Unemployment has been at the centre of public debates in India recently. The government’s Periodic Labour Force Survey carried out in 2017-18 revealed that unemployment in the country reached an all-time high rate of 6.1%. It had remained at a rather low rate of around 2% for several decades.
What explains this sudden jump in unemployment in India?
Our estimates based on official employment surveys and the Census show that in 2018, there were 471.5 million persons employed and 30.9 million unemployed in India. At the heart of the unemployment problem in India were young, unemployed men aged 15 to 29 years who comprised 21.1 million or 68.3% of all the unemployed in the country. To understand how their numbers rose recently, we need to examine the behaviour of not just labour demand but also labour supply over time.
Estimates shows that the potential non-agricultural workforce in India grew at the rate of 14.2 million a year between 2005 and 2012, which rose further to 17.5 million a year between 2012 and 2018. If provided the relevant skills, they could possibly work in industry, construction and services.
Faced with the inadequate number of new jobs generated in the economy, women withdrew altogether from the labour market. Of all 15-59-year-old women in India, only 23% were employed in 2018, down from 42.8% in 2005. Correspondingly, there had been a sharp rise in the proportion of women who reported their status as attending to domestic duties in their own households.
Factors responsible for rising numbers of job seekers:
- Rapid expansion of the working-age population: The population of 15-59-year-olds increased at the rate of 14 million a year in the 2000s, which in turn increased the labour supply.
- Change in nature of labour supply: There is an increase in enrolment of young adults for education and their job aspirations are also rising. 31% of 15-29-year-old females had been attending schools or colleges in 2018, up from 16.3% in 2005.
- Declining workforce in Agricultue and Allied Activities: From 258.8 million in 2005 to 197.3 million in 2018 (which still accounted for 41.9% of the total workforce in the country). This decline has been partly due to the ‘push’ from low-productivity agriculture, which has suffered due to stagnant public investment from the 1990s onwards. The decline has also been driven by the ‘pull’ of new opportunities that emerge in the towns and cities. A significant number of people who are ‘employed’ according to official statistics could actually have been in ‘disguised unemployment’ in agriculture (consider a person who does no job but occasionally assists his family in cultivation). Young persons in rural areas will be increasingly keen to exit disguised unemployment in agriculture.
- Fall in construction sector: Between 2005 and 2012, construction had been the major source of employment in India, absorbing men who exited agriculture in rural areas. New employment opportunities in construction created in rural India amounted to 18.9 million between 2005 and 2012, which fell sharply to 1.6 million between 2012 and 2018.
- Manufacturing sector: The size of the manufacturing workforce in India declined by one million between 2012 and 2018, with micro and small firms in the informal sector suffering severe setbacks.
- Supply of and Demand Mismatch: Even from 2005 to 2012, job creation in industry, construction and services in India (at the rate of 6.3 million a year) was inadequate to absorb the increase in potential job seekers into these sectors (at the rate of 14.2 million a year). Between 2012 and 2018, while the supply of potential workers into the non-agricultural sectors accelerated (to 17.5 million a year), actual labour absorption into these sectors decelerated (to 4.5 million a year).
Not a smooth path ahead:
If the country is unable to make effective use of the strengths of its young women and men now, it can perhaps never do so. Within the next two decades or so, India’s population will gradually start getting older, and it will be tragic for millions of poor Indians to grow old before getting even moderately rich.
India faces a tough challenge in creating decent jobs for its growing young population. To tackle this, action will be needed on multiple fronts including investments in human capital, revival of the productive sectors, and programmes to stimulate small entrepreneurship.