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August 31, 2021

Indian Economy|Social Justice

Key Priorities for Employment Policy

By Nitin Desai


Key priorities for employment policy Measures that generate income for the poor are more important than tweaking the applicability threshold for labour laws Nitin Desai Most Indians can benefit from growth only if they get a job with decent work conditions and reasonable pay. S

everal decades of relatively high growth have failed to generate enough quality employment for the majority of Indians. The consequences of this failure show up in the rising inequality of income; the social unrest and vigilante violence fuelled by unemployed youngsters; a growing politicisation of the tension between locals and migrants from other parts of India; stagnation; and a decline in the living conditions of millions trapped in low-quality employment. India desperately needs an approach to employment that

  • Strengthens the links between growth and job creation, particularly to increase opportunities for educated youth
  • Improves substantially the conditions of work and remuneration for the millions at the bottom of the work pyramid and,
  • Increases substantially the participation of women in the workforce.

The emphasis on jobs for educated youth is because out of the 22 million who are unemployed in terms of usual status, 18 million are workers in the 15-29 age group. This does not include many who are employed in low-skill activities out of necessity. The emphasis on skill for young workers is suggested by the fact that close to 70 per cent of those in this age group in urban areas and 50 per cent in rural areas are educated up to secondary or higher level. Educated youth would clearly prefer jobs that are above unskilled or semi-skilled work opportunities. Yes, it is possible that the low quality of public education in India has failed to prepare them for induction into modern manufacturing and service jobs, judging by the frequently voiced complaints by employers.

The long-term answer has to lie in measures to improve substantially the quality of education, all the way from pre-primary upwards, and improved child nutrition. But right now, we need measures to improve skill levels that can have a more immediate impact. The government has announced several skill development programmes. The new education policy also includes a proposal for mandatory skill acquisition programmes in schools.

The government should consider incentives to encourage school and college leavers to participate in these skilling programmes. One way of doing this is to provide all secondary school and college leavers with an unemployment benefit on the condition that they participate in an organised skill development course.

The other necessity is to connect the skill programmes and the institutions implementing them to potential employers by involving them in the funding and management of skill development. These initiatives to improve the quality of the labour available for new jobs in manufacturing and services are only part of the answer.

The link between employment and economic growth depends crucially on the commodity composition of demand growth. Fast moving consumer goods, demanded by people at the lower end of the income spectrum or export goods demanded by consumers in high wage countries will lead to investments in more labour-intensive activities.

Hence, measures that generate incomes in the hands of those who are at the bottom of the income pyramid and incentivise export growth are far more important than attempts to shift the borderlines in the applicability of labour laws, which in any case are poorly implemented and have not really constrained plant closures, as we saw, for example, in the Mumbai textile industry which impoverished workers and enriched promoters.

This brings me to the second dimension of a sound employment strategy—improving the conditions of work for the vast majority of workers. In agriculture, the number of employers is so large that the best strategy is programmes like the Mahatma Gandhi National Rural Employment Guarantee Act that provide supplementary employment and underwrite statutory minimum wages in rural areas.

The non-agricultural sector is rather different. Out of the 230 million workers in the non-agricultural sector, about 100 million are self-employed, mainly in micro enterprises, 70 million have regular wage or salary employment and 60 million are casual labourers. Out of the 70 million who have regular paid jobs, about two-thirds have no written job contract, and a little over half have no social security cover, like provident fund, and are not entitled to paid leave.

About 70 per cent of the non-agricultural workers are in the informal sector which, by and large, is outside the scope of labour laws. Organised sector companies often evade labour laws by outsourcing labour supply to the unorganised sector intermediaries. This is most obvious in construction, which employs one-fifth of the non-agricultural workforce. The real change we require is the extension of the protection of worker rights to all employed persons, whether they are in regular wage salary employment or are daily wage casual labourers. The minimum is an obligation to provide every employed person with a written contract and the strict enforcement of minimum wage legislation. There must also be stricter enforcement of improved working conditions for grossly exploited people like construction workers and migrant labourers. The principal argument for this is from the perspective of social justice.

However, if you truly improve the earnings for people at the bottom of the income pyramid and reverse the decline in their share of income that has taken place over the past three decades, there will be substantial economic gain with a better connection between growth and job creation as labour-intensive consumer goods production becomes a more attractive investment option for companies. The third priority listed above is raising substantially the participation of women in the workforce.

At present, only 23 per cent of women are in the labour force as against 57 per cent of men. Out of the 120 million women who are working, 42 million are just helpers in household enterprises. Looking at it state-wise, there is a wide range in the Labour Force Participation Rate of women, from 6 per cent in Bihar to 52 per cent in Himachal Pradesh.

The broad pattern seems to be women’s participation below the national average in most states in the North and the East and above the national average in hilly and tribal- dominated states and South and West India. This suggests that the differences may be only partly because of variations in the local pace of development and may be attributable to social practices that need to be reformed and work conditions that are more appropriate for women.

To sum up, employment-intensive growth requires an immediate improvement in worker skills, improvement in working conditions in the informal sector, protection of worker rights, a shift of income to poorer households, and an export strategy that focuses on labour-intensive products and services.

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