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WP149

The Institute for Studies in Industrial Development (ISID) is a national policy research organization in India focusing on various aspects of industrial development, including employment growth, corporate sector changes, and public health issues. The working paper discusses employment growth trends in India during the post-reform period, highlighting fluctuations and the impact of economic policies on job creation. It concludes that while there has been a deceleration in employment growth, the overall performance is not as dismal as often portrayed, despite a significant increase in GDP.

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0% found this document useful (0 votes)
9 views22 pages

WP149

The Institute for Studies in Industrial Development (ISID) is a national policy research organization in India focusing on various aspects of industrial development, including employment growth, corporate sector changes, and public health issues. The working paper discusses employment growth trends in India during the post-reform period, highlighting fluctuations and the impact of economic policies on job creation. It concludes that while there has been a deceleration in employment growth, the overall performance is not as dismal as often portrayed, despite a significant increase in GDP.

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Working Paper

No: 2012/07

About the ISID


The Institute for Studies in Industrial Development (ISID), successor to the Corporate Studies
Group (CSG), is a national-level policy research organization in the public domain and is affiliated
to the Indian Council of Social Science Research (ICSSR). Developing on the initial strength
of studying India’s industrial regulations, ISID has gained varied expertise in the analysis of the
issues thrown up by the changing policy environment. The Institute’s research and academic
activities are organized under the following broad thematic areas:
Industrialization: Land acquisition, special economic zones, encroachment of agricultural land,
manufacturing sector, changing organized-unorganised sector relationship, rise of service
economy in India, training and skill formation etc.;
Corporate Sector: With special emphasis on liberalization-induced changes in the structures
of the sector, corporate governance, individual firms/groups, emerging patterns of
EMPLOYMENT GROWTH
internationalization, and of business-state interaction;
IN THE POST-REFORM PERIOD
Trade, Investment and Technology: Trends and patterns of cross-border capital flows of goods
and services, mergers & acquisitions, inward and outward FDI etc. and their implications
for India’s position in the international division of labour;
Regulatory Mechanism: Study of regulatory authorities in the light of India’s own and
international experience, competition issues;
Employment: Trends and patterns in employment growth, non-farm employment, distributional
issues, problems of migrant labour and the changes in workforce induced by economic and
technological changes;
Public Health: Issues relating to healthcare financing, structure of health expenditure across
states, corporatisation of health services, pharmaceutical industry, occupational health,
environment, health communication;
Media Studies: Use of modern multimedia techniques for effective, wider and focused
dissemination of social science research to promote public debates;
Other Issues: Educational policy and planning, role of civil societies in development processes etc.
ISID has developed databases on various aspects of the Indian economy, particularly concerning
industry and the corporate sector. It has created On-line Indexes of 197 Indian Social Science
Journals (OLI) and 18 daily English Newspapers. More than one million scanned images of Press
Clippings on diverse social science subjects are available online to scholars and researchers.
T.S. Papola
These databases have been widely acclaimed as valuable sources of information for researchers
studying India’s socio-economic development.

Institute for Studies in Industrial Development


4, Institutional Area, Vasant Kunj Phase II, New Delhi - 110 070
Phone: +91 11 2676 4600 / 2689 1111; Fax: +91 11 2612 2448
E-mail: [email protected]; Website: http://isid.org.in ISID ISID December 2012
ISID
WORKING PAPER
2012/07
2

EMPLOYMENT GROWTH
IN THE POST-REFORM PERIOD

T.S. Papola

Institute for Studies in Industrial Development


4, Institutional Area, Vasant Kunj Phase II, New Delhi - 110 070
Phone: +91 11 2676 4600 / 2689 1111; Fax: +91 11 2612 2448
E-mail: [email protected]; Website: http://isid.org.in

December 2012
ISID Working Papers are meant to disseminate the tentative results and findings
obtained from the ongoing research activities at the Institute and to attract comments
and suggestions which may kindly be addressed to the author(s).

© Institute for Studies in Industrial Development, 2012


CONTENTS

Abstract 1

1. Introduction 1
2. Expectations and Apprehensions: Initial Shock and Quick Recovery? 2
3. Employment Growth in Different Sectors 4
4. Steep Decline in Employment Growth, 2005‐10:
Result of a Positive Development—Increase in Enrolment? 7
5. Impact of Global Financial Crisis, 2008 11
6. Conclusion 13
References 15

List of Tables

Table 1 Growth of Employment (UPSS) 3


Table 2 Growth of Rural Employment (UPSS) 5
Table 3 Growth of Urban Employment (UPSS) 6
Table 4 Composition of Rural Employment (UPSS) 7
Table 5 Labour Force Participation Rate (% to Population) 8
Table 6 Current Status Regarding Attendance in Educational Institutions
(15‐24 Age Group) 9
Table 7 Changes in Estimated Employment following Global Financial Crisis
2008 (in Lakhs) 12
EMPLOYMENT GROWTH
IN THE POST‐REFORM PERIOD *

T.S. Papola**

[Abstract: There has been intense debate and controversy on the employment performance of the
Indian economy in the high growth post‐reforms period. Part of the problem has arisen from the highly
fluctuating employment growth estimate from the three quinquennial periods for which data are
available from NSSO: slow employment growth during 1993‐94/1999‐2000, high during 1999‐
2000/2004‐05 and virtual stagnation during 2004‐05/2009‐10. Seen in a longer term perspective after
accounting for some unusual features of data for 2004‐05 resulting from depressed economic, especially,
agricultural situation during 2000‐2005. The paper concludes that the employment performance of the
Indian economy has really not been as dismal and growth not exactly “jobless” as is often made out.
These has, off course, been a deceleration in rate of employment growth and given the sharp acceleration
registered in the growth of GDP, the employment content of economic growth has sharply declined.]

