A graphical summary of India's labour market challenge

I have blogged earlier (see here and here), highlighting the importance of broad-based economic growth and the creation of good jobs as essential requirements for India’s sustained high-growth prospects. 

This post has been triggered by two articles. First, a recent op-ed in Business Standard by Kavitha Rao of the NIPFP, which analysed the Periodic Labour Force Survey (PLFS) for the composition of jobs in India and found,

The PLFS classifies information on the composition of workforce into regular workers, self-employed and casual workers and the corresponding wages. The share of regular workers in total workforce was 23.6 per cent in 2025, a little more than half being in government or public enterprises. The self-employed account for more than half (56 per cent), with the remaining being casual workers. The average wage for regular worker was reported to be at ₹22,699, which is higher than the monthly earnings of self-employed ₹14,861, and of casual workers at ₹10,000, assuming a worker works for 22 days in a month. Even among the regular workers, there is considerable variation — over 50 per cent have no written job contract and no social security benefits. 

To understand the differences in wages across activities, the survey reports a number of occupation divisions — the ratio of the highest to the lowest wages within regular workers is 4:1. Juxtaposing the highest-wage-earning occupation with casual workers, the differential is 7.4 times, assuming that casual workers get to work 22 days in a month. To top this off, there is a public-sector premium, especially in lower-level jobs. On the other hand, the self-employed category includes a number of unpaid family workers, suggesting significant underemployment in the economy and poor returns to effort. Fewer well-paying jobs and a wage premium for public-sector jobs drive a sharp demand for these jobs.

She also points to the increasingly capital-intensive nature of job creation across sectors, and the convergence of labour intensity in manufacturing with that in services.

Second, The Economist had this graphic on the rising number of graduates and their declining monthly salaries. 

Research by the Azim Premji University in Bangalore shows that each year between 2004 and 2023 roughly 5m graduates were added to the workforce; but the number in employment rose by only about 2.8m… Of the young people who report themselves unemployed, fewer than 7% of graduates find permanent salaried work within a year…Education-fuelled aspirations have pushed enrolment in tertiary education to 30% of 18- to 23-year-olds, while the number of higher-education institutions has grown from 6,000 to around 70,000 in the span of 30 years, thanks to a boom in private education… around 45% of Indian graduates have degrees in arts or commerce rather than, say, engineering or medicine. A report by a business body in 2024 estimated that only 55% of India’s graduates were employable.

With this backdrop, I used Claude to dig a bit deeper into the economic growth and labour market. As a framework, broad-based economic growth works at the intensive margin of the labour market to raise disposable incomes, and good job creation works at the extensive margin to expand the meaningful consumption base. 

Consider the headline numbers. The employment elasticity of GDP growth has fallen from ~0.4 in the 1980s to 0.26 for 2000–2012 and near-zero by 2019 (RBI 2024 estimate: 0.18). 

This is also borne out in the widening wedge between aggregate output and employment growth rates.

The economy needs roughly 20 million new non-farm jobs a year to absorb the demographic bulge, whereas formal-sector job creation runs at about 4 million. 

It should be a matter of concern that India, one of the world's largest economies, has one of the smallest formal-sector labour-absorption engines relative to size. It does not help, as I blogged here, that manufacturing’s employment share is stuck at 12%, and every export dollar now buys less domestic employment than a decade ago. As mentioned earlier, the State of Working India 2026 report documents that just under 7% of male graduates secure a permanent salaried job within a year of graduation.

In addition to quantity, another dimension of the extensive margin is the quality of jobs created - i.e., those that pay enough, and reliably enough, to enter the consuming class. Seven rounds of PLFS data (2017-18 to 2023-24) reveal a labour market where employment quantities are rising but quality (measured by contract security, social protection, paid leave, and income sufficiency) has stagnated or worsened for most workers. As a headline number, only 23.6% of workers are regular salaried. 

Further, only about 11% are regular salaried with a written contract and social security. Everyone else is either self-employed at very low earnings (56%), a casual daily-wage worker (20%), or a regular worker without protection.

Of the 23.6% who are regular salaried, more than half have no written contract and no social security. It is good that the share of those in regular employment with all three protections has been rising gradually.

