IT sector job losses and rising urban labour woes

A number of recent media reports suggest layoffs are now common in India these days. The largest layoff news perhaps was that of Cognizant's decision to sack 6,000-13,000 employees. Since this news hit the headlines in March this year, a number of subsequent reports have suggested that Cognizant's is not an isolated case. There was news of Infosys letting a few hundred people go. According to one report, seven of the biggest IT firms are in the process of laying off more than 56,000 engineers.

According to a PTI story in Economic Times on May 14, a McKinsey & Company study estimates that 50-60 per cent of the Indian IT workforce will have to be retrained because of a shift in technologies. The industry employs 3.9 million people. Head Hunters India, an executive search company, says that 30-40 per cent of these cannot be re-trained or re-skilled. Assuming that half of these will continue to work on old skills, a substantial chunk of over half million will turn redundant over the next three years. This works out to about 175,000-200,000 IT job losses a year over the next three years.

How large is 56,000 or 200,000 jobs? To set the scale, the total number of people employed in India is of the order of 410 million. So, this is between 0.01 and 0.05 per cent of all people employed in India. But, they can add 0.5 per cent to the stock of 41 million unemployed.

IT job losses is essentially an urban problem. Urban employment is about 135 million and the urban unemployed, 16 million. These job losses would be a significant 0.15 per cent of urban employment and 1.25 per cent of urban unemployed.

This, I believe, is a significant scale of job loss which could impact wages in the IT sector as also the demand for consumer durables and related goods and services.

Urban employment faces different challenges today. Deteriorating business prospects for the IT industry is just one challenge. IT companieshave been returning cash to investors implying less investments into growth and employment. Their hiring had slowed down already.

With cash being returned and people being laid off, the IT industry has stopped being the desired jobs destination for young engineers in India.

The H1B visa crisis in USA adds to the challenge of deteriorating business prospects. IT companies may cope with this by hiring in America. But, Indian labour, essentially Indian urban labour, faces a new challenge in the consequent loss of potential jobs.

Increasing automation is a yet another challenge. In March this year, PeopleStrong, a human resources firm stated that automation would hurt Indian employment by 2021. This is likely to hurt employment opportunities beyond the IT industry. According to the firm, customer services and warehouse management are already using bots or web robots for jobs that were hitherto performed by humans.

The urban jobs market had already taken a hit following demonetisation from which it has still not recovered.

The urban labour participation rate (LPR) rate has been falling steadily since November 2016. From 45 per cent in October 2016 it fell a full percentage point to 44 per cent in November. The fall continued but gradually as the LPR reached 43.4 per cent by February 2017. Then, in March it again fell a steep one percentage point to 42.4 per cent and further to 41.7 per cent in April.

The first fortnight of May suggests that urban labour markets are getting even more difficult. Urban LPR fell further to 40.5 per cent. It is too early to say whether this is because of the stress on IT companies or a continuation of the secular deterioration seen since demonetisation.

What would a person laid off from an IT company do next? Would the person look for another job or wait for the environment to improve. Would the IT migrants in Bangalore or Hyderabad return to their home towns and exit from the labour markets or would they show up as unemployed as they look for jobs in other IT companies? But, do other IT companies have jobs for them? Will we see a rise in the unemployment rate or, will it be a fall in the labour participation rate, like it was post demonetisation? Either ways, it will reflect the woes of the urban workforce.

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Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

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