I. Introduction
Employment performance of the Indian economy in the high‐growth post‐reforms period
has been a subject of intense debate and controversy. Research papers in the journals,
articles in newspapers and popular magazines and public policy documents have come out
with different and often conflicting findings, interpretations and opinions on employment
growth during the past two decades. Several reasons account for the lack of agreement
among different observers on what exactly has been happening on employment front while
the economy has been on high growth trajectory. One, scholars, policy makers and other
observers have not found the post‐reforms employment performance of the Indian
economy in line with their expectations, which, of course, have often been influenced by
their own predilections about the reforms. Second, employment growth has sharply
fluctuated in shorter periods, as well as among sectors and categories giving rise to various

* Keynote paper presented at the 54th Annual Conference of the Indian Society of Labour
Economics, B.H.U., Varanasi, 20–22 December 2012. The paper partly draws upon a study of
T.S. Papola and P.P. Sahu, Growth and Structure of Employment: Long term and Post‐reform
Performance and Emerging Challenges, ISID Occasional Paper Series, 2012/01, undertaken as part
of a research programme on “Structural Changes, Industry and Employment in the Indian
Economy” sponsored by ICSSR and coordinated by the author at ISID, New Delhi.
** ICSSR National Fellow and Honorary Professor, ISID, New Delhi E‐mail: [email protected]
speculations and hypotheses for explaining these variations. Third, the official statistics
specially from the NSSO, on which most of the observations are based, have often yielded
some intriguing estimates from one round to another and about different categories and
segments of workforce which has prompted some scholars to raise questions about the
reliability and veracity of data and estimates based on them, while others have come out
with different, often conflicting, explanation for the unusual features and trends revealed
by statistics. The present paper attempts to look at various aspects of employment growth
in the post‐reform period in a longer term prospective and clarify the trends and advance
some hypotheses, if not explanations, for understanding them. The paper also at the end,
summarises the employment challenge and examines the prospects of meeting it with
present pace and pattern of economic growth.

II. Expectations and Apprehensions:


Initial Shock and Quick Recovery?
Introduction of major economic reforms in India in 1991 evoked diverse views on the
employment implications of post‐reform growth. To begin with, it was apprehended that
the immediate impact of reforms may be felt in the form of a slowdown in the rate of
economic growth which will also mean a slower growth of employment. This view was
held commonly both by the proponents and critics of economic reforms. Consensus,
however, ended there and sharply divergent prognoses were put forward by different
groups with respect to growth and quality of employment in medium term. Advocates of
reforms argued that reforms will soon result in higher economic growth which will also
lead to faster expansion of employment opportunities. It will be further strengthened by
increase in global trade, with the liberalised trade providing India an opportunity to
increase labour–intensive exports. Critics of reforms, on the other hand, argued that
internal and external competition ushered in by domestic policy changes and trade
liberalisation will compel industry to adopt more and more capital intensive technologies
and also necessitate more liberal labour policy to allow flexibility in the use of labour. As a
result even if a higher growth rate is achieved it will not be accompanied by higher growth
of employment. There may, in fact, be a decline, especially in the organised sector, as a
result of retrenchment and downsizing both in private and public sector. Similarly
divergent views were held in respect of the structure and quality of employment:
Reformists projected more regular wage/salary jobs in the organised sector while the
detractors of reforms predicted increasing casualisation and informalisation and declining
social protection, with another middle view expecting increase both in formal and informal
employment, after an initial bout of informalisation and casualisation.

Employment growth has shown a declining trend over a relatively longer period, but has
sharply fluctuated in the shorter periods (Table‐1). It was relatively high at 2.6 per cent
2
during 1972‐73/1987‐88, but declined to 2.2 and 1.5 per cent during the next two
quinquennial periods. In the immediate post‐reforms period (1993‐94/1999‐2000) it
decelerated to about 1 per cent but jumped up to all time high of 2.8 per cent during 1999‐
2000/2004‐05. During the ten year period, 1993‐94/2004‐05 it grew at 1.8 per cent as against
2.02 per cent in the preceding ten year period. During the period 2004‐05/2009‐10,
employment growth, has been abysmally low, 0.22 per cent per annum. This deceleration
in employment growth has taken place with acceleration in GDP which was about 5 per
cent during 1983‐84/1993‐94, rose to about 6.3 per cent during 1993‐94/2004‐05 and
accelerated to as high as 9 per cent during the period 2004‐05/2009‐10, when employment
virtually stagnated.

Table‐1
Growth of Employment (UPSS)
Sector 72‐ 77‐ 83/87‐ 87‐ 93‐ 99‐ 04‐ 72‐73/ 83/93‐ 93‐ 99‐
73/77‐ 78/83 88 88/93‐ 94/99‐ 00/04‐ 05/09‐ 83 94 94/04‐ 00/09‐
78 94 00 05 10 05 10
Primary Sector 1.78 1.56 0.28 2.16 0.05 1.40 ‐1.63 1.70 1.35 0.67 ‐0.13
Mining & 4.36 7.14 5.34 1.69 ‐2.11 2.41 3.00 5.92 3.24 ‐0.08 2.70
Quarrying
Manufacturing 5.43 3.08 4.66 0.05 1.62 5.06 ‐1.06 4.28 2.00 3.17 1.95
Utilities 2.78 12.39 7.21 4.37 ‐5.89 3.22 1.02 7.86 5.58 ‐1.86 2.11
Construction 1.67 6.84 13.91 ‐0.11 6.38 8.18 11.29 4.43 5.67 7.19 9.72
Secondary 4.78 3.95 6.44 0.19 2.44 5.83 3.46 4.43 2.82 3.97 4.64
Sector
Trade, 6.40 2.87 3.96 3.62 6.28 4.01 1.10 4.62 3.77 5.24 2.54
Hostelling etc.
Transport & 6.21 5.36 3.02 3.67 5.09 5.23 2.14 5.88 3.39 5.16 3.68
Communication
etc.
Financing, 6.84 7.68 1.41 5.24 5.28 9.62 5.77 7.43 3.58 7.23 7.68
Insurance,
Real estate &
business
services
Community, 3.24 3.01 0.31 6.68 ‐1.48 2.71 0.99 3.18 3.91 0.40 1.85
social and
personal
services
Tertiary Sector 4.86 3.46 2.11 5.03 2.85 4.08 1.59 4.21 3.77 3.41 2.83
All Non‐ 4.82 3.67 4.09 2.82 2.68 4.81 2.41 4.30 3.36 3.64 3.61
Agricultural
Total 2.61 2.19 1.53 2.39 1.04 2.81 0.22 2.44 2.02 1.84 1.50
Source: Own estimates based on various rounds of NSS data on employment and unemployment.

