at 8.32%, worse than July’s rate of 6.96%, but quite similar to the rates recorded in August 2020 and August 2019, which were at 8.35% and 8.19%, respectively.

By just looking at the broad figures, one would conclude that the Indian economy is getting back on track. The trouble is that these broad numbers hide two major issues.

First is the fact that India’s labour participation rate has been falling over the years. It was at 40.52% in August. In comparison, the rate stood at 40.96% in August 2020. In August 2016, it had stood at 47.26%.

What does this mean? The labour participation rate is the size of India’s labour force as a proportion of the population aged 15 or above. As per the CMIE formula, the labour force consists of people who are aged 15 years or more and are employed, or are unemployed and actively looking for a job. Hence, to be counted as unemployed, just being unemployed isn’t enough.

A falling labour participation rate basically tells us that many individuals have stopped looking for a job and have simply dropped out of the labour force after not having been able to find one. So, if the unemployment rate improves, it does so in the context of a labour force which isn’t as big as it possibly could be.

The second thing that the broad numbers hide is that the country’s youth unemployment rate has risen rapidly in the last four years, from 15.66% in 2016-17 to 28.26% in 2020-21. Individuals in the age-group of 15-29 are categorized as youth.

The employment situation has only grown worse this year. The unemployment rate in August 2021 stood at 32.03%, which means almost every third youth in the country is unemployed. If we look at different age segments of 15-19, 20-24 and 25-29 years, their unemployment rates in August were 67.21%, 45.28% and 13.24%, respectively. The rate for those in the 30-34 and 35-39 age brackets stood at 1.57% and 0.76%, respectively, which is as good as no unemployment.

So, what is happening here? One answer perhaps lies in Indian youth continuing to search for government jobs. State enrolment pays significantly better than the private sector at the lower and middle levels. Also, these jobs come with other facilities like access to better health infrastructure, housing, schools for kids, pension, and so on.

Take the case of central public sector enterprises (CPSEs). The per capita emoluments of their employees has jumped from 5.89 lakh in 2009-10 to 14.78 lakh in 2018-19. This, when their number of employees has come down from almost 1.5 million to a few thousand above 1 million. It’s an average, of course, but the figure does tell a story.

As Abhijit Banerjee and Esther Duflo observe in their 2019 book, Good Economics for Hard Times: “In the poorest countries, public sector workers earn more than double the average wage in the private sector… It is worthwhile for everybody to wait around and queue for those jobs. If the process of queuing and screening entails, as it often does, taking some exams, people may spend most of their working lives studying for those exams."

By the time individuals turn thirty and still don’t have a public sector job, they settle for a private sector job, most probably in the informal sector. This is one possible explanation for the age-group phenomenon. Of course, the sad fact remains that a huge number of India’s youth are unemployed.

More recently, the hope has been that rapid-fund-raising unicorns will be able to generate some employment in India. Most unicorns that have been able to achieve some scale are in the business of moving things (human beings, food, parcels, grocery, products, and so on). Given this, they are in a position to generate low-skilled and semi-skilled jobs, which the country badly requires.

So, that’s the good news, but it comes with a disclaimer. As marketing professor Scott Galloway writes in Post Corona: From Crisis to Opportunity: “The gig economy is attractive for the same reasons that it’s exploitative." Hence, these jobs are not going to offer salaries anywhere near the kind that various arms of the government offer. But then, something is better than nothing, and to a large extent, low-end jobs at unicorns are self-selecting.

Also, we will continue to see news reports which tell us that PhDs, MBAs, engineers and graduates are applying for jobs as peons in the government. They understand that they are likely to make more money in government employment than in the private sector.

Most importantly, the CMIE data shows that the number of individuals who crossed the age of 15 from 2016-17 to 2020-21 was around 19.1 million per year, on an average. If this continues and assuming that not all individuals entering the labour force will look for jobs, even if half of them do, it will amount to demand of some 10 million jobs a year. And that’s a big number.

To cut a long story short, unicorns can make some impact and lessen youth unemployment, especially in urban India, but they can’t solve the country’s problem of job scarcity.

Vivek Kaul is the author of ‘Bad Money’.

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