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November 15, 2007

Development Strategy

Growth and Employment

By Nitin Desai


The Planning Commission has put out a draft Eleventh Plan where the goal is not just the rate of GDP growth but a pattern of growth that spreads rising prosperity widely through the country.  The key to this lies in the growth of quality employment.  Where are we on that front? 


There is clearly a shortage at the skilled end.  A few days ago a courier service delivery came with a flier seeking applicants even for the humble delivery persons position where the qualification required was just tenth standard pass.  At the higher end, in infotech companies for instance, shortages of qualified and trainable staff and high turnover rates are a major management issue.  Are we on the way to full employment?


A recent study by Dr. Rangagrajan and his associates at the Economic Advisory Council published in the ICRA Bulletin and featured in this paper has suggested that we could be reaching full employment conditions by 2008 or 2009.   The method uses data from three NSS surveys over the decade 1994-94 to 2004-05 to estimate the elasticity of employment growth with respect to output growth in each sector and then projects employment  forward on the basis of  an overall GDP growth rate of 9 per cent.  Does this really tell a full employment story?


Much of what is reported as employment in agriculture and small self enterprises with no hired workers is really notional.  It consists of family members who work and share in the income but are in truth surplus.  Projecting these numbers forward on the basis of past trends will not capture the structural shifts that can be expected  when new opportunities open up for these workers. Thus the Rangarajan study estimate and projection of a continuing increase in employment in agriculture (30 million between 1999-00 and 2004-05  and 12 million to 2008-09 in its most conservative scenario) may not be the  result of a real increase in labour demand..


A more structural approach to employment projections would start at the end at which quality employment is generated and then trace through the implications. According to recent NSS data the labour force in 2004-05 was 469 million of whom 457 million were employed -267 million in agriculture and 190 million outside agriculture. The Economic Census of 2005 which purported to cover all enterprises other than crop production and plantations reports only about 100 million employed in 42 million enterprises.  The organized sector employs barely 27 million.


A generous assumption would put the volume of quality employment (including self-employment) outside agriculture in 2004-05 at about 150 million. Assume that the capacity of agriculture to provide quality employment is 165 million at the rate of one person per hectare and a per worker value added of Rs. 36000 per year.  On this basis roughly 140-150 million workers were caught in low or no productivity employment in 2004-05. 


How will this change with high growth? If participation rates remain constant, say because more youngsters staying on for further education is balanced by more women working, then the labour force will expand at the projected growth in population in the 15-59 age group which is expected to be around 1.8 percent.  The Approach Paper to the Eleventh Plan targets a 5.8 per cent per year increase in non-agricultural employment.  Putting these numbers together it appears that the reserve army of the underemployed and unemployed will be absorbed only by around 2025.   Hence full employment in any meaningful sense is about two decades away.


The  reasons for the shortages of workers in some sectors or regions that we see now lie in the multiple failures of our education system, the infrastructural gaps that stand in the way of growth impulses spreading from high growth to low growth regions  and the barriers to migration and labour mobility.


Reforming education so that a much larger proportion of young people make it to the high school level is the key to greater labour mobility. A high school education is the minimum  a youngster needs  to escape from the confines of family, caste and geography.  But we also need a much better system of post-school vocational training than the present combination of poorly run public institutions and loosely supervised private shops.    


The structural shift of labour from agriculture to other sectors depends on our generating strong growth impulses in the North and in the East where the increase in the labour force will be the largest.  The impetus for this can come from the rising demand for goods and services within the country provided transport and communication investments are directed at connecting these regions to the booming South and West.  Of course there are other things which will have to be done like labour training, power supply and above all improved administration and law order.


The structural shift implies an accelerating pace of urbanization which is scary because our urban areas are already a disaster zone with severe shortages of housing, water, sanitation and municipal services.  At some point soon urban chaos will become a constraint on high growth. 


Migration, urbanisation and occupational shifts take people away from traditional support structures.  Socially diverse urban areas will require a tolerance and acceptance of migrants that is threatened by a political process that stresses parochial identities. Moreover long-distance migrants cannot resort to the expedient of returning to their village to cope with the ups and downs of business cycles.  Some form of unemployment insurance will be required.  A growing population of older persons, separated from children who may have moved to new opportunities in a booming economy, will  need pensions and other support.  Sustaining labour mobility will require the establishment of a system of social security for which we are ill prepared as of now.


Much of what is needed finds place in the Draft Eleventh Plan in pursuit of what it calls inclusive growth – more and better investment in education and health, rural infrastructure that connects producers to markets, affirmative action that opens new opportunities to young persons in communities that have been trapped in low productivity occupations.   In addition we need to address the problems of urbanization, social security and social cohesion with greater urgency.  Full employment may be two decades away but the measures for promoting more opportunities and greater mobility for workers have to be taken now.


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