India Does Have a Real Employment Crisis – And it’s Worsening

Economists have been writing for some months that, contrary to the claims of the government, there is plenty of data available that shows unmistakably that unemployment is high and rising.

Educated unemployment has worsened just as young people are getting better educated, and expect to work outside agriculture in industry and services.

We have done this on the strength of analysis of household surveys – Annual Survey, Labour Bureau (LB) 2015-16 – with a sample size the same or larger than the five-yearly employment-unemployment surveys of the National Sample Survey Organization (NSSO).

Also read: NSSO Data Puts Unemployment at 45-Year High in 2017-18: Report

We also used survey data, available since 2016, of the Centre for Monitoring of the Indian Economy (CMIE), which has a sample size larger than the LB Annual Survey and the NSSO surveys. Both surveys that were used cover both rural and urban, and both organised and unorganised sector employment.

In a nutshell, they capture both EPFO/NPS (organised) as well as such employment as might be generated by MUDRA loans or platform economy jobs. The latter two sources are precisely what the government claims are not being captured by whatever data on jobs is available.

We have repeatedly stated that government claims that there is not enough ‘good’ data on jobs is simply untenable, for the reasons noted above: recent available employment data all capture jobs that the government claimed were not being captured.

The recently leaked data from the NSSO’s latest labour force survey (PLFS 2017-18), using the same questionnaire and same definitions of employment/unemployment as earlier NSSO surveys on employment should have laid to rest any government claims forever.

What became clear from the NSSO’s 2017-18 data is that actually the jobs situation is even more grim that has been consistently argued. We had argued earlier the overall rate of open unemployment (as opposed to under-employment or disguised unemployment) had risen sharply after 2011-12. That has been proven in the leaked numbers. However, the “believers” prefer the new chief economic advisor’s response:

“People talk about unemployment rate. Debating the unemployment rate misses the point entirely. The key aspect is meaningful employment.”

What the leaked data has shown is that while the  open unemployment rate by the usual status was never over 2.6% between 1977-78 and 2011-12, it has now jumped to 6.1% in 2017-18.

This is not entirely surprising as more and more young people have gotten educated in India in the last 10-12 years particularly. Tertiary education enrolment rate (for 18-23 year olds) has risen over this period from 11% in 2006 to 26% in 2016. Gross secondary (classes 9-10) enrolment rate for 15-16 year olds had shot up from 58% in 2010 to 90% in 2016.

The expectation of such youth is for a urban, regular job in either industry or services, not in agriculture. If they have the financial wherewithal to obtain education upto such levels, they can also “afford” to remain unemployed. Poor people, who are also much more poorly educated, have much lower capacity to withstand open unemployment, and hence have lower open unemployment rates.

Also read: Who is Bearing the Burden of India’s Rising Unemployment?

What the recently leaked data also reveals is that as open unemployment rates increase, more and more people got disheartened, and fall out of the labour force. In other words, they stopped looking for work, even though they were in the working age (15+). The result is that labour force participation rates (LFPR), for all ages, have fallen sharply from 43% in 2004-5 to 39.5% in 2011-12, to 36.9% in 2017-18.

As we will show below, this shows up in the rising numbers of youth who are NEET (not in education, employment or training). This is a potential source of both our demographic dividend, but also of what is looking like a mounting demographic disaster.

Meanwhile, we have been repeatedly told by government economists that there is no jobs crisis. Surjit Bhalla, till recently a member PM’s Economic Advisory Council, keeps repeating that we shouldn’t about slow growth of jobs based on his employment estimates (on January 5, 2019).

However, estimates based on both principal and subsidiary status suggests the following (see below table).

Table 1: Sectoral Employment, Unemployment, Labour Force and NEET (Usual Principal +Subsidiary Status)

Note: Estimates for the year 2017-18*, are projected figures under the assumption that all else remains unchanged. NEET = Not in education, employment or training. Source: Authors estimation using NSS and LB unit data.

The overall labour force (LF) is not growing at 12 million per annum. Never in India’s history, except 1999-2000 to 2004-5 due to a baby boom in the early 1980s, has the LF grown by 12 million. Instead it had grown by 2.1 million per annum during 2004-05 and 2011-12, and about 2.4 million per annum during post 2011-12 periods. The sharp supposed “fall” in jobs that we find post 2004 is actually on account of a sharp increase in school enrolment.

The volume of open unemployment was almost constant at around 10 million until 2011-12, but it increased to 16.5 million by 2015-16. Increased open unemployment post 2011-12 periods suggests that those in education prior to 2011-12 would start searching for non-agricultural jobs – but did not find them. The latest data suggest that this situation has worsened further by 2017-18.

