India has a unique jobs problem. That we are battling high unemployment and even have one of the world's steepest youth unemployment rates is well known. What's not in the spotlight though is that there's a large pool of youth that are neither seeking employment, nor pursuing education, nor in training, otherwise called as NEET (Not in Education, Employment, or Training).
Of the 371 million-odd youth, a staggering 103.4 million, or, one in every three youngsters fall under this category as on 2022, according to the India Employment Report 2024 -- a joint report by the International Labour Organization (ILO) and the Institute for Human Development -- released in March.
But what's not so neat about this is that, a significant number may never even enter the job market. And therein lies the crux of India's unemployment story.
Unless we address this, we may not be able to exploit our demographic advantage. India may well have the world's highest youth population, but their share in total population is already declining, and the ILO believes that a decade from now is India's last window of opportunity to get its act together.
Women and youth dominate
Of the 103.4 million in the NEET category, women account for a lion's share at 84.9 million, while men comprise 18.5 million. The women in the NEET category are almost five times more than their males counterparts at 48.4% and 9.8% and account for about 95% of the total in 2022. Among age groups, the rate for not in employment, education or training was much higher among youth aged 25–29 (39.1 per cent) and 20–24 (26.3 per cent) when compared to the younger cohort, aged 15–19 (12.1 per cent).
The majority of women under NEET fall into the out-of-labour force category as most of them engage in domestic duties, which also explains the low female Labour Force Participation Rate (LFPR). On the other hand, men in NEET fall into the unemployed category. Consequently, 17.9% of youth NEET were unemployed, and 82.1% were outside the labour force in 2022.
Historically, India ranks among the countries with highest number of youth under NEET, and it's one of the key reasons for our low growth rate in total workforce. According to OECD, young people who are neither in employment nor in education or training are at risk of becoming socially excluded -- individuals with income below the poverty-line and lacking the skills to improve their economic situation.
Big opportunity, but then the educated aren't finding jobs
Now is the time for India to capitalize on its growth story, relative to its demographic advantage of an increasing working-age population. The country is at an inflexion point because youth, at 27% of the total population or 371 million, is expected to decline to 23% by 2036. Each year, around 7–8 million persons are added to the labour force whose productive utilization could lead to India reaping a demographic dividend.
According to ILO estimates, the share of working-age population increased from 59% in 2011 to 63% in 2021 and may remain stable in next 15 years. Worryingly though, youth LFPR has been falling from 54% in 2000 to 42% in 2022, with the decline sharper among 15-19 age group compared to those under 20-24 and 25-29 age brackets.
In 2022, the share of unemployed youth in the total unemployed population was at a mind-boggling 82.9%. Likewise, the share of educated youth among all unemployed people too increased from 54.2% to 65.7%.
Among the educated, secondary level or higher unemployed youth, women accounted for a larger share at 76.7% than men at 62.2%. This indicates that the problem of unemployment in India has become increasingly concentrated among the youth, especially educated youth and women in urban areas.
The LFPR for individuals aged 15 years and older was 55.2% in 2022, lower than the world average of 59.8%. It consistently declined over the past two decades, from 61.6% in 2000 to 50.2% in 2019, before increasing to 55.2% in 2022.
The worker population ratio also exhibited a similar trend, declining from 60.2% in 2000 to 47.3% in 2019 before increasing to 52.9% in 2022. The overall unemployment rate, measured by the usual status criteria was quite low -- a little more than 2% in 2000 and 2012, but shot up to 5.8% in 2019, followed by a significant fall to 4.1% in 2022.
While labour force includes all those who are working, seeking work or are unemployed or available for work, workforce includes individuals who are employed.
In absolute terms, the labour force grew by 99.2 million, from 396.3 million in 2000 to 495.5 million in 2019. Yet, the growth of the workforce at 79.4 million was not commensurate with the growth of the labour force, resulting in a substantial rise in open unemployment of 19.8 million.
A relatively greater increase in the workforce by 78 million occurred during the pandemic years, from 466.5 million in 2019 to 544.5 million in 2022, in comparison to the labour force increase by 71.9 million from 495.5 million in 2019 to 567.4 million in 2022. This led to a substantial reduction in unemployment by 6.1 million during this period.
