Opinion | India's Employment Challenge Needs Solutions, Not Hasty Conclusions

Employment statistics frequently become a central theme in electoral campaigns as they directly reflect the economic health of a nation and influence voter sentiment. Studies have shown that employment rates and job creation are pivotal issues that can sway electoral outcomes. For instance, one National Bureau of Economic Research working paper highlighted that changes in employment and wages significantly impact voter turnout and preferences in gubernatorial elections, suggesting that economic performance is a critical factor in political campaigns.

Moreover, political discourse often leverages employment statistics to frame narratives or critique opposing parties, as seen in India's recent elections, where opposition leaders used reports such as the International Labour Organization's (ILO) India Employment Report 2024 to raise the issue of unemployment. The report revealed that since 2019, the majority of new work has been through self-employment, predominantly among unpaid family workers, who are mainly women. The report highlights an increase in employment within the agricultural sector and notes a concerning stagnation in the manufacturing sector's employment share.  The report further revealed that unemployment rose from 5.7% in 2000 to 17.5% in 2019, decreasing to 12.4% in 2022.

Methodological Issues With The Report

It goes without saying that one of the primary responsibilities of any government is to establish a favourable environment that encourages the creation of job opportunities. However, there are some methodological issues with the report. This has been already highlighted by the Chief Economic Advisor, V Anantha Nageswaram, and TCA Anant.

The report utilises data from various sources, such as the National Sample Survey (NSS) from 1999-00 and 2011-12 and the Periodic Labour Force Survey (PLFS) from 2018-19 and 2021-22, leading to potential discontinuities in the data timeline. This gap between datasets obscures significant labour market trends and transitions, particularly around key economic reforms and policy changes that occurred in the interim years, such as the economic shifts following demonetisation. The lack of continuous data makes it difficult to assess whether observed employment trends are consistent over time or whether they are simply the result of specific policy impacts or global economic conditions.

Read | Young Indians More Likely To Be Unemployed If They're Educated, Says Report

Furthermore, the shift from NSS to PLFS introduces complexity due to differences in methodology, frequency, and possibly coverage and sampling techniques. While the NSS provides quinquennial snapshots of employment, the annual PLFS aims for more frequent updates but may differ in how it categorises employment or the working-age population. Direct comparisons without adjusting for these methodological differences could lead to misleading conclusions about employment trends.

Unemployment Varies Across India

Going beyond this report, one should also look at the spatial distribution of unemployment in India. PLFS 2022-23 data shows that the unemployment in India is 3.17%. However, there are states that are way above the national average: Goa (9.7%), Kerala (7%), Haryana (6.1%), Punjab (6.1%) and Meghalaya (6.0%). The unemployment rate is lowest in Assam (1.7%). Tripura, Madhya Pradesh, Jharkhand, Assam & Gujarat have the lowest unemployment rate in the country.

One fact misrepresented by the media is that the ILO report has suggested that 82.9% of youth are unemployed. However, to be fair to the ILO report, it has said that the share of unemployed youth in the total unemployed population was 82.9%. Irrespective of that, PLFS 2022-23, the unemployment rate in India for individuals aged 15 and older, based on their highest education level, varies significantly. The rate for those who finished middle school is 1.7%, while it increases to 2.2% for secondary school completers. Higher secondary completers face an unemployment rate of 4.6%. The rates escalate for those with higher qualifications: 12.2% for diploma holders, 13.4% for graduates, and 12.1% for postgraduates and above. Those with at least a secondary school education experience a 7.3% unemployment rate.

Unemployment And Education: A Paradox 

This points to the fact that unemployment, sometimes, can paradoxically increase with the level of education primarily due to three factors. First, highly educated individuals often have specific career expectations and may not settle for jobs that they perceive as underutilising their skills, leading to longer periods of job-seeking. In FY24, despite the significant growth in job vacancies on the National Career Service (NCS) portal, which soared by 214% to 10,924,161 positions compared to 3,481,944 the previous year, there was only a 53% increase in job-seeker registrations, totalling 87,27,900. This discrepancy highlights a surprising trend of fewer job-seekers relative to the burgeoning job opportunities, reflecting a mismatch in job requirements or awareness.

Read | If Selling Pakodas Is A Job, Begging A Job Too: P Chidambaram's Swipe At PM Modi

Second, the job market may need more high-skill positions available to match the growing number of graduates, creating an imbalance between supply and demand. This situation is exacerbated by rapid changes in technology and global economic structures, which can make certain specialised skills obsolete more quickly.

Third, higher education can sometimes be misaligned with the labour market's actual needs, leading to a mismatch where the workforce's qualifications do not meet the requirements of available jobs.

To specifically address India's skill gap as revealed by the India Skills Report 2024, several targeted strategies can be implemented. For regions like Andhra Pradesh, West Bengal, and Delhi, which show higher employability rates, tailored initiatives to boost local skills can be replicated in regions with lower employability. Emphasising emerging technologies in educational curricula, such as in Electronics and Communication Engineering (ECE) and Information Technology (IT), can help meet the high demand for skills in these areas. Moreover, expanding public-private partnerships can ensure that educational programmes align closely with industry needs, particularly in fast-growing fields highlighted by the impact of AI on future work.

What India Needs To Focus On

Furthermore, vocational training needs strengthening to provide practical skills quickly and effectively, addressing immediate skill demands in various trades and technical roles. Policy incentives for lifelong learning, including tax breaks and subsidised training programs, can motivate ongoing skill development among the workforce. To ensure these measures are effective, a robust monitoring framework should be established to evaluate the impact of these policies and adapt them as needed, ensuring they meet the evolving demands of India's labour market and effectively reduce the skill gap. The new government should make this a priority in the next term.

With that said, India needs to create more jobs. India's population growth rate has decreased to about 0.8% from the earlier figures of 1.3% or 1.5%. Concurrently, the number of children in the 0 to 15 age brackets has not only proportionately declined but also in absolute numbers since 2019. Past job creation targets suggested by entities like the SP Gupta Committee or the Montek Singh Ahluwalia committee of the former planning commission - around 10 to 12 million jobs annually - are now outdated; a more realistic figure might be closer to 8 million jobs per year considering the current economic growth rate. However, the reality seems to be that we're creating less than this number annually. The declining employment elasticity of growth has been going on for more than two decades. It's not a new phenomenon. This should change. The enabling reforms over the last decade will help the next government achieve this target.

(Bibek Debroy is Chairman, Economic Advisory Council to the Prime Minister. Aditya Sinha is Officer on Special Duty, Research, Economic Advisory Council to the Prime Minister)

Disclaimer: These are the personal opinions of the author