Revisiting growth and employment

The congruence of labour and work force by itself does not guarantee elimination of poverty.

The latest and seventh quinquennial National Sample Survey Organisation (NSSO) survey (61st Round) throws new light on the employment and unemployment scenario in the country. It shows a reversal of the declining trend in employment growth rate, which increased from an annual rate of 0.98 per cent in 1993-94 to 1999-00 to 2.89 per cent in 1999-2000 to 2004-05. Interestingly, there was also an unprecedented acceleration in the labour force growth rate from 1.03 per cent to 2.93 per cent, which was above the population growth rate. This could have had serious implications for the unemployment scenario, had it not been for the sharp increase in the work force.

In contrast to these results, the NSSO 55th Round had shown a deceleration in the growth of employment from 2 per cent per annum in 1983 to 1993-94 to less than 1 per cent per annum in 1993-94 to 1999-00 and also an economy wide decrease in employment elasticity from 0.41 to 0.15. The results led to major concerns regarding the phenomenon of "jobless growth" and scepticism on the ability of economic growth to tackle the problem of unemployment, despite the period being marked by an improvement in real earnings across the majority of rural and urban occupational groups.

As per the NSS data, a sectoral disaggregation of the work force shows an expected decline in the share of agriculture in employment from 59.8 per cent to 58.4 per cent between the 55th and 61st NSS Round. In terms of absolute figures, however, the sector absorbed almost half (30 million) of the incremental work force. The share of the manufacturing sector in employment has marginally declined from 12.1 per cent to 11.7 per cent, though in absolute terms, the work force in the sector increased by 5.5 million. The services sector improved its share from 22.7 to 23.4 per cent, adding 16.8 million workers in the five-year period.

The survey shows that cutting across the rural-urban divide, the share of self-employed workers has increased sharply with an offsetting decline in the share of casual labourers. According to our estimate, there are about 260 million people who are self-employed. This rise in self-employment has been viewed by some as an indicator of the deterioration in the quality of employment based on the argument that the rise in jobs in this category has been mainly in the unorganised sector where the wage rates are low. However, this period also witnessed an increase in organised sector employment as shown by the Director General of Employment and Training data (organised employment grew by 0.1 per cent in 2004-05) and the NSS data on regular/wage salary workers (an increase of a little over 10.7 million in 2000-05).

The period from 1993-94 to 1999-00 was marked by a sharp decline in employment elasticity across all sectors reflecting a deceleration in employment growth rate but this trend has been reversed in the period 1999-00 to 2004-05. The aggregate elasticity of employment has practically tripled from a low of 0.15 to 0.48.

Employment projections were made earlier by the task force on employment opportunities (2001) and by the author (C Rangarajan) in 2006. Now that actual data on labour force, work force and unemployment are available in the NSS 61st Round, it is in order to revise these projections. In order to do this, we make three sets of assumptions regarding the movement of elasticities in the future. This gives us three alternative employment scenarios.

Under the first scenario, we presume that the elasticities calculated as per the industry wise data on employment provided by the NSSO for 1999-00 to 2004-05, will prevail for the next few years at the same level. Using an employment elasticity of 0.48 and a labour force growth rate of 2.93 per cent, if GDP growth rate is 9.1 per cent, the projections show that the economy has already achieved the level where labour force will equal the work force. This conclusion is unrealistic and hence there is a need to modify our assumptions which brings us to Scenario 2.

A closer look at the employment elasticities reveals that the elasticity for agriculture and allied sectors is very high at 1.52, compared to the earlier trend. This does not appear to be sustainable and is likely to come down. Hence, for Scenario 2, the elasticity of agriculture has been moderated to a lower figure of 0.7 for projections, while other sectoral elasticities remain unchanged. Keeping the labour force growth rate at 2.93 per cent and GDP growth rate at 9.1 per cent, our projections show that it will take up to 2009 to reach the point where the labour force will equal the work force.

However, if the overall growth rate is lower at 8.5 per cent, an agricultural growth rate of 3 per cent, will lead to convergence of labour force and work force only in 2012. If we keep the overall growth rate at the same level and reduce the agricultural growth rate to 2 per cent, it will take up to 2017 for the convergence to occur.

The elasticities calculated are based on a comparison between the 55th and the 61st NSS rounds. It has been suggested by some that the sharp growth of employment in the recent period may be reflecting the statistical phenomenon of a low base in 1999-2000. A longer-term period should, therefore, be considered to get a more accurate picture of employment growth. Accordingly, we have computed the growth rates of labour force and sectoral employment elasticities using a longer period "" 1993-94 to 2004-05. Over the longer period, the aggregate elasticity drops to 0.29 as compared to 0.48. Notably, for this long period, both labour force growth rate and employment growth rate dropped to 1.88 per cent and 1.84 per cent respectively. These are much lower than the growth rates of 2.93 per cent and 2.89 per cent experienced in the recent period. In Scenario 3, using the elasticities and the labour force growth derived from the longer period, a 9.1 per cent growth rate of GDP would enable the economy to reach the point where labour force will equal the work force by 2008. Surprisingly, this result is only marginally different from the one arrived at as per Scenario 2.

The above analysis indicates that at 9.1 per cent GDP growth rate, even under the very conservative assumptions of Scenario 3, the economy will reach a level where the work force will match the labour force within a one year time frame. The analysis of the data thrown up by the survey and projections indicates that bulk of the increase in employment has happened in the informal sector and agriculture still accounts for a large percentage of the work force. This trend is a cause for concern as the relatively low wages and lack of social security here translate into the phenomenon of "working poor", that is, workers in the BPL households. In other words, the congruence of labour force and work force by itself does not guarantee elimination of poverty. The new challenge is one of improving total factor productivity in the informal sector and in agriculture, so that there is significant improvement in the emoluments of those who are employed, that is, in the quality of employment.

CLICK HERE TO DOWNLOAD THE FULL REPORT