Tuesday, December 19, 2017

The challenge with job creation in India

India's labour market problem is not one of literal unemployment, but of productive employment. Alternatively, we have a problem of disguised employment - employee claims education and skills beyond the requirements of their job. In more practical terms, it is one of sorely deficient well-paying  formal sector jobs. 

Let us be clear. In a large economy like India, where the vast majority of workforce is rural and informal, some form or other of bare subsistence employment is always likely to be available. The real problem is availability of (formal sector) jobs appropriate for a skilled workforce, much less the ones that meet their aspirations. 

So, for example, R Gopalan and MC Singhi are barking up the wrong tree. They quote Labour Bureau data from 200910 to 2015-16 to claim that "India's jobless growth is a myth". But they do nothing to refute the central problem. In fact, unwittingly, they end up substantiating it,
The Labour Bureau survey (2015-16) has categorized workers according to their monthly income levels. Most of the workers, 84% of all, whether self-employed, regular wage earners, contract workers or casual workers, were getting an income of less than Rs10,000 per month (Figure 1). Regular wage earners or salaried-class workers were better off, with 57% having a monthly income of Rs10,000 or less. Finally, 96.3% of casual workers, including those who were employed for public works, and 85% of self-employed persons had a monthly income of Rs10,000 or less. Enough work was also not available for nearly 40% of the workers; they were being employed for only a part of the year. In terms of decent, productive and well-paid jobs, considerable gaps continued to persist.
Given that nearly 90% of the workforce is employed in the informal sector, predominantly with less than regular wage incomes and more likely as casual workers, it is fair to say that the overwhelming majority of new entrants get an income less than Rs 10000. In fact, the vast majority would have monthly incomes far less than Rs 10000. Now, how much can Rs 10000 get you if you are a migrant, even if single though with a commitment to save something to send back home, in a big city? Not to speak of the deductions that come along with formality. Manish Sabharwal has been a constant chronicler of all these. So clearly we have a problem of inadequate supply of productive, and therefore well-paying, jobs.

Gopalan and Singhi end up with suggestions that are unlikely to be relevant or actionable, much less effective,
It is necessary, then, to evolve strategies to create supplementary opportunities for the self-employed, improve the female labour force participation rate, increase the ratio of female to male job seekers, and reduce interstate differences.
No quibbles with the need to improve female labour force participation rate, but this is a second order challenge to more fundamental structural failings. But the suggestion to create supplementary opportunities for self-employed may be exactly the wrong path to follow as a job creation strategy (though maybe appropriate as a poverty alleviation strategy). 

As I have blogged earlier, India's problem is not too little entrepreneurship, but too much and mostly of the wrong kind. India's labour market is characterised by unproductive, informal, self-employment based subsistence entrepreneurship. Instead there should be a much greater share of workers employed in productive, formal sector jobs. 

In fact, India needs more of the dynamic entrepreneurs, of the type that creates productive jobs. As Ejaz Ghani and Co have shown, the only two reliable predictors of such entrepreneurship are infrastructure and human resource quality. In simple terms, they show that dynamic entrepreneurship require educated entrepreneurs who start formal enterprises. In contrast, the vast majority of the MUDRA entrepreneurs are more likely inadequately (or poorly) educated, creating more of informal subsistence entrepreneurship. 

The quality of human resource development goes beyond entrepreneurs and has relevance for the workers themselves. For example, while the new worker may claim education and skills appropriate for productive jobs, those skills may be of a quality inadequate to meet the requirements for productive employers. All this takes us to the issue of poor quality of education, at all levels, and the resultant supply of "unemployable" graduates and post-graduates, who make both poor workers and poor entrepreneurs. 

On the demand-side of the labour market, there is the problem associated with the the larger existing formal sector enterprises, where job creation is constrained by the continuing weakness in capex spending. 

In conclusion, we really do have a jobs problem. More specifically very limited supply of formal and productive jobs. Most worryingly, the mainstream debates confuse poverty alleviation strategies with job creation strategies.

Update 1 (14.01.2018)
Mahesh Vyas refutes Messers Gopalan and Singhi here.

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