Decoding Jobless Growth

Published: 25th November 2014 06:00 AM  |   Last Updated: 24th November 2014 11:07 PM   |  A+A-

The recently concluded G20 summit at Brisbane highlighted the actions to be pursued by its member nations to realise the goal of higher sustainable economic growth. There was growing consensus among the member nations that economic growth that creates more employment is the need of the times. Most of them want not only growth in economic output measured by GDP, but also creation of more employment. The G 20 leaders were concerned about the phenomenon of jobless growth.

Jobless growth has emerged as a global phenomenon. More than 200 million people are jobless across the world. According to a recent report of World Economic Forum, income inequality and jobless growth are two of the most significant challenges facing the world today. Deepening income inequality and jobless growth head the top 10 trends for 2015.

The term “jobless growth” refers to the phenomenon in which economies’ existing recession demonstrates economic growth while merely maintaining or, in some cases, decreasing their level of employment. In a jobless growth economy, unemployment remains stubbornly high even as the economy grows. This tends to happen when a relatively large number of people have lost their jobs and the ensuing recovery is insufficient to absorb the unemployed, under-employed and new members entering the work force.

India’s unemployment experiences are different from the structural transformations and job displacements associated with faster technological progress happening in the developed countries. Except during the Great Depression of 1930s countries like the USA never experienced mass unemployment. The Economic Survey 2013 has cautioned that by 2020, India could be faced with up to 16.7 million ‘missing jobs’.

India’s remarkable economic growth rate of 8.7 per cent per annum between 2004-05 and 2009-10 has had little impact on job generation. The share of agriculture in total employment shrank from 57 per cent to 53 per cent over this period, with 15 million workers migrating to towns and cities for work. The manufacturing and services sectors failed to absorb them fully. Most of these migrants joined the informal sector. As the Economic Survey 2013 reported, India’s high rate of informality is a drag on its economic development and a source of considerable inequity and a strong correlation existed between informality (of jobs) and poverty in India. In organised industries, the jobs have shifted from regular to contract work resulting in casualisation of labour. Manufacturing shed five million jobs, while services employed only 3.5 million workers during this period.

Forty percent of the graduating students from engineering colleges in the country run the risk of being unemployed. Others will take jobs well below their technical qualifications in a market where there are few jobs for India’s overflowing technical talent pool.

Between 2005 and 2010, only one million jobs were created for almost 60 million new entrants to the labour market. In fact, it was the pull of construction growth that led to workers moving out of agriculture. And the boom in construction activity was volatile.  The Economic Survey 2012-13 prepared by the country’s former chief economist Raghuram Rajan noted that India is creating jobs mainly in low-productivity construction and not in high productivity formal jobs in manufacturing. Agricultural sector itself is characterised by disguised unemployment.

With the adoption of neo-liberal policies labour-intensive sectors were relegated to the background and capital-intensive labour displacing sectors were encouraged. As K.P. Kannan and G Raveendran say, “there has been acceleration in capital intensification at the expense of creating employment. A good part of the resultant increase in labour productivity was retained by the employers as the product wage did not increase in proportion to output growth. The workers as a class thus lost in terms of both additional employment and real wages in organised manufacturing sector.”  Neo-liberal policies resulted in a drop in the rate of labour absorption and rapid growth of the FIRE (Finance, Insurance, and Real Estate sector) economy. FIRE economies generated job opportunities only for skilled labour to make deals and securing agreements.The much-hyped IT and ITES sectors employed very small percentage of the force.

The economic and social strains of jobless growth are quite serious. The basic economic cost of unemployment is foregone output. In the absence of jobs and income, domestic consumption expenditure will fall and it will have an investment depressing impact.

Each day without work is a day without income, a drain on savings, and an increased chance of default on debts. Severe unemployment is a social catastrophe. Idleness means loss of skills, loss of self-respect, plummeting of morale, family disintegration and socio- political unrest. At the individual level, research links increases in suicide, homicide, cardiovascular mortality and mental illness to high unemployment.

The answer to jobless growth lies in policy initiatives that will promote manufacturing and services sector. Manufacturing and services must become the engine of employment growth. Reforms in labour laws, provision of infrastructure, encouragement of small scale industries and promotion of export-oriented light industries that are manpower intensive are some of the policy initiatives that are required. The experiences of developed countries have demonstrated that the growth of smaller businesses can drive employment generation.

Reforms in the education sector too are required to launch schemes to improve workforce skills. Addressing skill shortages by revisiting policies on apprenticeships and creating more retraining opportunities can reduce skill deficits. Education system should provide individuals with skills in demand. More women should be brought to the workforce. It is also important to increase access to quality education, training and skills development.

The writer is professor of economics at Christ University, Bangalore, and can be reached at pmat2012@yahoo.com

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