India struggles to create quality jobs, tackle unemployment

jobs, unemployment
The creation of gainful employment remains a critical challenge for India, as it strives to provide quality jobs for its young population.

Formal jobs creation in the country has encountered a setback after months of positive growth. Employment generation growth has declined for the second consecutive month in September, reaching a six-month low, as per the latest data from the Employees’ Provident Fund Organisation (EPFO). This data reveals a 6.45% decrease in the number of new subscribers to the Employees’ Provident Fund (EPF), suggesting a potential downturn in the current financial year’s labour markets.

The number of new EPF subscribers decreased from 953,092 in August to 891,583 in September. This decline is particularly worrying in the context of female labour force participation. The proportion of women among the new EPF subscribers in September decreased from 26.12% in August to 25.3%, totalling 226,392. This drop in female participation is alarming, as it highlights gender disparities in the workforce.

Conversely, there was a marginal increase in the participation of individuals in the crucial 18-28 age demographic, rising from 67.93% in August to 68.8% in September. The participation of this age group is particularly significant as it comprises individuals entering the labour market for the first time, serving as an indicator of its vibrancy and potential for growth.

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Broadening the view

An earlier report by SBI Research provides a more optimistic outlook on the Indian economy. This report analysed data from EPFO and National Pension Scheme to find that India added 5.2 crore payrolls from FY20 to FY23, with new additions standing at 4.86 crore. These figures encompass a variety of payroll categories, including new payrolls (first-time employees), second payroll (employees who have rejoined or resubscribed), and formalised payrolls. Notably, according to the SBI Ecowrap, 47% of these were first-time employees in the EPF system.


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Furthermore, there has been a decline in overall unemployment rates. Data from the Centre for Monitoring Indian Economy indicate that the unemployment rate has dropped to a one-year low, with significant decreases in rural joblessness. This decline occurred alongside a reduction in the labour participation rate and amidst a weak monsoon season. CMIE’s Consumer Pyramids Household Survey also supports the notion that labour markets performed well in September.

In terms of sector-specific growth, the new additions to the formal workforce were largely driven by the expert services sector. The labour ministry reported that approximately 41.46% of the net increase in EPFO membership in September originated from sectors such as manpower suppliers, normal contractors, security services, and miscellaneous activities. There was also significant growth in members working in industries such as the sugar industry, courier services, iron and steel, hospitals, travel agencies, etc., as indicated by a month-on-month comparison of industry-wise data.

Policy implications and job quality

The creation of gainful employment remains a priority for policymakers. Gainful employment is defined as employment that provides adequate income to meet basic needs and supports self-sufficiency. Typically, it includes a living wage and access to essential benefits like health insurance and paid time off. The State of Working India 2023 report raises concerns about the quality of jobs being created, highlighting that many new jobs are in sectors with low educational requirements, like agriculture, construction, and trade/restaurants.

In rural India, for instance, 58.4% of jobs are in agriculture, with construction, manufacturing, trade, and restaurants accounting for 13.9%, 8.2%, and 8.3%, respectively. While the creation of jobs is positive, the nature and quality of these jobs are crucial. Approximately 80% of workers in rural India are self-employed or casual laborers, often in low-wage positions.

The dilemma facing Indian economists is the disconnect between the acceleration in economic growth and the lack of a commensurate increase in high-quality employment. Although unemployment rates have improved from pandemic peaks, they remain high, particularly among the young and more educated demographics. Additionally, the recent increase in female employment, predominantly of the self-employed type, is often linked to economic distress rather than opportunity.

For the government and policymakers, employment generation is a critical issue that requires urgent attention. Despite past efforts to boost the creation of quality jobs, progress has been slow. With India now the world’s most populous nation and home to a growing youth population, effectively addressing the job market challenge is crucial. The failure to do so risks disillusioning millions poised to enter the labour force in the coming decades, with far-reaching implications for the country’s economic and social stability.

Global shift towards informal jobs

Global employment trends show a shift from formal to informal employment. The International Labour Organisation estimates that over 60% of the world’s employed population is in the informal economy. This is particularly prevalent in developing countries, where informal employment accounts for over 80% of total employment.

Globalisation has led to an increase in competition from low-wage countries, which has put pressure on businesses to reduce costs. This has often led to a decline in formal employment, as businesses have sought to outsource jobs or hire workers on a temporary or contract basis. Technological change has also played a role in the rise of informal employment. Automation of tasks has led to job losses in some industries, while the growth of the gig economy has created new opportunities for informal work. The global population is ageing, which is putting a strain on social security systems. This has led to an increase in the number of people who are working informally in order to supplement their income.

Informal workers typically earn lower wages than formal workers. This is because they often lack access to benefits like paid time off, sick leave, and health insurance. Informal workers are often more likely to be employed on a temporary or contract basis. This makes them more vulnerable to job losses and economic downturns. They often lack access to social protection programs, such as unemployment insurance and pensions. This can make it difficult for them to plan for the future or cope with unexpected events.