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Underemployment: The bigger problem

Underemployment: The bigger problem

By Jatin Bavishi

In 2015, Uttar Pradesh hit the news for all the wrong reasons. 23 lakh applicants had flocked for 368 peon posts in the state, with some of them even possessing a PhD. The number of jobs created in India stood at 135,000 in 2015, which is grossly inadequate compared to the millions that are added to the workforce annually. All of this was amidst increasing GDP numbers portraying India as the fastest growing economy in the world. While acknowledging the situation of jobless growth, NITI Aayog has declared that “severe underemployment” and not unemployment is a more serious problem.

Understanding the Indian labour market

Standard economics textbooks assume labour to be a homogeneous category of workers who offer their services for a wage which are ultimately determined in accordance with the market dynamics. The Indian labour market has been an enigma for most analysts and largely obviates the above simplification. However, understanding our labour market is the key to understanding the special problems associated with it.

One of the most resounding labour market theories is the Social Structures of Accumulation which has been a contribution of a large number of scholars. To put the idea in simplest of terms, apart from economic considerations, political, cultural and social factors play an important role in labour processes. This includes the role of ideology, beliefs, state of gender and industrial organisations.  

Social structures of accumulation in India

Agriculture is the largest employment generating activity in India. While it employs about 50% of workers, its contribution to the GDP is only around 15%. Certain historical and social conditions have rendered this activity for largely subsistence in nature. Moreover, labour is generally provided by family and are not paid according to individual contribution but shared equally amongst members. Also, people dependent on agriculture are low on skill-sets that are needed for jobs in other sectors. It also needs to be pointed out here that moving people from agriculture into other areas is not easy, due to factors like caste, class and custom.

Official data has revealed that around 51% of the total workforce is self-employed whose markets are small localities. Moreover, it does not undertake much capital investment to improve capacity to generate employment. Close to 93% of the workforce is in the unorganised sector, which has neither high-productivity nor high-wage jobs. There is obviously an underestimation of unpaid women workforce participation and underpaid child labour.

All of this means that a majority of our workforce is not contributing productively to the economy. This implies that when asked about the employment status of our workforce, most of them respond as ‘employed’ but it would have no bearing whatsoever on their net contribution to the economy. It correlates with the results of Employment Unemployment Surveys of the National Sample Survey Office (NSSO) which have consistently reported low and stable rates of unemployment for more than three decades. Underemployment is truly a severe problem.

The NITI recommendations

The most important impediments according to the NITI Aayog are the labour laws. They have suggested their systematic loosening. They have also encouraged tax concessions to corporates and creation of more Special Economic Zones (SEZs) which prima facie enjoy liberal labour laws. Opening domestic markets to foreign players, according to them would facilitate technology transfer which would further help in harnessing the export sector. The competition accompanying it would weed out ‘uncompetitive’ industries as well.

These recommendations may be correct in their own way, but they largely ignore the social structures of accumulation in India. For instance, the prime accused Labour Laws are enjoyed only by 7% of our workforce employed in the formal sector. Eliminating them or eroding their efficacy would not affect significantly the positions of others. Moreover, hawkish opening up of the domestic sector would do more harm than good to the Micro, Small and Medium Enterprises (MSME) who lack adequate resources to compete with sophisticated players.

Need to tackle unemployment and underemployment

There is no ignoring the fact that employment growth is lagging behind growth in the labour force. According to the Census, between 2001 and 2011, labour force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent. Creating more rapid employment opportunities is clearly a major policy challenge. Moreover, economic growth now generates fewer jobs in the non-farm sector than it used to earlier. As per a report by CRISIL, for every 1% increase in the GDP, the non-agricultural employment went up by 0.38% between 2004-2005 and 2011-2012.

For better utilisation of capabilities, it would be better to create an environment in which large firms in labour intensive industries such as clothing and footwear flourish. Given the massive youth population of the country, it is essential to have an integrated approach to tackle problems pertaining to both unemployment and underemployment. This is not just important from the point of view of the economy, but also to contain frustrations emanating from lack of decent employment.

Featured Image Source: Flickr

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