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Labour Market of India

Labour Market of India

Tag:GS3|| Economy || Structure of the Indian Economy || Labour & Unemployment

Why in news?

  • The period from January 2017 till recently, when we saw huge disruptions—from demonetization to the implementation of the goods and services tax and the crimp on bank lending due to an attempt to resolve bad loans by recourse to bankruptcy courts—may have seen low or even negative jobs growth in some months.

Various organization data on unemployment:

  • World Bank data: the world bank in its publication South Asia Economic Focus, Spring 2018: Jobless Growth?, says that over the long-term, India has been creating 7,50,000 new jobs for every one per cent rise in gross domestic product (GDP); at an average of 7% growth, India should be creating at least 5.25 million jobs, if not more.
  • Centre for Monitoring Indian Economy’s data: The pessimistic estimates of the Centre for Monitoring Indian Economy’s (CMIE’s) four-monthly unemployment surveys. Between the January-April survey and the September-December one in 2016, nearly 5.7 million jobs were created. Since then, given the great disruptions, there has been a levelling off of jobs growth, with the latest survey (May-August 2018) showing a dip of nearly 3.5 million jobs from the previous survey. 
  • NSSO Data:
    • India’s unemployment rate hit a 45-year-high of 6.1 per cent in 2017-18, as per the National Sample Survey Office’s (NSSO’s) periodic labour force survey (PLFS) of the Ministry of Statistics and Programme Implementation.
    • The reports further said that unemployment was higher in urban areas (7.8%) as compared to 5.3% in rural areas of the country.
    • Unemployment among rural females: For educated rural females, the unemployment rate ranged between 9.7% to 15.2% between 2004-05 to 2011-12, which rose to 17.3 per cent in 2017-18.
    • Unemployment among rural males: In the case of rural educated males, the joblessness rate surged to 10.5 per cent in 2017-18 from 3.5-4.4% between 2004-05 to 2011-12.
    • The labour force participating rate (LFPR) –the portion of the population working or seeking job -declined from 36.9 per cent in 2017-18 as against 39.5 per cent in 2011-12.

The link between growth and jobs:

  • In the 1990s, the employment elasticity in India was nearly 0.4. This number measures how much a given rise in growth impacts jobs.
  • This means, for every percentage rise in growth, we get only a 0.2% impact on employment.
  • This falling employment elasticity is partly the result of the large-scale substitution of labour with capital and automation. It is a no-brainer for promoters to use capital and automation when labour is going to be heavily regulated.
  • The gap between jobs created and jobs sought will be just over 1.5 million annually. This is the core of our jobs problem right now, but it could change if more people, especially women, actively seek to enter the jobs market.
  • All these people who will get incomes from the public and private sector then they will go out and spend, and when they spend they will create demand; there’s a huge paucity of demand in the economy. With that demand, there will be the emergence of new activities, which will then generate the kind of entrepreneurs. If there are start-ups or if there are micro-entrepreneurs, they will havea market to cater to.


  • Public employees per population: The average of public employees per population, which is a kind of indicator of what public services government is providing: globally the average is 3.5 per 100 people, in Europe it’s more like 6 per 100, in Scandinavia it’s as high as 8 per 100, in India it’s less than 2 per 100. We are under-providing public services.
  • Whether it is your street vendor or it is a small person running a small factory or a small service provider, all of them have to face the rather oppressive hand of the state in different ways, which doesn’t really help them in terms of improving their productivity. Now, does that mean that we should just allow the freedom to hire and fire?

Government Efforts: 

  • Labour Codes:
    • Aimed at helping investors and accelerating growth, the government is planning new labour legislation that would merge 44 labour laws under four categories– wages, social security, industrial safety & welfare, and industrial relations.
    • The laws related to social security, including the Employees’ Provident Fund and Miscellaneous Provisions Act, Employees’ State Insurance Corporation Act, Maternity Benefits Act, Building and Other Construction Workers Act and the Employees’ Compensation Act will be merged to create a single social security law or code.

Way Forward:

  • Broaden The Scope:Government has to frame a law about on-the-job training, that workers need to be skilled but employers don’t want to invest in skilling. We need a portable national programme where workers acquire apprenticeships in one firm. The stakeholders (government and companies) have to solve this problem of underinvestment in skilling by individual firms, so that is a very big agenda.
  • Job creation: Government has to identify the potential areas where jobs can be created like:
    • Logistics
    • Exports
    • Gig economy
    • Internet platform.
  • identifying specific sectors:
    • Currently, sectors like auto, real estate, banking, construction, agriculture and MSMEs – all of which contribute a considerable amount towards India’s GDP – are facing a sharp demand slowdown.
    • The government could start off by identifying such sectors, chalking out practical investment plans and reducing the compliance burden to help in their recuperation.
    • The government to not only address the funding crisis but also ease land acquisition rules and initiate labour reforms initially for such sectors.
  • Other:
  • The government has to focus how to increase the higher standard of living and per capita income for Indians; more government revenues that can be used for various welfare schemes; rise in savings and investments; higher FDI inflows and increased clout for India on the world stage.
  • The factors such as inflation, fiscal deficit, and current account deficit are issues of a lower priority but fixing dwindling GDPgrowth and financial sector woes are the need of the hour.
  • Registration of firms: As you know, in India there are perhaps 60 million-odd enterprises, and mostly in the unregistered sector. And out of the 60 million only about one, one-and-a-half million, 2 million actually contribute towards Provident Fund or ESI [Employees’ State Insurance]. So, a very large proportion is in the unregistered or informal sector. So, as a first step, perhaps we can make it easy for these firms to get registered, or to comply.


  • The government must first get the hands on the right high-frequency data. Without this, we can’t even define the nature of our jobs problem.
  • Fill the vacancies [in the government sector], but expand good quality public employment. The government would support filling up the vacancies, which are more than two million. But also, a national-level apprenticeship programme with portability, subsidized and well-defined accreditation which government can take to any part of India.