Dissecting India’s Unemployment Crisis, post unlock 0.5.

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India has a favorable demographic advantage over other countries of the world as half its population is below the age of 25 and more than 65% below the age of 35. By 2020, the average age of an Indian will be 29 years which is lesser than China and Japan. With the potential for exponential growth and the surplus working population, the only Achilles heel for development of our country is the alarming growth of unemployment. The pressing issue needs immediate attention and solution to achieve the anticipated GDP in a sustainable way.

The fundamental step in finding solution to any public good issue is to know the state of affairs through the statistics collected. In this regard, Government surveys to monitor and record jobs vacancies and unemployment rate are not proactive enough to say the least. There isn’t enough political will to create the right survey design and infrastructure that records the data on a monthly or at least quarterly basis instead of the existing system of once in five or ten years.

Having said that, the World Bank dispels the wrong notion of growth without jobs (Jobless Growth). According to its recent report, 1% growth in GDP should ideally create 7.5 lakh jobs in the economy. At this rate India must create at least 5.25 million jobs with its 7% GDP. This implies that there could be instances of low demand for jobs but never a standstill. The low points could be due to various disruptions like Demonetization, Implementation of GST or Global Financial Crisis and the like.

Having understood that there is always a demand for jobs, the next question is how much demand?

Factors affecting the intensity of demands and vacancies are

Firstly, large scale substitution of labor with Capital and Automation which decreases Employment Elasticity rate. Employment Elasticity is the growth in job demands per 1% increase in GDP. In 2018, the figure is 0.2% jobs creation for 1% GDP growth.

Secondly, economy’s declining ability to create jobs. This trend is observed not just in India but globally. hence, government must focus on job generating policies.

Assuming that every one percent increase in GDP creates 6 lakh jobs, which gives 4.2 million for 7% GDP), every year at least 50% of 15 million (7.5 million) of the 15+ age group people seek employment rather than higher education or marriage. This creates a jobs gap of 3.3 million. In addition to women who may opt to work, the jobs gap could be as much as 9 million (60% of working age). Now that we are struggling at less than 5% growth, immediate future looks scary.

Where to employ the excess?

Agricultural sector in India is inundated with surplus rural laborer’s who are migrating to urban areas in search of work. Growth in urban areas is in itself under threat because of changing demography and trade wars. It is estimated by various international organizations that growth in global working age population would face a 1% dip in growth which translates to 1.5% in India. With all these challenges ahead, policy makers must proactively design reforms to employ people.

World is flooded with capital so money is fueled in large investments of automation and technology. Technology has the tendency to create polarized jobs. It creates humongous demand in very high end skills like Artificial Intelligence, Cyber Security, Machine learning experts and low end skills like drivers and delivery boys. Middle skilled laborer’s like Bank staff and Java coders go out of work because of technology up gradation and business consolidation. Blue collar jobs like logistics, warehousing, education, tourism and healthcare are booming. Data science and machine learning jobs await for thousands of unskilled employees in commerce, banking and energy sectors.

How to employ?

There is a call for change in skill development and planning. The need of the hour is to improve and reform the Labor market information systems. Identifying

the skills that are required and provide training on that. Decentralize planning and bring it under the ambit of state and local governments. Once when the Labor market laws are reformed, the government and industries must ensure reasonable salary and security benefits and provide subsidies if needed.

When the required skills are identified and provided and a secured salary ensure, the next step is to guarantee enough jobs and vacancies. Three ways that can happen are:

  1. Medium scale units which have higher scope of employment must be encouraged through respective labor law reforms and easier access to credit by the government.
  2. To aim for smart urbanization by providing    good infrastructure and good governance.
  3. Optimization of government funds and focus on public good than providing freebies.

Need for Change

NCVET combines the legislative and executive function of Skill Development. It would Establish minimum standards, approve, regulate, assess, monitor and govern all aspects of skill development planning and training. As for Labor reforms, government must focus on jobs generating growth than merely growth. We have experienced jobless growth. Jobs growth will have to be scale with investment and GDP growth to be meaniful. The better we understand this, the more appropriate will be our response.

Government must take into account the degenerative trend in global growth while formulating labor reforms and target ways to minimize job gaps which is around 3 to 4 million annually. The unemployment crisis rampant in rural to urban migrants due to saturation in agricultural sector must find a place in the reforms too. With this holistic approach, government can effectively tackle the problem of joblessness.

 

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