3
Even if one disregards the 2004‐05 estimates which seem “outliers” in several respects – a
point to which we shall return later – growth rate of employment during the first decade of
the 21st century, 1999‐2000/2009‐10, turns out to be only 1.50, showing a long term –
deceleration, with the highest GDP growth of 7.5 per cent, the highest in any short or long
period before.

Within a long‐term declining trend, employment growth has shown a intriguingly


fluctuating trend in the shorter periods. The 6‐year period following the introduction of
reforms for which point to point data are available, viz., 1993‐94 to 1999‐2000, showed a
steep decline in the rate of employment growth (to 1.04%) over the preceding 6‐year
period, 1987‐88/1993‐94 (at 2.39%). Over the next five years (1999‐2000/2004‐05)
employment growth was estimated to be high at 2.81 per cent and in the next five years no
significant growth in employment is recorded. Among these four periods change in growth
rate of employment has been in inverse relationship with the change in GDP growth rate.
Employment elasticity‐ the ratio of employment growth to growth of GDP ‐ sharply
declined in the years following the reforms: it declined from 0.42 during 1987‐88/1993‐94, to
0.16 during 1993‐94/1999‐2000, increased to 0.47per cent during 2000‐2005, but declined to
almost zero (0.02) during 2005‐10.

III. Employment Growth in Different Sectors


Let us note some other features of employment growth during the post‐reform period.
First, as expected, fastest employment growth has taken place in the secondary sector, at an
annual average rate of about 3.5 per cent over the entire period 1993‐94/2009‐10. Even
during 2005‐10, when there has hardly been any growth in employment in aggregate,
secondary sector employment grew at 3.5 per cent per annum. Agriculture, as expected,
did not experience significant increase in employment; during recent years it has, in fact,
seen a decline in employment. Services sector registered relatively high employment
growth, averaging at about 3 per cent per annum over the entire post‐reform period,
though not commensurate with its GDP growth which has been over 10 per cent per
annum. As a result, employment elasticity in this sector has been relatively low and has
sharply declined particularly since 2004‐05. Most divisions of economic activities have
registered a decline in the rate of their employment growth in the post‐reform period, but
construction has seen an acceleration in the rate of employment growth. Trade, transport
and financial services also saw an acceleration in employment growth during 1993‐94/2004‐
05 but the rate declined during 2004‐05/2009‐10.

It is also interesting to note that the deceleration in the rate of employment growth in the
post‐reform period can primarily be attributed to a decline in employment growth in rural
areas where employment grew at 1.4 per cent during 1993‐94/2004‐05 and actually declined
4
during 2004‐05/2009‐10 (Table‐2), against a growth of about 2 per cent in earlier 20 year
period. In urban areas employment growth rate was higher in the first post‐reform decade,
1993‐94/2004‐05 and declined during 2005‐10, but was still positive and significant at 1.8
per cent per annum (Table‐3). All divisions of activity in the secondary and tertiary sectors
except, mining and community, social and personal services, recorded reasonably high
employment growth in the post‐reform period in urban areas. In rural areas, construction
was the biggest contributor to employment growth, followed by transport.

Table‐2
Growth of Rural Employment (UPSS)
Sector 72‐ 77‐ 83/87‐ 87‐ 93‐ 99‐ 04‐ 72‐73/ 83/93‐ 93‐ 99‐
73/77‐ 78/83 88 88/93‐ 94/99‐ 00/04‐ 05/09‐ 83 94 94/04‐ 00/09‐
78 94 00 05 10 05 10
Primary Sector 1.66 1.49 0.28 2.17 0.20 1.29 ‐1.65 1.60 1.35 0.69 ‐0.19
Mining & 5.82 6.11 5.58 1.09 ‐1.25 2.11 5.21 6.09 2.99 0.26 3.65
Quarrying
Manufacturing 5.36 3.50 4.33 0.35 1.62 4.09 ‐2.74 4.47 2.04 2.74 0.62
Utilities 17.17 1.66 11.12 5.15 ‐8.29 1.83 1.19 8.95 7.66 ‐3.82 1.51
Construction 0.92 6.32 18.45 ‐3.50 6.44 10.50 13.61 3.79 5.36 8.27 12.04
Secondary 4.71 4.08 7.57 ‐0.53 2.55 6.03 4.65 4.47 2.87 4.11 5.34
Sector
Trade, 7.62 3.19 4.06 3.37 3.76 6.23 0.66 5.38 3.67 4.88 3.41
Hostelling etc.
Transport & 6.77 8.07 5.13 3.79 6.75 6.33 2.58 7.60 4.36 6.56 4.44
Communicatio
n etc.
Financing, 10.62 15.32 ‐7.21 4.45 4.27 8.41 2.07 13.33 ‐0.72 6.13 5.20
Insurance,
Real estate &
business
services
Community, 4.08 2.26 0.40 5.99 ‐0.99 1.38 0.16 3.19 3.56 0.08 0.77
social and
personal
services
Tertiary Sector 5.72 3.58 2.13 4.64 2.12 4.52 0.90 4.69 3.56 3.20 2.70
All Non‐ 5.23 3.82 4.91 1.98 2.32 5.25 2.83 4.58 3.22 3.64 4.03
Agricultural
Total 2.21 1.89 1.19 2.12 0.67 2.29 ‐0.34 2.08 1.72 1.40 0.96
Source: Own estimates based on various rounds of NSS data on employment and unemployment.

