4 min read.Updated: 26 Jul 2022, 06:55 AM ISTAjit Ranade
Small startups do most of the hiring and we should enable many more new ventures to thrive
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About 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.
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