The problem is compounded by the quality problem not sparing even the well-educated, and even worsening for them. From 2017-18 to 2023-24, among graduates, precarious contracts (no contract or less than a year) rose from 49.3% to 53.9%; among post-graduates it rose from 38.7% to 44.1%; among technical diploma holders (who should command skill premiums) it rose to 65.8%. 

The numbers on quality are likely to be even worse if we exclude government jobs. They have high shares in public administration, education and health, financial services, utilities, and transportation. 

On salaries, the average monthly earnings across categories are low enough and vary sharply. The ratio of the wages for regular workers in their highest-paid occupation vs lowest-paid occupation is 4:1, and that for the highest regular vs casual worker earnings is 7.4:1. 

The table below captures the summary statistics on India’s employment market today. Only about 11% of India's workersare in the genuinely formal employment cell (regular salaried with a written contract and social security). And within regular salaried work, the 4:1 within-category wage ratio (for regular workers) and the 7.4:1 regular-to-casual ratio mean that even the "good" tier splits sharply. 

This brings us to the intensive margin, involving wage trends of existing employees. Are incomes rising for those already in work? Nominal wages roughly doubled 2012–2024 but inflation ate almost all of it. In FY24 corporate profits grew 22.3% and reached a 15-year high. 

Real salaried wages fell -4% cumulatively 2012–2024. Real wages for salaried workers were -1.7% lower in Q2 2024 than Q2 2019. 

Rural real wages grew about 7% annually in the 2010–2015 period and have been near-zero since.

A decade of near-zero real wage growth means that even the workers who are employed are not getting the income-per-hour gains they need to expand consumption. The corporate sector is booking those productivity gains as profit rather than passing them into wages. This is the "consumption slowdown" that FMCG, auto and durables companies have been reporting from mid-2024 onwards, and is likely caused by the intensive-margin failure documented above. This failure at the intensive margin is a binding constraint to broad-basing economic growth and expanding the consumption class in a substantial manner. 

Let’s round things off with the labour-intensity point raised in the Rao oped. The India-KLEMS database shows that labour per unit of capital has fallen steadily across all major sectors, and manufacturing and services have converged to a broadly similar labour intensity. In earlier decades, manufacturing was the obvious job-creation engine because it was more labour-intensive than services. That is no longer true and to that extent diminishes manufacturing value in absorbing agricultural surplus labour. 

If labour intensities are similar, the sectors that expands the fastest are the natural venue for large-scale job creation. This points to the importance labour-intensive services like construction, trade, hotels, education, health, etc, as articulated by Rao.

This reality demands a policy strategy that targets improving the quality of education and health services, and increasing their labour productivity. The quality of regulation and formalisation are two instruments in this regard. 

To summarise, neither margin is currently operating as India is stuck with quantities of the wrong kind of jobs, qualities that are eroding, and flat real incomes. 

India is currently producing high GDP growth without producing either broad-based real income growth or broad-based good-job creation. This means that the growth is not translating into a widening consumption base, which in turn is a binding constraint on the private investment cycle that would generate more good jobs. 

Breaking that loop requires action on both margins simultaneously: raising real incomes for those already in work (through productivity gains genuinely passed to wages, and formalisation) and expanding the base of good jobs (prioritising the sectors where labour-intensity remains, and through selective labour-intensive manufacturing where the global window has not fully closed).

India has company in China on the issue of good job creation. An FT long read highlights China’s “great job squeeze”, driving people into low-paying jobs like ride-hailing and food-delivery. This contrasts starkly with the productive factory and construction jobs that underpinned the emergence of China’s middle class and the country’s sustained high-growth era. 

The property bust, consumer spending slowdown, and prolonged deflation have taken a toll on job creation. In this backdrop comes the backlash against exports, a major contributor to jobs and economic growth. The result of these trends is a labour market where low-paying gig jobs have become the major source of labour absorption. The number of gig workers has risen by 10 million in just two years. 