5
Table‐3
Growth of Urban Employment (UPSS)
Sector 72‐ 77‐ 83/87‐ 87‐ 93‐ 99‐ 04‐ 72‐ 83/93‐ 93‐ 99‐
73/77‐ 78/83 88 88/93‐ 94/99‐ 00/04‐ 05/09‐ 73/83 94 94/04‐ 00/09‐
78 94 2000 05 10 05 10
Primary Sector 5.01 3.27 0.42 1.99 ‐3.48 4.47 ‐1.17 4.18 1.32 0.05 1.61
Mining & 1.54 9.23 4.88 2.79 ‐3.69 3.00 ‐1.87 5.61 3.68 ‐0.70 0.53
Quarrying
Manufacturing 5.51 2.65 5.01 ‐0.26 1.63 6.05 0.45 4.08 1.97 3.61 3.21
Utilities ‐8.86 24.12 4.73 3.77 ‐4.16 4.05 0.93 7.29 4.18 ‐0.51 2.47
Construction 2.90 7.62 5.91 6.26 6.29 4.68 6.60 5.45 6.11 5.56 5.64
Secondary 4.86 3.80 5.13 1.04 2.32 5.60 2.01 4.39 2.77 3.80 3.79
Sector
Trade, 5.50 2.61 3.88 3.82 8.08 2.53 1.43 4.05 3.85 5.52 1.98
Hostelling etc.
Transport & 5.96 4.02 1.78 3.59 3.94 4.36 1.77 5.04 2.81 4.13 3.06
Communicatio
n etc.
Financing, 5.73 4.45 5.43 5.49 5.59 9.96 6.67 5.16 5.47 7.55 8.30
Insurance, Real
estate &
business
services
Community, 2.52 3.66 0.24 7.24 ‐1.87 3.75 1.58 3.17 4.18 0.65 2.66
social and
personal
services
Tertiary Sector 4.23 3.38 2.10 5.32 3.37 3.78 2.06 3.86 3.93 3.56 2.92
All Non‐ 4.47 3.54 3.33 3.61 2.99 4.44 2.04 4.06 3.49 3.65 3.23
Agricultural
Total 4.55 3.50 2.91 3.40 2.30 4.44 1.78 4.08 3.19 3.27 3.10
Source: Own estimates based on various rounds of NSS data on employment and unemployment.

Overall employment growth has been low and declining in rural areas primarily because of
the low and declining, and recently a negative, growth in employment in agriculture.
Growth in non‐agricultural sector has been quite high throughout 1972‐73/2009‐10, but has
accelerated in the post‐reform period. It was 3.2 per cent per annum during 1983/1993‐94
but increased to 3.6 per cent during 1993‐94/2004‐09. Even during 2004‐05/2009‐10 when
rural employment declined in aggregate, it grew at 2.8 per cent in the non‐farm sector. This
sector has increased its employment share from 21.6 per cent in 1993‐94 to 32 per cent in
2009‐10 (Table‐4). The fact that its share in rural NDP has also increased sharply from 43 per
cent in 1993‐94 to 62 per cent in 2004‐05, suggests that the employment in the rural non‐
6
farm activities is not a distress driven phenomenon, but is induced by higher demand, as
productivity per worker in them is not only higher than in agriculture, but has also been
rising reasonably fast over the years. Sectorally, however, the trends are rather intriguing:
practically all the increase in the share of non‐farm sector in rural employment has been
contributed by construction; its share increased from 18 per cent in 2004‐05 to 29 per cent in
2009‐10, presumably a reflection of the implementation of MGNREGA. Manufacturing, the
largest non‐farm activity in rural areas has seen a decline in its employment share, from
32.5 per cent in 1993‐94 to 29.5 per cent in 2004‐05 and further to 22.3 per cent in 2009‐10.
Community, social and personal services have also seen a decline in their share in rural
employment.

Table‐4
Composition of Rural Employment (UPSS)
Sector 93‐94 99‐00 04‐05 09‐10
Agriculture 78.43 76.23 72.58 67.93
Non‐Agriculture 21.57 23.77 27.42 32.07
Distribution within non‐agriculture
Mining & Quarrying 2.58 2.09 1.79 2.01
Manufacturing 32.46 31.15 29.47 22.32
Utilities 1.06 0.55 0.47 0.43
Construction 11.02 13.96 17.81 29.32
Secondary Sector 47.12 47.74 49.53 54.08
Trade, Hostelling etc. 19.86 21.59 22.62 20.33
Transport & Communication etc. 6.71 8.66 9.11 9.00
Financing, Insurance, Real Estate & Business Services 1.36 1.52 1.76 1.70
Community, Social and Personal Services 24.96 20.49 16.98 14.89
Tertiary Sector 52.88 52.26 50.47 45.92
Source: Own estimates based on various rounds of NSS data on employment and unemployment.

