Jobs euphoria may be misplaced

Over half of the increase in employment in the organised sector has come through growth of contract workers, survey shows

The discourse on India’s inability to create productive formal jobs for its rapidly rising young workforce has been injected with positivity after a recent study Towards a Payroll Reporting in India (Pulak Ghosh, professor, Indian Institute of Management, Bangalore, and Soumya Kanti Ghosh, group chief economic advisor, State Bank of India) suggested that 590,000 jobs are being created every month. Combining enrolment numbers from multiple administrative datasets — the Employees’ Provident Fund Organisation (EPFO), the Employees’ State Insurance Corporation and National Pension System — for the time period up to November 2017, the study extrapolates that seven million jobs will be added by the end of the current fiscal year (March 2018). The use of administrative databases to arrive at employment estimates and gauge the extent of formalisation in the absence of real-time employment data is indeed a pertinent exercise. However, it is also an exercise fraught with challenges and there is need for caution in interpreting results thrown up by these databases.

To begin with, there is significant overlap and duplication across various social security schemes. Before aggregating data across these multiple administrative databases, de-duplication is imperative. This requires a common identifier for individuals in these datasets. As noted by a task force set up to review India’s employment data architecture, estimates such as those in the study by Ghosh & Ghosh arrived at by aggregating data in the absence of a common identifier are likely to be erroneous. Therefore, it is best to look at each of the administrative data sources separately.

Even whilst analysing the schemes independently, one needs to be careful as new entries into the database do not necessarily reflect new jobs. Using the unit-level EPFO data, which is not available in the public domain, the study by Ghosh & Ghosh concludes that 5.52 million jobs will be added in the current fiscal year. The authors arrive at this figure by assuming that all employees in the age group of 18-25 years are joining the workforce for the first time and are therefore new additions. Based on this assumption, they conclude that as of November 2017, 3.68 million new jobs were added to the payroll and when extrapolated on a pro-rata basis, 5.52 million jobs will be added by March 31, 2018.

However, the assumption that all employees joining the payroll are new additions in the workforce is flawed for several reasons. While the enrolment in the database could be a result of a worker moving from an informal to a formal job, there may well be other factors driving this. Let us explain this with the example of the EPFO. The EPFO Act applies to all factories in classes of industry specified in Schedule 1 of the Act where 20 or more persons are employed. This suggests that if a firm which previously had 19 workers added just one more worker to its payroll, it would end up getting covered by the Act. Consequently, all its 20 employees will be added to the EPFO database. In such a scenario, it would be incorrect to infer that 20 new formal jobs have been created. Trends from recent annual reports of the EPFO suggest that the number of establishments enrolled have been rising steadily over the last few years. In 2014-15, the total number of establishments registered under the EPFO was 861,000. This increased to 921,000 in the following year and 1.02 million in 2016-17. Such robust growth in the establishments registered under the Act suggests that we need to be more prudent in identifying whether additions to these databases represent new jobs or are simply enrolment of individuals employed in firms which crossed the 20-worker threshold.

Another factor which may well have driven up enrolment in the EPFO during the time period under study is the addition of contract workers on the database. The data from enterprise surveys shows that over half of the increase in employment in the organised sector has come through growth of contract workers. However, these workers invariably do not get captured on the EPFO database. In fact, the EPFO has recently turned up the heat on firms failing to ensure remittance of the provident fund, pension and insurance amounts on behalf of their regular contract workers and those employed through contractors. Having found slackness on the contractors’ part in depositing the amounts after claiming EPF sums from the principal employers, the EPFO has fixed the responsibility of remittance with the latter. As these contract workers get added to the EPFO database, we must be careful to not interpret these as new jobs.

It also needs to be noted that the numbers coming from the EPFO database may well give an overestimate of employment as there are a large number of inoperative accounts. For instance, of the 171.4 million EPF accounts reported as of March 2016, only 22 per cent received contributions during the year 2015-16. This discrepancy arises as very often after switching from one establishment to another, members do not withdraw or get their balance transferred to the new PF account. To address this incongruity, the authors in their analysis only use PF accounts with non-zero contributions and those for which even a single detail is not missing. Further, they do not include people who joined under the Employees Enrolment Campaign — an amnesty scheme launched in January 2017 — to extend PF benefits to employees hitherto deprived of PF benefits (the subscriber base of the EPFO rose by 10.1 million as a consequence). While the study needs to be credited for discounting these two factors, the above-mentioned caveats highlight the fragility of employment estimates generated through administrative databases. Moreover, it is imperative to make a distinction between new jobs being created and jobs simply being reported on administrative databases. Unless we are able to do so, we fear painting too optimistic a picture of India’s jobs challenge.

The writer is senior fellow, Indian Council for Research on International Economic Relations