A precarious gig economy of ridesharing drivers and delivery couriers has been soaking up China’s surplus labour. The labour market has long been at the heart of the social contract between China’s government, eager to maintain stability, and a vast population yearning for economic betterment. Today it is under strain as rarely before. While flexible work has served as an economic escape valve, it too now risks becoming overloaded by more people than it can provide jobs for… More than 53mn people as of 2025 work as food delivery or ridesharing drivers in China, up 10mn in two years… Several municipalities have reported an oversupply of ride-hailing drivers and in June, the southern city of Shenzhen declared its ride-hailing market saturated…“I would say the demand for labour is falling faster than the supply of labour is declining,” says HSBC’s Frederic Neumann, citing automation in factories, the property slowdown and the as-yet unquantified impact of AI…

Andrew Batson, China research director at Gavekal, an economic research firm, suggests flexible employment and gig work are “more of a symptom of broad-based labour market weakness in China than a totally independent development”, even if technology has aided the growth of platform workers. “Because aggregate demand is low, the bargaining power of workers is weaker and they have to accept more underemployment and less favourable working conditions,” he says… “The anecdotal evidence suggests that gig worker incomes are trending towards subsistence levels, given the competition among workers in China for jobs,” says Neumann… Gig work is increasingly drawing in graduates, of whom there are more than 12mn entering the labour market this year, as well as offering options for migrant workers.

In this context, John Burn-Murdoch has an excellent article of relevance which highlights the contrasting tales of US and UK labour markets. He makes the point that while the UK has done better than the US in school learning outcomes and adult skill acquisition (30 per cent of US adults have literacy skills typical of a 10-year-old), the latter has done well in labour market outcomes. 

And this shows the higher wages received by US workers (it remains to be disaggregated as to how much of this is due to higher productivity, and how much due to labour market distortions).

Similar to Germany, factory workers in the US earn 60 per cent more than in the UK after adjusting for differences in living costs. Plumbers and electricians earn 90 per cent more, and retail workers earn double. The same proportion of US workers who score stunningly low on literacy earn an average of almost $30 per hour, and two-thirds of them are in work. Their British counterparts make the equivalent of $20 and fewer than half are employed.

Like India, Britain has invested heavily in skill development, and Burn-Murdoch makes a very important point, of relevance to India.

But if we really want to deliver better outcomes, we must stop thinking of particular qualifications or forms of education as things that produce particular economic outcomes and deliver respect. Rather, we should view education as creating potential that a strong economy unleashes (and a weak one disappoints).

The main point is that, if you cut through everything, good job creation is all that matters. And India has much to do on this front, especially with all the headwinds from geopolitics, trade, technology, climate change, and antecedent problems.

Weekend reading links

1. The solutions proposed by Andy Haldane to address housing supply in the UK is universally valid.

Public land developed for public purpose but privately operated; co-financing by municipal bonds and private capital; a bespoke planning regime; and a transformative method of new construction — these are the base elements needed to ease the constraints suffocating the UK’s housing market and to tackle the housing crisis in every postcode.

2. Talk about a company mobilising debt for others to buy its products, and look no further than Nvidia.

The world’s largest financial groups are working with Nvidia to assemble a funding package of more than $500bn for AI infrastructure development, in one of Wall Street’s most ambitious lending efforts to date. A consortium of groups including Apollo Global, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs and KKR is entering a partnership with Nvidia to invest in the AI build-out... Nvidia said on Monday afternoon that it has signed memorandums of understanding with the six Wall Street firms to “mobilise over $500bn of third-party capital for the build-out of AI infrastructure over time”. Under the deal, which is still subject to final agreement, the firms will create dedicated pools of capital to finance Nvidia’s AI ambitions “at attractive rates for Nvidia customers”... Morgan Stanley projects so-called hyperscalers will spend $3.5tn between 2026 and 2028.

3. India manufacturing output trends.

But services exports have doubled in less than four years.

4. Israel's scorched earth policy in South Lebanon.

Weeks into the latest conflict, defence minister Israel Katz invoked a different approach, one used with devastating consequences after Hamas’s October 7 2023 attack: the “Rafah and Beit Hanoun model”, a reference to Israel’s wholesale levelling of cities in Gaza. “All homes in Lebanese villages near the border will be destroyed,” Katz said. By July, Katz claimed his threat had been carried out. “Twenty-four Lebanese villages, hundreds of years old, we destroyed all the buildings,” he said, boasting that up to 20,000 homes had been demolished. “Not house by house, but entire villages.”...