IV. Steep Decline in Employment Growth, 2005‐10:


Result of a Positive Development—Increase in Enrolment?
A steep decline in the employment growth during 2004‐05/2009‐10, as estimated on the
basis of the 61st and 66th rounds of NSSO surveys has not only led to dampening of the
optimistic prospects projected earlier around the start of the Eleventh Five Year Plan (EAC,
2007, Planning Commission, 2008), but has also proved intriguing for those interested in
the study of employment growth and also for policy makers. It seems particularly puzzling
in the face of an unprecedentedly high economic growth during this period. Also several
labour market developments during this period suggest an increase in demand for labour.
For example, organised sector employment has shown an increase during this period for
the first time since 1997. Real wage rates of worker in all sector sand categories have

7
recorded a rapid increase. There has been a faster decline in poverty, during this period
than during the earlier two quinquennia (Planning Commission, 2011). Also, as shown by
NSSO figures, a highest ever increase occurred in the proportion of regular employee
category in the total workforce.

The most obvious explanation for an insignificant increase in employment between 2004‐05
and 2009‐10 is seen in the decline in labour supply itself as indicated by sharp decline in
Labour Force Participation Rates (LFPR), from 42.85 per cent in 2004‐05 to 39.80 in 2009‐10,
(Table‐5) resulting into an increase only of 11.7 million in labour force in a five year period
as compared to over 12 million per year during 1999‐2000/2004‐05! As a result, in spite of a
slow growth in employment, unemployment rates in 2009/10 are estimated to be
significantly lower than in 2004‐05. The unemployment rates by UPS, CWS and CDS
criteria in 2009‐10 are estimated to be 2.51, 3.61 and 6.52 per cent respectively as against
3.19, 4.49 and 8.23 per cent in 2004‐05. Unemployment, in fact, declined, in absolute terms
by 6.3 million (Planning Commission, 2011).

Table‐5
Labour Force Participation Rate (% to Population)
93‐94 99‐00 04‐05 09‐10
LFPR All age groups(UPSS)
Male 55.62 54.06 55.94 55.69
Female 28.74 26.01 28.86 22.87
Total 42.68 40.52 42.85 39.80
LFPR for age groups 15‐24
Male 68.55 65.07 64.98 53.70
Female 35.45 30.33 32.55 22.20
Total 52.80 49.06 49.56 38.80
Source: Own estimates based on various rounds of NSS data on employment and unemployment.

What has caused such a sharp decline in labour force participation rates? Looking at its
different components, it may be noted that it is primarily a result of a decline in LFPR of
women and of those in the age group 15 to 25 years (Table‐5). LFPR among men of all ages
changed very little (from 55.94 to 55.69), that among women declined from 29 to 23 per
cent. Male LFPR declined much more, in the age group 15–24, from 65 to 54 per cent but
female LFPR in this age‐group declined still faster from 33 to 22 per cent. This decline has
been attributed mainly to increase in enrolment in education system, more for women than
men. The 12th Plan Approach Paper, in fact, highlights “the dramatic increase in the
number of young people in education, and therefore, out of the workforce‐causing a drop
in the labour force participation rate as “one of the most remarkable things” brought out by
the 66th round (2009‐10) of NSSO survey on Employment”. (Planning Commission, 2011,
pp. 9‐10). Some other observers have also attributed the decline in LFPR during 2004‐

8
05/2009‐10 to increase in enrolment (see EPW, 2011, Chaudhuri, 2011, Rangarajan et al,
2011). It appears that not only many of the new entrants in the working age group did not
join the labour force but there was also a large withdrawal from the labour force.
According to one study (Rangarajan et al) 44 per cent of them did not join, or actually
withdrew from the labour force due to the reasons of education and 31 per cent due to
domestic work. A good number of them (15%) consisted of children withdrawing from
child labour activities. Another study, while concluding that 45 per cent of decline in labour
force was due to additional enrolment in education, points out that the entire decline in the
case of men can be attributed to increase in enrolment, but 73 per cent of decline in the case
of women was for other reasons, basically to go back to domestic work (Kannan and
Raveendran, 2012)

There is no doubt however, that enrolment in education has vastly increased in recent
years. The number of persons in the age‐group 15–24 years who continued in education
streams increased from 30 million in 2004‐05 to 60 million in 2009‐10 (Planning
Commission, 2011, p. 10). As can be seen from the figures in Table‐6, percentage of the

Table‐6
Current Status Regarding Attendance in Educational Institutions(15‐24 Age Group)
93‐94 99‐00 04‐05 09‐10
Male
Not Attending 68.57 66.91 65.47 54.59
UP to primary 1.47 1.16 0.68 0.45
Middle level 3.83 5.07 3.83 2.76
Secondary & above 26.13 26.85 30.02 42.20
Female
Not Attending 82.76 79.32 76.03 66.60
UP to primary 0.95 0.88 0.57 0.50
Middle level 2.13 2.95 2.81 2.11
Secondary & above 14.16 16.86 20.59 30.79
Total
Not Attending 75.37 72.82 70.53 60.25
UP to primary 1.17 1.05 0.63 0.48
Middle level 3.02 4.03 3.34 2.45
Secondary & above 20.44 22.11 25.50 36.83
Source: Own estimates based on various rounds of NSS data on employment and unemployment.
people in the age group 15–24 attending educational institutions increased from 29.5 in
2004‐05 to 49 in 2009‐10. Increase was much sharper, from 24 per cent to 32.5 per cent in the
case of women, than of men, from 34.5 to 45.5 per cent. It must be noted that increase in
enrolment was much slower in earlier years. 25 per cent of the 15–24 age group attended
educational institutions in 1993‐94, percentage increased only to 29.5 in 2004‐05, but

9
jumped to 40 in 2009‐10. It seems that a very high economic growth, resulting into
unprecedented—about 7 per cent—annual increase in per capita income combined with a
sustained campaign for “education for all” made a significant impact on enrolment in
secondary and post‐secondary education.

