Recovery deep dive: Top 5 states bag lion's share in formal jobs post Covid

India's post-pandemic recovery appears to be shaping up like the letter K. In a three-part series, Business Standard illustrates how the K-shaped recovery is widening the inequality among states

In December 2020, as economists debated the shape the global economic recovery might take — Z, V, U, W or L — JP Morgan came up with the concept of the K-shaped curve. The investment bank used the shape of the letter K to illustrate the growing difference between large and small businesses in the United States.

Since then, as the Covid-19 pandemic exacerbated the gap between the rich and poor, the term has gained a larger connotation to embody the characteristics of development across economies. And now it is the shape India’s economic recovery, which is undoubtedly underway, is seen to be taking, with the richest states growing richer and the poorest still mired in low growth.

This is most visible in the share of formal jobs created.

Of the 12.2 million jobs India added in the formal sector in 2021-22, according to the Employee Provident Fund Organisation (EPFO) data, 40 per cent, or 5 million, were in the wealthiest five states with the highest per capita income: Delhi, Karnataka, Haryana, Telangana and Gujarat. The net addition for the poorest five -- Odisha, Assam, Jharkhand, Uttar Pradesh and Bihar -- was just 1.06 million, or 8.7 per cent.

Net job additions for the top five went up by 64 per cent in 2021-22 compared to the pre-pandemic period (2019-20): nearly 1.5 times the growth in the bottom five. This pushed up the share of the top five in net formal jobs — 39.4 per cent in 2019-20 — to 41.2 per cent in 2021-22. Meanwhile, the share of the bottom five declined from 9.4 per cent to 8.7 per cent.

Net job additions represent the number of new persons added to the EPF database minus those that exited formal employment during this period. The rich states have always had a larger share of formal employment, but their lead over the poorest has widened after the pandemic. Higher formal employment translates into more income, spending and consumption.

The increase in the number of formal employees for a state begets more formal employment. States with higher formal employment, therefore, are likely to witness higher wage increases and more job security during a crisis. Unsurprisingly, the per capita income of states shows the same trend as formal jobs.

The per capita income of India’s five wealthiest states increased at a compound annual growth rate of 8.2 per cent during the three financial years between April 1, 2019 and March 31, 2022, but only 6.8 per cent for the five poorest. With this, the per capita income of the wealthiest five, already 3.1 times that of the poorest five, is now 3.3 times higher.

The rich and poor states are ranked on the basis of their gross domestic product (GDP) per capita, which is the total value of all the goods and services produced divided by the population.

The trend of widening inequality between the richest five and the poorest is continuing unabated this financial year. In the first quarter of 2022-23, of the 4.7 million formal jobs added, 2 million – or 42.5 per cent – were in the top five states. The share of the bottom five declined further to 8.4 per cent.