BackOur acute jobs challenge is linked to enterprise creation
Small startups do most of the hiring and we should enable many more new ventures to thrive
PremiumAbout 13 million young people join the workforce in India every year. Even assuming only half of them seek jobs, i.e., a workforce participation rate of 50%, we still need 6-7 million new jobs (or livelihoods) every year. These are in addition to the churn among existing job holders, which add to the count of total job seekers. Except for a few thousand, most new jobs are not created by large corporates, public or private. These jobs don’t even come from the railways, post office department, the police or the armed forces. They mostly come from small, medium and tiny one-person enterprises. Thus, 6 million new jobs need at least 60,000 businesses to be born every year. Hence, our clarion call for job creation should be accompanied by a stirring call to create enterprises. What does it take to set up new businesses at such scale? Are these to be born mainly in urban areas? Do the midwives at birth present a formidable hurdle? What is the burden of formal registration, tax compliance and other regulations, including at the local and state levels? Will these enterprises have high infant mortality? Do many more therefore need to take birth? Will an inspector raj thwart ambitions? In any case, most youngsters among the large mass entering the workforce are ill-prepared to become entrepreneurs. It sounds fine to have slogans like “Don’t be a job seeker but be a job creator." Most entrants are undertrained, unprepared, unskilled, and condemned to subsistence jobs, at least initially. That is why the bulk of them take up casual jobs in the informal sector, with lives of precarity. In a recent paper in the Indian Journal of Labour Economics, economist Amit Basole points to a perverse feedback loop and vicious cycle that is a structural feature of employment dynamics. It goes thus. Labour moving out of low-productivity subsistence agriculture moves to cities into low-paying precarious employment in the formal sector. The latter has an inbuilt bias for high capital intensity, made worse by cheap capital. Resultantly, we do not get large-scale employment growth, certainly not of high wage paying jobs, nor do labour-intensive sectors thrive. Rigid labour laws might be a factor too. The vicious loop closes since low paying jobs do not create sufficient purchasing power to generate demand for the formal sector’s output. The structural transformation of our economy from subsistence farming to higher productivity-led industrial growth gets delayed. Labour is mostly then in the informal sector, holding multiple jobs with precarious livelihoods. Not surprisingly, we have the phenomenon of jobless growth. India’s growth elasticity of employment has remained low for more than a decade. This situation is aggravated by low a labour force participation rate (for females it has fallen to 20%), implying a discouraged workforce. That manifests in increased demand for job-guarantee employment, which is a proxy for unemployment insurance, and populist policies of in-kind and cash benefits via direct transfers.
Basole concludes his paper with a description of a possible national employment policy that can address the structural impediments. The need to address India’s employment challenge is acute. The Centre for Monitoring Indian Economy (CMIE) reports that India’s workforce participation rate has dropped from 46% to 40% in the past six years. For females the participation rate is lower than even Saudi Arabia. CMIE also estimates that youth unemployment (in the 20-24 age group) was 43.7% in June. Joblessness among graduates was 17.8% in April, with Rajasthan clocking 54.2% unemployed. Some states like Gujarat, Maharashtra and Karnataka had less than 10% graduate unemployment rates.
Among graduates, we see the strange phenomenon of multiple attempts taken at exams for government jobs. These jobs are a lottery to which millions of youth seem addicted, and waste precious years of their early adulthood. The success rate is barely 1%; yet, aspirants spend fortunes on preparatory tuitions and keep trying until their age limit is breached. Tuition classes in mofussil towns are a lucrative and largely unregulated business. Corruption scams in government recruitment (limited though it may be) crop up now and then. A government job is a top prize for its stability, continuity, retirement benefits and social prestige. We also have the regular spectacle of millions stampeding for a few hundred jobs at recruitment fairs. Many aspirants are overqualified for those jobs, yet the allure of a government job is strong. It is a different matter that the government at all levels has perhaps 2 million vacancies of posts that have been sanctioned but remain unfilled, mostly due to fiscal compulsions. Prime Minister Narendra Modi recently announced the award of a million jobs in mission mode over the next year and a half. But this is still not a panacea. The recent agitation against the Agnipath scheme of temporary recruitment to the armed forces was because aspirants felt betrayed. They spent years preparing to get the security of a longer tenure with pension benefits. That’s the only ticket these youth have to break out of their lives of subsistence drawn from small plots of farmland. Of course, that does not justify violent protests, but it does give us a clue to their despair.
Unemployment rates vary across India, with wide regional variations in employment dynamics. But job creation at a massive scale remains India’s topmost priority. It faces huge structural impediments and is linked to enterprise creation, the ease of doing business, skill formation and curriculum reform, among other things. To let this challenge fester is to invite dire social consequences.
Ajit Ranade is a Pune-based economist
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