At the same time, it also needs to be noted that the labour force and employment situation
in 2004‐05 as revealed by 61st round of NSSO survey showed certain features which were
unusual if seen in relation to the longer term trends. LFPR, particularly of women and in
the age group of 15‐24 years, which had shown a declining trend over the period since
1971‐72 to 1999‐2000, registered a sharp increase in 2004‐05. The share of the self‐employed
has been declining and that of casual labour increasing from one NSS Round to another;
the trend is reversed in 2004‐05. Overall employment growth was the highest ever at
around 3 per cent per annum taking the total workforce to a high of 464 million, up from
398 million in 1999‐2000—an increase of 66 million. That GDP growth rate of less than 6 per
cent, lower than 6.5 per cent attained in the previous quinquennial period, could have led
to such a boom in employment generation sounds rather doubtful.

It is, in fact, a relatively slower growth, particularly in agriculture during 2000‐05 that
seems to explain the unusual features of labour force and employment situation in 2004‐05.
Agricultural growth averaged to 1.5 per cent during this period and was less than one per
cent during 2004‐05. It appears that food‐grains production particularly suffered as the per
capita availability of cereals and pulses declined from 462 grams per day in 2004 to 422
grams per day in 2005. With declining incomes, it appears that more and more women
(who would otherwise have been in domestic work) and children (who would otherwise
have been in schools) joined the labour force and participated in workforce, swelling the
figures of employment. As a result, employment growth was fast but of poor quality,
mostly in the self‐employed category and was poorly remunerative as reflected in decline
in real wages (Unni and Raveendran, 2007). In other words, the 2004‐05 estimates of labour
force and work force seem to have been significantly inflated as a good part of employment
could be regarded as ‘spurious’. Even with a ‘high’ rate of employment growth,
unemployment rates (by any status) in 2004‐05 were higher than in 1999‐2000.

It thus appears that the year 2004‐05 was an aberration from the longer term trends and an
outlier in so far as comparison between different NSSO rounds is concerned. The fact that
the long term trends – decline in LFPR, decline in self‐employed and increase in that of
casual workers‐have been restored during 2004‐05/2009‐10, supports the hypothesis
regarding the unusual nature of 2004‐05 situation. It can be argued that ‘distress’ led
participation in labour force could have also taken place in 2009‐10 as agricultural growth
in that as also the previous year was very low. It should, however, be noted that the
average growth in agriculture during 2004‐05/2009‐10 was quite high at over 3 per cent per
10
annum and even in the years of low agriculture growth, food grains production was high
enough to prevent a decline in their per capita availability. In any case, overall economic
growth was very high, between 8.5 and 9 per cent and could have provided good enough
buffer to absorb sectoral stocks.

A very slow growth of employment as revealed by the data for 2009‐10 over those for 2004‐
05 should, therefore, be viewed with reasonable caution. It may not necessarily be
reflecting a worsening situation; it could even be interpreted, as the Planning Commission
does, as a result of a positive development namely, a larger number of young persons
particularly women, going through secondary and higher education. Taking only the
persons in the working age (15‐59) group and using Usual Principal Status (UPS) criterion,
an analyst has estimated a reasonably high rate (1.71 per cent per annum) of employment
growth during 2004‐05/2009‐10 (Ghose, 2011). He has also argued that employment quality
has substantially improved during this period as indicated by a fast growth (7.24% pa) of
employment in the organised sector than in the unorganised (0.95% pa) a reasonably high
growth of formal employment (4.02% pa).

It may be advisable to disregard the estimates for 2004‐05 for a longer term analysis and
also an assessment of the post‐reform growth in employment, for the reasons elaborated
above. A low employment growth in the immediate post‐reform period 1993‐94/1999‐2000
was expected as mentioned in the beginning of this paper. Has employment growth
recovered since and got accelerated over the years? It seems to have slightly improved, but
has been in line with the long term declining trend. Employment growth during 1999‐2000
to 2009‐10 has been 1.5 per cent per annum, lower than any ten‐year period earlier and for
the entire post‐reform period it would still be lower, as employment growth during 1993‐
94/1999‐2000 was only about one per cent per annum. So, the reforms, in spite of high
growth of GDP do not seem to have delivered on employment front.

V. Impact of Global Financial Crisis, 2008


Let us briefly look at the impact of 2008 global financial crises on Indian economy and
employment. The global crisis adversely affected the Indian economy, but impact was not
as severe as felt globally. GDP growth slowed down from over 9 per cent during the three
year period ending with 2007‐08, to 6.8 per cent during 2008‐09. What was the impact this
slowdown on employment?

No comprehensive data are available for assessing impact of the slow down on
employment. Limited surveys by Labour Bureau of the Ministry of Labour and
Employment (MoLE), based on a sample of about 3000 units employing 10 or more
workers, in mining, manufacturing sector and in IT/BPO segment of the services sector,
11
indicate some, though not very severe, impact. According to these surveys, there was a loss
of 5 lakh jobs in the quarter October – December 2008, a gain of 2.8 lakhs jobs during the
next quarter and again a loss of 1.3 lakh jobs during April‐June 2009. The subsequent
surveys for quarters June‐September 2009 and September 2009‐December 2009 revealed
significant increase, the estimates for the two periods being 5.0 and 6.4 lakhs respectively.
After initial decline of about 5 lakhs during October‐December 2008, employment was
estimated to have increased by 12.8 lakhs during the year 2009 (see Table‐7). It is significant
to note that initially export‐oriented sectors and units had a setback and those focussing on
domestic market, in fact, saw a positive growth in employment. Major part of increase in
employment has been accounted for by only two sectors – textiles during first quarter and
third quarter and IT/BPO during the last quarter of 2009.