Israeli evacuation orders forcibly displaced some 1.2mn people in the war’s first 10 days, the vast majority from Hizbollah-dominated southern Lebanon, as Israeli forces advanced. Fighting raged for weeks, but most of the destruction documented by the FT and Lighthouse came after an initial Israel-Lebanon ceasefire on April 17. While the truce did not hold and some clashes have continued even past the latest ceasefire in June, Israeli forces — who had already established control over many emptied villages — continued to lay waste to the south through air strikes, controlled detonations, bulldozers and the use of white phosphorus. Israel’s occupation is now deeply entrenched, the area under its control demarcated by what it calls “the yellow line”. The zone covers about 6 per cent of Lebanese territory and stretches roughly 10km inland from the two countries’ informal border...

Israel has also done extensive damage to historic monuments and Unesco-listed sites, including 16th-century mosques, 19th-century libraries, religious shrines, ancient Roman ruins and Crusader castles. “It is an attempt to make the areas unrecognisable . . . to sever people’s connection to their land and their history,” said Joanne Farchakh Bajjaly of Biladi, an organisation dedicated to preserving Lebanon’s cultural heritage. “How can they rebuild their communities if everything is gone?”... Lebanon’s environment ministry and rights groups have documented Israel’s widespread use of white phosphorus — an incendiary chemical that triggers fires and can leave contamination in soil and water — in both populated and agricultural areas. Israel says it uses white phosphorus lawfully to clear brush and create smokescreens, but use over populated areas can violate international law.

5. Janan Ganesh is on to something.

If a politician could decouple socialism from the set of cultural ideas known as “woke”, he or she would be difficult to stop... The one place that might have produced a culturally conservative or at least culturally neutral socialism is continental Europe, but even the French left has absorbed American woke jargon, perhaps recognising in it the authorial stamp of Michel Foucault. And so capitalism glides on, never quite facing what would be its sternest political test. The question is why the left allows it to happen... Woke has been such a godsend for capitalism — making its enemies look ridiculous — that it can seem almost engineered for that purpose.

6. Purchase commitments of the hyperscalers jumped from a trillion dollars to 1.5 trillion from Q1 to Q2 of 2026. These are debt in another form. 

7. Guy Chazan describes elite capture of the political system in the US.

In America’s Gilded Age, millionaire robber barons operated from the shadows, bribing pliant lawmakers to do their bidding. Under President Donald Trump, billionaires have gone one better. Some are in his cabinet... No longer content to lobby from afar, ultra-rich tycoons — especially from Silicon Valley — have infiltrated the capital’s ecosystem, taking on advisory roles in government, cultivating ties on Capitol Hill and weighing in on the most important issues of the day, from AI to industrial policy. They attend glitzy dinners, donate millions to White House fundraising projects and are photographed with Trump promising eye-popping investments in the US. Many have enjoyed regulatory relief, policies that benefit their businesses and, in some cases, lucrative government contracts worth billions of dollars. But unlike the robber barons of the past, who were often charitably minded and gave generously to public institutions, the tech billionaires of the present show a “complete indifference” to any kind of “social contract” and any need to “compensate people for the disruption they have brought into their lives”, says Quinn Slobodian, a historian of capitalism at Boston University...

If there was a trigger for the growing influence of the ultra-rich in America’s political system, it was the Supreme Court’s 2010 Citizens United ruling, which held that independent political spending on elections by business was protected by the First Amendment. The judgment opened the floodgates to big money in politics. America’s rich had spent $31mn in the 2010 elections, according to liberal advocacy group Americans for Tax Fairness (ATF). In the 2024 election cycle, the 100 largest billionaire donor families gave $2.6bn. A huge proportion of that came from just a handful of individuals. Three billionaires — Elon Musk, Miriam Adelson and Timothy Mellon — accounted for more than a third of the roughly $1.5bn spent to elect Trump.

8. C Thi Nguyen has a brilliant essay on the value of doing something for its own sake or as labour of love (play, as he describes it), and doing something as part of a requirement (work, as he describes it). He channels Aristotle (through Bernard Suits' The Grasshopper) to describe it as the core of a meaningful life. 

