The 2019 satirical film Eeb Allay Ooo! highlights the grim reality of India’s employment crisis. The protagonist, who lacks marketable skills, takes on the impossible job of chasing away monkeys from public spaces. The subcontractor, not happy with his employee’s performance, hurls insults, withholds his wages, and finally fires him. The film unwittingly captures what is wrong with India’s labor markets.
India’s job market suffers from a scarcity of good jobs, with hundreds of millions of people employed in informal, low-wage, insecure, and precarious sectors such as agriculture. About 52 percent of workers are self-employed, having been forced to create their own jobs to earn an income. Casual work makes up 25 percent of the workforce, while only 23 percent are regular salaried workers. Labor force participation is 50 percent, meaning only half the working-age population (those aged between 15 to 64 years) work, with an even lower female participation rate of 23 percent compared to 67 percent for males.
In 2017–18, 90.7 percent of India’s employment was in the informal sector, characterized by a vicious cycle of low productivity where too many workers produce too little output. But the trend is not limited to the informal sector. Formal jobs are becoming increasingly precarious due to the growth of part-time, contract, and non-union employment conditions.
The demand for jobs is mind-boggling. Ajit Ghose, a former International Labour Organisation economist, estimated that India needs to create roughly 12 million jobs each year just to keep up with the influx of new workforce entrants. But open unemployment is a luxury the poor cannot afford — India’s challenge is underemployment. Workers struggle to find adequate hours of work, toil hard with abysmal wages and working conditions, and suffer from the indignities of their social position.
India’s large young population is often seen as a demographic advantage compared to aging societies in the West and East Asia. Fertility rates in those regions have fallen below the level necessary to replace the population, raising the specter of labor shortages and declining tax revenues. But this demographic advantage might prove to be a burden for India as it struggles to identify sources of employment and create new opportunities.
There are competing views on which sector should be targeted to increase employment — one emphasizes manufacturing and the other emphasizes services. The conventional route to economic development has involved shifting workers from agriculture to industry. India has partly met this condition since 46 percent of India’s employment is in low-productivity agriculture compared to 70 percent in 1960. Given East Asia’s earlier manufacturing success, large-scale manufacturing has been advanced as a solution to absorb labor demand. India’s manufacturing as a share of GDP has remained flat. The expectation is that simple manufacturing can gradually lead to upgrading and diversification to higher-value manufacturing output.
An alternative approach is to leverage the services sector to create jobs. Former Reserve Bank of India governor Raghuram Rajan emphasizes services growth such as more back-office jobs for the global IT and business services and the under-developed tourism sector.
From a practical point of view, the jobs question is not an either-or issue. Both manufacturing and services sectors could theoretically generate labor-intensive jobs. The question is how these jobs will be created. The Financial Times bemoaned India’s limited success in job creation but completely skirted the issue of why that is the case. From the demand side, investment in a wide range of activities such as infrastructure, textiles, energy, or agriculture can raise aggregate demand and thus create more jobs. From the supply side, India’s competitiveness could be enhanced to attract investments by improving the quality of labor, getting rid of rigid labor laws, and fostering high-quality infrastructure. Both approaches are reasonable but they ignore the contemporary reality of declining employment elasticity, which dropped from 0.38 to 0.11 between 1991-2000 and 2010-2018, and indicates that employment is not increasing as fast as GDP growth.
The answer to this puzzle is complex and must be sought at the macro-political economy level. There is evidence of premature deindustrialization and compressed capitalism, a process by which a few sectors leapfrog to a similar level to advanced capitalist countries while the rest lag far behind due to different sectoral growth rates. Both suggest that the world economy is structurally different from what East Asia faced in the 1960s when a smaller pool of workers could be easily absorbed with simpler technologies. There is no easy solution to this puzzle. Today with heightened competition, businesses in labor-abundant India are also compelled to adopt capital- and technology-intensive investments for competitiveness, thus generating fewer jobs.
Industrial strategies cannot be the same in a crowded world economy and while the services sector can drive up growth as the IT industry has done, it cannot solve the employment problem. The rewards of working are grossly unequal, favoring the few business owners, large employers, subcontractors, and well-educated, skilled workers, and professionals in the formal sector. The rest desperately scramble to accept whatever menial jobs come their way, which is not just limited to bellowing Eeb Allay Ooo to chase away monkeys.
This article was originally published on the East Asia Forum.