Table‐7
Changes in Estimated Employment following Global Financial Crisis 2008 (in Lakhs)
Industry Group Dec, 08 Mar, 09 Jun, 09 Sep, 09 Dec, 09 Dec, 09 Dec, 09
Over Oct, Over Dec, Over Mar, Over Jun, Over Sep, Over Dec, Over Oct,
08 08 09 09 09 08 08
Textile including ‐1.07 2.08 ‐1.54 3.18 0.16 3.88 2.81
apparels
Leather 0.06 ‐0.33 0.07 ‐0.08 0.09 ‐0.25 ‐0.19
Metals ‐1.00 ‐0.29 ‐0.01 0.65 0.23 0.58 ‐0.42
Automobile ‐1.69 0.02 0.23 0.24 0.06 0.55 ‐1.14
Gems & ‐1.59 0.33 ‐0.20 0.58 0.07 0.78 ‐0.81
Jewellery
Transport 0.04 ‐0.04 ‐0.01 0.00 ‐0.02 ‐0.07 ‐0.03
IT‐BPO 0.66 0.92 ‐0.34 0.26 5.70 6.54 7.20
Handloom‐ ‐0.16 0.07 0.49 0.15 0.09 0.80 0.64
Powerloom
Overall ‐4.77 2.76 ‐1.31 4.97 6.38 12.80 8.03
Source: Labour Bureau, Report on Effects of Slowdown on Employment in India, various quarterly
reports.

On the whole, it appears that adverse effect on growth and employment in India has not
been as severe as elsewhere and also appears to have been of a relatively short‐term nature.
Growth rate of GDP which declined from an average of 9.5 per cent during 2005‐06 to 2007‐
08 to 6.8 per cent in 2008‐09, but recovered to 8 per cent in 2009‐10 and increased to 8.6 per
cent in 2010‐11. The year 2011‐12, which was again afflicted by another crisis in the
developed world, specially Europe, also saw a slowdown in Indian economy. Growth of
GDP was expected to be lower than in 2010‐11 and is estimated to be around 6.5 per cent.
The period of the Eleventh Plan (2007‐12) which aimed at nine per cent growth rate and
was earlier expected to end with an average growth of 8.2 per cent per annum (Ahluwalia,
2011) has in fact ended with an 8 per cent growth rate. Contribution of the adverse impact

12
of the European crisis has led to uncertainly about GDP growth in 2012‐13, forecasts vary
between a low of 5.5 to 6.5 per cent. Whether these trends in GDP growth will have similar
impact on employment is rather uncertain, as even a high GDP growth during 2005‐10 is
found to have generated hardly any growth in employment. In so far as the slowdown in
employment growth is caused by a slowdown in exports, the decline in employment
growth, could be attributed to the global economic slowdown. But it must also be noted
that the share of labour‐intensive products has declined in Indian exports in the post‐
reforms period, from around 68 per cent in 1991 to 49 per cent in 2004‐05 and further to 45
per cent in 2009‐10. That, however, is only part of the story as the employment intensive
exports contribute a small part to total employment whereas the decline in employment
growth during 2005‐10 has been common to all sectors of economic activity except
construction.

VI. Conclusion
Economic growth during the post‐reforms period, though not exactly ‘jobless’, has not been
employment intensive either. Employment has grown at a slower rate in the post‐reforms
than in the pre‐reforms period. It is in line with the declining trend of employment growth
over the longer period, but it must be noted that the declaration in the post‐reforms period
has been coterminous with an acceleration of the growth rate of GDP. Employment content
of growth as measured in terms of employment, elasticity, which has been declining over
the years, has shown a sharper decline in the post‐reform period.

Unemployment rates may not necessarily rise in spite of a lower rate of employment
growth, because the growth rate of labour force has declined, from over 2 per cent per
annum in the pre‐reform to about 1.7 per cent in recent years. Yet the quality of
employment in terms productivity and earnings and social protection, that constitutes the
core of the ‘employment problem’ is getting aggravated as a result of slow pace of rise in
demand for labour. Trends in the post‐reforms period such as increasing casualisation, and
informalisation and use of contract labour suggest a general deterioration in the overall
quality of employment. Some recent trends, such as the reversal of the direction of change
in employment in the organised sector since 2004, an increase in share of ‘regular’ workers
during 2004‐05/2009‐10 and a faster increase in real earnings of workers including these in
the casual labour category and in the unorganised sector, on the other hand, give positive
signs in the direction of an improvement in the overall quality of employment.

Improvements in the quality of employment, cannot, however, be sustained and


strengthened without a quantitative increase in demand for labour and consequent
tightening in the labour market. In other words, employment opportunities must expand at
a faster rate especially in the organised sector. A faster growth of GDP is necessary, as
13
employment growth has to be at increasing levels of productivity and earnings, but it is not
enough for faster employment growth. The composition of growth is also equally if not
more important. It appears that a service‐led and export‐led growth is not likely to meet the
objective of faster employment growth. A ‘rebalancing’ of economic growth towards
manufacturing industry and greater domestic reorientation seems essential at the present
stage, to make it more employment oriented and inclusive.

14
References
Ahluwalia, Montek S. (2011), ’Prospectsand Policy Challenges in the Twelfth Plan’,
Economic and Political Weekly, Vol. XLVI,No 21
Chaudhari, Subhanil (2011) “Employment in India: What does the Latest Data
Show?”, Economic and Political Weekly, August 6.
EAC (2007) Employment and Growth, Report of the Economic Advisory Council to the
Prime Minister, New Delhi, Government of India.
EPW (2011), ‘Don’t Shoot the Messenger’, Economic and Political Weekly, July 9,
(Editorial).
Ghose, Ajit K. (2011) “The Growth Employment Inter‐Action in a Developing
Economy”, V.B. Singh Memorial Lecture at the 53rd Annual Conference of Indian
Society of Labour Economic, Udaipur, 17‐19 December
Kannan, K.P. and G. Raveendran, (2012) “Counting and Profiling of the Missing
Labour Force”, Economic and Political Weekly, Vol. XLVII, No. 6 February 11.
Rangarajan C, Padma Iyer Kaul, Seema, (2011) ‘Where is the Missing Labour Force’,
Economic and Political Weekly, September 24‐30.
Unni Jeemol and G. Raveendran (2007) “Growth and Employment (1993‐94 to 2004‐
05): Illusion of Inclusiveness? Economic and Political Weekly, January 20.
Planning Commission (2008), Eleventh Five Year Plan (2007–2012) – ‘Volume I, Inclusive
Growth, – Volume III, Agriculture, Industry, Services and Physical Infrastructure’,
New Delhi, Planning Commission, Government of India.
Planning Commission (2011) ‘Faster Sustainable and More Inclusive Growth: An
Approach to the 12th Five Year Plan’, August.