For Suits, play is not just a side dish for the main meal of work. Play is at the core of a meaningful life. Underneath the hood, Suits’ argument is Aristotle to its bones. For Aristotle, a good life — a truly meaningful life — lay not in the creation or accumulation of stuff or the achievement of outcomes, but in the process of doing itself, in the rich exercise of our full human capacities. Suits found the deepest illumination of Aristotle’s point in the simplest human activity: playing games. Suits provides, and defends, his definition. To play a game, he says, is to voluntarily take on unnecessary obstacles to make possible the struggle to overcome them. To play a game, therefore, is to be inefficient on purpose. When you run a marathon, you are trying to get to a particular spot in space, but you avoid the most efficient ways to get there. You do not take a subway or a taxi or a bicycle. You force yourself to run, and you try to run as quickly as possible. Which means, for Suits, that the struggle must be an essential part of the true value. What you care about can’t just be the bare outcome by itself. You can’t just care about being at that spot in space. Otherwise you’d just take the most efficient path. But if you took the subway then it doesn’t count — not for the game of marathon-running, anyway...

To understand games, distinguish between two things: the goal of a game and your purpose for playing it. The goal is what you pursue inside the game; the purpose is why you played it... For some people, the goal and purpose are one. They want to win, period. Call those people achievement players. The Olympic runner wants to win the marathon by running it — but they do truly care about winning it. But for other people, goal and purpose come apart. We try to win because we are interested in the struggle, and it is the struggle itself that we truly care about. Call us striving players. It’s all right if we try and we lose, if the attempt was beautiful. In ordinary, practical life, we take the means for the sake of the ends. In striving play, we take the ends for the sake of the means. What is the point of life? Is it to make stuff? Or is it to take difficult actions, think rich thoughts, weigh subtle decisions? Is it having a pile of stuff — or does the stuff just support our quest for interesting action?... Suits argues... that play itself is the point, and that we work in order to survive so that we might play...

Rephrase Suits’ definition this way: play is wasting resources for fun. But also: the whole point is that, deep down, it’s not a waste. A truly wasted life would be one spent working hard, stockpiling goods like the ant and never using them to support joyous play. And to truly waste humanity would be to push people so hard to work productively, to make more stuff, to the point where nobody had time to play. Let me try my own fusion of these two definitions. “Work” isn’t distinguished from “play” by difficulty, suffering or practicality. You can make pottery, knit scarves or grow a garden as play. The true difference between work and play is the reason you have, and the control you have, over what it is you’re doing and why. Here’s my suggestion: to “work” is to perform activities to create outcomes that are set by something external. When you work, you are making what the world tells you to make. Maybe you’re gathering food, because biology tells you you have to eat. Maybe you’re earning money, because the world says you need money to buy food and shelter and medicine. Maybe you’re making products, because the world wants something specific from you — planks of wood, a ride to the airport. But “play” is different. You still have goals and struggles, but your goals are up to you.

9. Two important graphics on the Chinese economy. One, the great job squeeze resulting in the rise of the gig economy, whose workforce has increased by 10 million in just two years.

Second, the persistence of negative household sentiment for the fifth successive year.

10. Andrew Puzder, the US ambassador to the EU, draws attention to the substantive equivalence between US tariffs (50% tariffs on primary steel) and the EU's CBAM on their respective steel and aluminium imports. 

Protesting against US national security measures while erecting protectionist barriers reveals a striking double standard... The US approach is direct and transparent. Primary steel faces a 50 per cent tariff (with some rates recently increased), and aluminium a comparable duty. To stop circumvention through finished goods, the tariffs extend to derivatives... CBAM differs in form but not in substance. Importers of iron, steel, aluminium and related products must report embedded emissions and relinquish a corresponding number of CBAM certificates priced at the EU’s carbon price — currently around €80 per tonne of CO₂... At root, both policies are adjustments to protect domestic producers from unfair competition, whether from lax environmental rules or subsidised excess capacity. US Section 232 tariffs address foreign overcapacity that threatens to hollow out its metals sector; CBAM is designed to combat carbon leakage, when production shifts to jurisdictions with less stringent climate standards... In both cases, the measures raise the cost of imports to safeguard local production. The parallels are unmistakable. A shipment of steel-containing machinery faces extra US duties based on metal content. In the EU, the same goods face fees based on production emissions under CBAM. One is framed as security policy; the other as climate policy. Both increase the price of targeted imports relative to domestic options.

11. The US equity market today in perspective.