Employment and growth — the emerging scenario
TABLE 2
C. Rangarajan
The Hindu, 23 October
With a 9.0 per cent GDP growth rate, even under the very conservative assumptions, the economy will reach a level where the workforce will match the labour force within a short period. But the congruence of labour force and workforce by itself does not guarantee elimination of poverty.
The latest and seventh quinquennial NSSO survey (61st Round) throws new light on the employment and unemployment scenario in the country. It shows a reversal of the declining trend in employment growth rate which was witnessed earlier. Employment growth increased from an annual rate of 0.98 per cent in the period 1993-94 to 1999-00 to 2.89 per cent in the period 1999-2000 to 2004-05 (Table 1). Interestingly, there was also an unprecedented acceleration in the labour force growth rate from 1.03 per cent to 2.93 per cent which was above the population growth rate. This could have had serious implications for the unemployment scenario, had it not been for the sharp increase in the workforce, that is employment.
The NSSO 55th Round had shown a deceleration in the growth of employment from 2 per cent per annum in the period 1983 to 1993-94 to less than 1 per cent per annum in the period 1993-94 to 1999-00 and also an economy wide decrease in employment elasticity from 0.41 to 0.15. The results led to major concerns regarding the phenomenon of “jobless growth” and scepticism on the ability of economic growth to tackle the problem of unemployment. It is this trend which has been reversed. In the latest period, the aggregate employment elasticity has practically tripled from a low of 0.15 to 0.48.
As per the NSS data, a sectoral disaggregation of the workforce shows an expected decline in the share of Agriculture and Allied Activities in employment from 59.8 per cent to 58.4 per cent between the 55th and 61st NSS Round. In terms of absolute figures however, the sector absorbed almost half (30 million) of the incremental workforce. The share of the manufacturing sector in employment has marginally declined from 12.1 per cent to 11.7 per cent though in absolute terms the workforce in the sector increased by 5.5 million. The services sector improved its share from 22.7 per cent to 23.4 per cent adding 16.8 million workers in the five-year period.
The survey shows that cutting across the rural-urban divide, the share of self-employed workers has increased sharply with an offsetting decline in the share of casual labourers. According to our estimate, there are about 260 million people who are self-employed. This rise in self-employment has been viewed by some as an indicator of the deterioration in the quality of employment based on the argument that the rise in jobs in this category has been mainly in the unorganised sector where the wage rates are low.
What would be the employment scenario in the coming years, if the trend seen in the recent period persists? Projections were made under three sets of assumptions regarding the behaviour of elasticities in the future. This gives us three alternative employment scenarios.
Under the first scenario, we presume that the elasticities, calculated as per the industry wise data on employment provided by the NSSO for the period for 1999-00 to 2004-05, will prevail for the next few years at the same level. With an employment elasticity of 0.48 and a labour force growth rate of 2.93 per cent, projections show that if GDP grows at 9.1 per cent, the economy would have already achieved the level where labour force will equal the workforce! This conclusion is unrealistic and hence there is a need to modify our assumptions which brings us to Scenario 2.
A closer look at the employment elasticities reveals that the elasticity for agriculture and allied sectors is very high at 1.52 as compared to the earlier trend. This does not appear to be sustainable. Hence for Scenario 2, the elasticity of employment of agriculture and allied activities has been moderated to a lower figure of 0.7 for the purpose of projections while other sectoral elasticities are kept unchanged. Keeping the labour force growth rate at 2.93 per cent and GDP growth rate at 9.1 per cent, these projections show that it will take up to 2009 to reach the point where the labour force will equal the workforce (Table 2).
However, with an overall growth rate at 8.5 per cent and an agricultural growth rate of 3 per cent, the convergence of labour force and workforce will happen only in 2012. If the overall growth rate is kept at the same level and the agricultural growth rate is reduced to 2 per cent, it will take up to 2017 for the convergence to occur.
The elasticities used in these projections are based on a comparison of data between the 55th and the 61st NSS rounds. It has been suggested by some that the sharp growth of employment in the recent period may be reflecting the statistical phenomenon of a low base in 1999-2000. A longer-term period should therefore be considered to get a more accurate picture of employment growth. Accordingly, we have computed the growth rates of labour force and sectoral employment elasticities using a longer period — 1993-94 to 2004-05. Over the longer period, the aggregate elasticity drops to 0.29 as compared to 0.48. Notably for this long period both labour force growth rate and employment growth rate come down to 1.88 per cent and 1.84 per cent respectively. These are much lower than the growth rates of 2.93 per cent and 2.89 per cent experienced in the recent period. In Scenario 3 using the elasticities and the labour force growth derived from the longer period, a 9.1 per cent growth rate of GDP would enable the economy to reach the point where labour force will equal the workforce by 2008. Surprisingly, this result is only marginally different from the one arrived at as per Scenario 2.
With a 9.0 per cent GDP growth rate, even under the very conservative assumptions, the economy will reach a level where the workforce will match the labour force within a short period. Growth will be the major driving force in achieving a higher level of employment. The analysis of the data thrown up by the Survey and Projections indicates that bulk of the increase in employment has happened in the informal sector and agriculture still accounts for a large percentage of the workforce. This trend is a cause for concern as the relatively low wages and lack of social security here translate into the phenomenon of ‘working poor,’ that is, workers in the BPL households. In other words, the congruence of labour force and workforce by itself does not guarantee elimination of poverty. The new challenge is one of improving total factor productivity in the informal sector and in agriculture so that there is a significant improvement in the emoluments of those who are employed, that is, in the quality of employment.
(Dr. C. Rangarajan is Chairman of the Economic Advisory Council to the Prime Minister.)