15
List of ISID Working Papers
WP2012/06 Estimation of Private Investment in Manufacturing Sector and Determinants in
Indian States, Jagannath Mallick
WP2012/05 Regional Disparities in Growth and Human Development in India, Satyaki Roy
WP2012/04 Social Exclusion and Discrimination in the Labour Market, T.S. Papola
WP2012/03 Changing Factor Incomes in Industries and Occupations: Review of Long Term
Trends, Satyaki Roy
WP2012/02 Structural Changes in the Indian Economy: Emerging Patterns and Implications,
T.S. Papola
WP2012/01 Managing Global Financial Flows at the Cost of National Autonomy: China and
India, Sunanda Sen
WP2011/04 Trends and Patterns in Consumption Expenditure: A Review of Class and Rural‐
Urban Disparities, Satyaki Roy
WP2011/03 The Global Crisis and the Remedial Actions: A Non‐Mainstream Perspective
Sunanda Sen
WP2011/02 Spatial Organization of Production in India: Contesting Themes and Conflicting
Evidence, Satyaki Roy.
WP2011/01 India’s FDI Inflows: Trends and Concepts, K.S. Chalapati Rao & Biswajit Dhar.
WP2010/12 On the Sustainability of India’s Non‐Inclusive High Growth, Surajit Mazumdar
WP2010/11 Operation of FDI Caps in India and Corporate Control Mechanisms, K.S.
Chalapati Rao & Biswajit Dhar.
WP2010/10 Indian Capitalism: A Case That Doesn’t Fit? Surajit Mazumdar.
WP2010/09 Big Business and Economic Nationalism in India, Surajit Mazumdar
WP2010/08 Aligning with both the Soviet Union and with the Pharmaceutical
Transnational’s: Dilemmas attendant on initiating Drug Production in India,
Nasir Tyabji.
WP2010/07 The Arduous Route to ensuring some Minimum Public Shareholding in Listed
Companies, K.S. Chalapati Rao.
WP2010/06 Managing Finance in Emerging Economies: The Case of India, Sunanda Sen.
WP2010/05 Social Science Research in Globalising India: Historical Development and Recent
Trends, T.S. Papola.
WP2010/04 Private Industry and the Second Five Year Plan: The Mundhra Episode as
exemplar of Capitalist Myopia, Nasir Tyabji.
WP2010/03 Trading in India’s Commodity Future Markets, Sunanda Sen and Mahua Paul.
WP2010/02 Industry and Services in Growth and Structural Change in India: Some
Unexplored Features, Surajit Mazumdar.
WP2010/01 Does the Current Global Crisis remind us of the Great Depression? Sunanda Sen.

* Already Published. Most of the working papers are downloadable from the institute’s website:
http://isidev.nic.in/ or http://isid.org.in/

16
Working Paper
No: 2012/07

About the ISID


The Institute for Studies in Industrial Development (ISID), successor to the Corporate Studies
Group (CSG), is a national-level policy research organization in the public domain and is affiliated
to the Indian Council of Social Science Research (ICSSR). Developing on the initial strength
of studying India’s industrial regulations, ISID has gained varied expertise in the analysis of the
issues thrown up by the changing policy environment. The Institute’s research and academic
activities are organized under the following broad thematic areas:
Industrialization: Land acquisition, special economic zones, encroachment of agricultural land,
manufacturing sector, changing organized-unorganised sector relationship, rise of service
economy in India, training and skill formation etc.;
Corporate Sector: With special emphasis on liberalization-induced changes in the structures
of the sector, corporate governance, individual firms/groups, emerging patterns of
EMPLOYMENT GROWTH
internationalization, and of business-state interaction;
IN THE POST-REFORM PERIOD
Trade, Investment and Technology: Trends and patterns of cross-border capital flows of goods
and services, mergers & acquisitions, inward and outward FDI etc. and their implications
for India’s position in the international division of labour;
Regulatory Mechanism: Study of regulatory authorities in the light of India’s own and
international experience, competition issues;
Employment: Trends and patterns in employment growth, non-farm employment, distributional
issues, problems of migrant labour and the changes in workforce induced by economic and
technological changes;
Public Health: Issues relating to healthcare financing, structure of health expenditure across
states, corporatisation of health services, pharmaceutical industry, occupational health,
environment, health communication;
Media Studies: Use of modern multimedia techniques for effective, wider and focused
dissemination of social science research to promote public debates;
Other Issues: Educational policy and planning, role of civil societies in development processes etc.
ISID has developed databases on various aspects of the Indian economy, particularly concerning
industry and the corporate sector. It has created On-line Indexes of 197 Indian Social Science
Journals (OLI) and 18 daily English Newspapers. More than one million scanned images of Press
Clippings on diverse social science subjects are available online to scholars and researchers.
T.S. Papola
These databases have been widely acclaimed as valuable sources of information for researchers
studying India’s socio-economic development.

Institute for Studies in Industrial Development


4, Institutional Area, Vasant Kunj Phase II, New Delhi - 110 070
Phone: +91 11 2676 4600 / 2689 1111; Fax: +91 11 2612 2448
E-mail: [email protected]; Website: http://isid.org.in ISID ISID December 2012

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