Worse still, it shows up in a sharp increase in unemployment rate (UR) of the educated (based on our estimates of Annual Survey, Labour Bureau). The UR rose over 2011-12 to 2016 from 0.6 to 2.4% for those with middle education, 1.3% to 3.2% for class 10 pass, 2% to 4.4% for class 12 pass, 4.1 to 8.4% for graduate and 5.3% to 8.5% for post-graduates. Even more worrying, for those with technical education, UR rose for graduates from 6.9% to 11%, post-grads from 5.7 to 7.7% and for vocationally trained from 4.9% to 7.9%. The more educated you are, the more likely you will be unemployed.

Bhalla has argued that “During those seven UPA years [2004-5 to 2011-12] only 10 million jobs were provided or just 1.4 million per annum”. Earlier Bhalla claimed: “…that the lowering of GDP growth for 2004-5 to 2011-12 was entirely expected. Primarily because of the surprise [sic] low employment growth between 2004-5 and 2011-12”.

For 2004-5 to 2011-12 he erroneously claims that NSSO data “reveal” a total job gain of “only 9 million”.

Bhalla seems to believe all kinds of jobs, including in agriculture, are “jobs” to be valued. For an economy at India’s stage of development an increase of workers in agriculture (that took place over 1999-2004) is a structural retrogression – in a direction opposite to the desired one.

Between 2004-5 and 2011-12 the number of workers in agriculture fell sharply, which is good – for the first time in India’s economic history.

Until then, the absolute numbers working in agriculture had increased (even though the share of employment in farming was falling, slowly). Similarly, youth (aged 15-29 years) employed in agriculture fell from 86.8 to 60.9 million (or at the rate of 3 million per annum) between 2004-5 and 2011-12. However, after 2012 youth in agriculture actually increased to 84.8 million till 2015-16 and even more since then (as CMIE data would attest). Bhalla is clearly innocent of such nuances. Job growth is lower in recent years than over 2004 to 2014.

Also read: Unemployment After Demonetisation, GST Was Even More Than 6.1%: Report

Bhalla’s claim that only 1.4 million jobs were provided during 2004-5 to 2011-12 (or just <10 million total) is facile. Yes, that is true only if you deduct from total job growth in all sectors those leaving agriculture (less agri-workers is a good thing for the workers, agriculture, and economy as a whole). What really matters for India at our stage of development is the growth in non-agricultural jobs. During that period 51.2 million non-agri jobs were created, or 7.3 million per annum.

By contrast, post-2012, only 1.2 million pa (or 4.8 million total) non-agricultural jobs were created until 2015-16, and then 1.75 million (3.5 million total) are likely to have been created (all other things remaining the same) till 2017-18.

What is most worrying is that manufacturing jobs actually fell in absolute terms from 58.9 million in 2011-12 to 48.3 million in 2015-16, a whopping 10.6 million over a mere four-year period. This is consistent with the slowing growth in the Index of Industrial Production (IIP, which consists of manufacturing, mining, electricity). IIP had risen from 100 in 2004-5 to 172 by 2013-14 (in the 2004-5 series), and from (a base of 100 in 2011-12 in the later series) to 107 in 2013-14, but only rose to 125.3 in 2017-18. Slower industrial production recently is also suggested by other indicators (slower credit offtake, lower plant load factor). Declining manufacturing jobs is indicative of stalled transformation of the Indian economy.

What is tragic is the growing number of educated youths (age 15-29) who are “Not in Employment, Education and Training (NEET)”. This number (which was 70 million in 2004-5, Table 1) increased by 2 million per annum during 2004-5 and 2011-12, but was growing by about 5 million per annum  2011-12 – 2015-16, and if that later trend continued (as there is evidence it has) we estimate it would have increased to 115.6 million in 2017-18.

Also read: Fact Check: Javadekar Says India’s Job Numbers Are Low as Women Don’t Want to Work. True or False?

These NEET and unemployed youths together constitutes the potential labour force, which can be utilised to realise the demographic dividend in India.

Bhalla’s claim: “A large part of the so-called jobs crisis is because of demand for government jobs, not jobs per se” is therefore without foundation.

There is a real crisis. Also, the NEETs have grown by a massive 20 million in just four years (2011-12 to 2015-16). Plus there is the 10 million actual increase in the LF. In other words, just over 4 years, India should have created at least 7.5 million new non-agri jobs each year (which India had managed to create over 2004-5 to 2011-12); it actually created only 2.2 million. This is not counting the new non-agri jobs needed for agricultural workers wanting to leave agriculture; this number fell as construction growth fell sharply in the last few years.

If the government is not willing to recognise a jobs problem it is unlikely to do very much about it – and continue to keep relying upon EPFO data (inadequate as it is) and MUDRA loans to keep informing us that there is no jobs crisis.

It’s not surprising that the NDA-II’s budget speech did not mention “jobs” once.

Santosh Mehrotra is Prof of Economics, Centre for Labour, JNU.