The Hindu, 23 October
With a 9.0 per cent GDP growth rate, even under the very conservative assumptions, the economy will reach a level where the workforce will match the labour force within a short period. But the congruence of labour force and workforce by itself does not guarantee elimination of poverty.
The latest and seventh quinquennial NSSO survey (61st Round) throws new light on the employment and unemployment scenario in the country. It shows a reversal of the declining trend in employment growth rate which was witnessed earlier. Employment growth increased from an annual rate of 0.98 per cent in the period 1993-94 to 1999-00 to 2.89 per cent in the period 1999-2000 to 2004-05 (Table 1). Interestingly, there was also an unprecedented acceleration in the labour force growth rate from 1.03 per cent to 2.93 per cent which was above the population growth rate. This could have had serious implications for the unemployment scenario, had it not been for the sharp increase in the workforce, that is employment.
The NSSO 55th Round had shown a deceleration in the growth of employment from 2 per cent per annum in the period 1983 to 1993-94 to less than 1 per cent per annum in the period 1993-94 to 1999-00 and also an economy wide decrease in employment elasticity from 0.41 to 0.15. The results led to major concerns regarding the phenomenon of “jobless growth” and scepticism on the ability of economic growth to tackle the problem of unemployment. It is this trend which has been reversed. In the latest period, the aggregate employment elasticity has practically tripled from a low of 0.15 to 0.48.
As per the NSS data, a sectoral disaggregation of the workforce shows an expected decline in the share of Agriculture and Allied Activities in employment from 59.8 per cent to 58.4 per cent between the 55th and 61st NSS Round. In terms of absolute figures however, the sector absorbed almost half (30 million) of the incremental workforce. The share of the manufacturing sector in employment has marginally declined from 12.1 per cent to 11.7 per cent though in absolute terms the workforce in the sector increased by 5.5 million. The services sector improved its share from 22.7 per cent to 23.4 per cent adding 16.8 million workers in the five-year period.
The survey shows that cutting across the rural-urban divide, the share of self-employed workers has increased sharply with an offsetting decline in the share of casual labourers. According to our estimate, there are about 260 million people who are self-employed. This rise in self-employment has been viewed by some as an indicator of the deterioration in the quality of employment based on the argument that the rise in jobs in this category has been mainly in the unorganised sector where the wage rates are low.
What would be the employment scenario in the coming years, if the trend seen in the recent period persists? Projections were made under three sets of assumptions regarding the behaviour of elasticities in the future. This gives us three alternative employment scenarios.
Under the first scenario, we presume that the elasticities, calculated as per the industry wise data on employment provided by the NSSO for the period for 1999-00 to 2004-05, will prevail for the next few years at the same level. With an employment elasticity of 0.48 and a labour force growth rate of 2.93 per cent, projections show that if GDP grows at 9.1 per cent, the economy would have already achieved the level where labour force will equal the workforce! This conclusion is unrealistic and hence there is a need to modify our assumptions which brings us to Scenario 2.
A closer look at the employment elasticities reveals that the elasticity for agriculture and allied sectors is very high at 1.52 as compared to the earlier trend. This does not appear to be sustainable. Hence for Scenario 2, the elasticity of employment of agriculture and allied activities has been moderated to a lower figure of 0.7 for the purpose of projections while other sectoral elasticities are kept unchanged. Keeping the labour force growth rate at 2.93 per cent and GDP growth rate at 9.1 per cent, these projections show that it will take up to 2009 to reach the point where the labour force will equal the workforce (Table 2).
However, with an overall growth rate at 8.5 per cent and an agricultural growth rate of 3 per cent, the convergence of labour force and workforce will happen only in 2012. If the overall growth rate is kept at the same level and the agricultural growth rate is reduced to 2 per cent, it will take up to 2017 for the convergence to occur.
The elasticities used in these projections are based on a comparison of data between the 55th and the 61st NSS rounds. It has been suggested by some that the sharp growth of employment in the recent period may be reflecting the statistical phenomenon of a low base in 1999-2000. A longer-term period should therefore be considered to get a more accurate picture of employment growth. Accordingly, we have computed the growth rates of labour force and sectoral employment elasticities using a longer period — 1993-94 to 2004-05. Over the longer period, the aggregate elasticity drops to 0.29 as compared to 0.48. Notably for this long period both labour force growth rate and employment growth rate come down to 1.88 per cent and 1.84 per cent respectively. These are much lower than the growth rates of 2.93 per cent and 2.89 per cent experienced in the recent period. In Scenario 3 using the elasticities and the labour force growth derived from the longer period, a 9.1 per cent growth rate of GDP would enable the economy to reach the point where labour force will equal the workforce by 2008. Surprisingly, this result is only marginally different from the one arrived at as per Scenario 2.
With a 9.0 per cent GDP growth rate, even under the very conservative assumptions, the economy will reach a level where the workforce will match the labour force within a short period. Growth will be the major driving force in achieving a higher level of employment. The analysis of the data thrown up by the Survey and Projections indicates that bulk of the increase in employment has happened in the informal sector and agriculture still accounts for a large percentage of the workforce. This trend is a cause for concern as the relatively low wages and lack of social security here translate into the phenomenon of ‘working poor,’ that is, workers in the BPL households. In other words, the congruence of labour force and workforce by itself does not guarantee elimination of poverty. The new challenge is one of improving total factor productivity in the informal sector and in agriculture so that there is a significant improvement in the emoluments of those who are employed, that is, in the quality of employment.
(Dr. C. Rangarajan is Chairman of the Economic Advisory Council to the Prime Minister.)
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