Employment is a concern. There cannot be employment without growth. This proposition is a truism. But what is the link between growth and employment? Employment elasticity measures the percentage change in employment when there is a 1 per cent change in growth. Over time, a country’s employment elasticity can change, as it has for India. It is not just growth, but the composition of growth that is important. Over the years, many people have computed employment elasticities for India. Methodologies vary a bit. What varies more is the source of data and how dated they are.
Several such elasticities were computed with National Sample Survey Organisation (NSSO) data for 2009-2010. At that time, overall employment elasticity was around 0.20, a decline from 0.40 in the 1980s and 0.50 in the 1950s. Such NSSO data are available for 1977-1978, 1983, 1993-1994, 1999-2000, 2004-2005, 2009-2010 and 2011-2012, not thereafter. Data are for a specific point in time. To compute elasticity, which measures change, one has to compare one point in time with another, say 1999-2000 with 2009-2010. Regardless of which study and what time period, employment elasticity of growth has declined. There are multiple reasons for this. Let us ignore those.
Illustration: Bhaskaran
India’s labour force is now around 470 million. Labour force means those employed, plus those in the job market but without jobs. Unemployment data have to be treated with caution. There are time-lags; 2011-2012 was a long time ago. Self-employment is difficult to factor in. Since the bulk of employment is informal/unorganised, how does one get satisfactory numbers? There is the quality of employment too. Let us distance ourselves from the adverse employment consequences of the pandemic since we are concerned with what happens beyond.
An upper limit for the unemployment rate will be 10 per cent. Or, out of 470 million, around 420 million are currently employed. If growth increases by 1 per cent, say from 6 per cent to 7 per cent, this means, with an employment elasticity of 0.20, we will create an additional 8.4 million jobs annually. We now need a fix on how many additional jobs we need to create annually. That, too, has complications. The workforce participation rate has declined not just for women but men, too. Today, it is around 50 per cent. As there is development, it should increase. But simultaneously, rates of population growth have slowed, implying fewer entrants into the labour force. If one plays around with numbers, one will get a figure of around 8.5 million new jobs that have to be created every year, not 10 million or 12 million, as the Planning Commission used to project once.
These numbers are illustrative and no more. With different assumptions, the required growth rate will be 7.5 per cent or thereabouts. As we recover from the pandemic, with more uncertainty because of global developments, I do not think the key question is the number of jobs being created, but quality (contractual, terms of employment, wages). In 2014, Sangita Misra and Anoop K. Suresh from the Reserve Bank of India computed employment elasticities between 1993-1994 and 2011-2012 and found the same aggregate figure of 0.20. Construction was the only sector with an elasticity of more than 1.00. Manufacturing and services were both around 0.30. Within manufacturing, only furniture-making, garments and leather had high employment elasticities. Yes, the data are dated. But trends have probably not changed. There is a skills issue and low-skill activities like construction often provide most jobs. Perhaps counter-intuitively, employment elasticity is higher in organised manufacturing than in unorganised. Productivity is also higher in the former. In choosing labour over capital, productivity matters. Productivity depends on skills.
Bibek Debroy is the chairman of the Economic Advisory Council to the prime minister.