Transformation hasn't happened
One of the biggest setbacks to youth and overall unemployment is the LFPRs for women. At 25% of the total female working-age population in 2022, India's women LFPR is lowest in the world. Female LFPR fell sharply by 14.4% when compared to male by 8.1% between 2000 and 2019. But the trend reversed between 2019 and 2022, with a much greater increase in the female LFPR by 8.3% than male LFPR at 1.7%.
Needless to say, India's low LFPR is largely attributed to the low female LFPR. Notably, as of 2022, the proportion of women employed in agriculture at 62.8% was significantly larger than that of men at 38.1%.
As for states, Uttar Pradesh and Bihar have the largest share of youth in the population, both of which are expected to increase by 2036. These two states, along with Maharashtra, Madhya Pradesh and Rajasthan are expected to have the bulk of India's youth population, which will increase from 49.2% in 2021 to about 51.5% in 2036.
In contrast, the percentage of youth in southern states like Tamil Nadu, Kerala, Andhra Pradesh and Karnataka is relatively small and expected to decline further.
Even though growth has been robust, it hasn't led to a radical structural transformation in the country's labour market and employment conditions.
Employment grew by 1.6% between 2000 and 2012, while GVA (Gross Value Added) grew at a much faster rate of 6.2%. In contrast, from 2012 to 2019, GVA continued to grow at a relatively consistent rate of 6.7%, but employment growth remained nearly stagnant, at just 0.01%. This trend is further reflected in the employment elasticity to GVA, which declined from 0.26 between 2000 and 2012 to a mere 0.001 by 2019.
Jobs moving away from agriculture
The share of agriculture sector in GVA suffered continuous decline between 2000 and 2019, while manufacturing sector's share saw modest growth, remaining relatively stagnant in the decades following economic reforms. In contrast, the services sector saw a significant rise in its GVA share, and the proportion of employment in agriculture as a share of total employment consistently decreased, albeit at a slower rate than the decline in its share of GVA.
In particular, the non-farm sectors expanded between 2000 and 2019, with a shift of workers away from agriculture, although there was some reversal between 2019 and 2022. The construction sector, with the services sector having a somewhat lesser role, mainly absorbed the reduction in agri workforce. The expansion in the construction sector was marked by an average annual growth rate of 9.4% in GVA and 9.2% in employment. Likewise, the services sector's GVA grew an 7.2% annual average, but its employment growth rate was slow, at about 3%.
The share of agriculture in total employment fell from 60% in 2000 to about 42% by 2019. The shift has been largely absorbed by construction and services, with its share increasing from 23% in 2000 to 32% in 2019. However, manufacturing sector's share remained flat at 12-14% during the same period.
Although the share of agriculture in total employment fell, it has largely shifted to services, which account for 23% of total employment. Agriculture accounted for a mere 14% share in GDP in 2022, while services accounted for 55% and manufacturing 18%.
Between 2000 and 2019, the Indian economy's production structure moved straight from agriculture to services-led growth without substantial expansion in the share of manufacturing, whose GVA stagnated at 15-19%.
Post-Covid, the share of employment in agriculture rose from 42.4% in 2019 to 46.4% in 2021 and then fell marginally to 45.4% in 2022. There was a corresponding decline in non-farm sector. Importantly, manufacturing was the second-largest employer after agriculture in 2019. As of 2022, construction sector emerged as the second-largest employer, followed by trade, hotels, and restaurants, with manufacturing relegated to the fourth spot.
Informal is how India does it
A dichotomy between the informal and formal sectors prevails in India's labour market. Informal or unorganized employment is a dominant feature of the Indian economy.
The formal sector grew between 2000 and 2019, with about 11% of all workers engaged in formal sector in 2000. This increased to 20% in 2019, but fell to 18.9% in 2022. The share of formal employment in total employment increased from 8.5% in 2000 to 10.5% in 2019, but fell to 9.7% in 2022, because a large share of the additional workforce was part of the informal economy.
The proportion of regular and formal sector workers rose from 14% and 12% in 2000 to 21% and 18%, respectively in 2019.
The Indian labour market is highly informal with about 90% of workers informally employed, including in the formal sector.
