Rising unemployment and the future of Indian youth

India has a very large vulnerable jobs share in the overall employment market. According to statistics from the International Labour Organization, of the total 1.4bn jobs that are vulnerable globally, nearly 394mn (or 28%) are in India alone.

Nov 22, 2018 06:11 IST India Infoline News Service

A recent report penned by noted journalist Sagarika Ghose ahead of the Madhya Pradesh Assembly elections highlighted an underlying trend in the state. The issues were not about caste, loan waivers, or religion, but about jobs. That was highlighted by the scores of unemployed youth who were literally doing nothing across the state.

In a way, Madhya Pradesh is the microcosm of the all-India picture. In the last few years, this problem has become really acute. Consider the chart below:

India unemployment rate 2018
(Source: Trading Economics)

The chart above shows a clear deterioration in the unemployment rate since 2014. But that may not really be the reason to worry. According to the International Labour Organization (ILO), the real worry is that nearly 77% of these jobs may actually be vulnerable as compared to just 33% in China.

Paradox of growth vs. jobs in India

The Indian GDP is still expected to grow at around 7.4% in real terms, but despite being the fastest-growing economy among the large economies with GDP of more than $2.5tn, India is not creating sufficient jobs. There are a few reasons for this phenomenon, namely,

·         Despite new jobs being created in the industry, agriculture is under tremendous stress. Agriculture has been the biggest creator of jobs in India. Farmers have been realizing lower prices for their produce despite the higher MSPs assured and the government’s efforts to move towards doubling of farm incomes by 2022.

·         The SME sector is another area of concern in terms of jobs creation. The segment has been the second-largest creator of jobs in India and was the one to really feel the squeeze exerted by the combined impact of demonetization and the introduction of GST. Limited jobs are likely to be created in this transition process.

·         Automation has been another challenge, especially in the organized industry and services segment. Companies across manufacturing, banking, insurance, and IT have virtually slowed down when it comes to the creation of fresh jobs. In sectors like IT, the old formula of low-end jobs is either getting consolidated or being replaced by machines.

·         India has a very large vulnerable jobs share in the overall employment market. Consider these statistics put out by ILO. Of the total 1.4bn jobs that are vulnerable globally, nearly 394mn (or 28%) are in India alone. That puts the entire problem in perspective.

It is this paradox of high growth and weak jobs growth that is proving to be the real bugbear for India.

Understanding India’s demographic dividends

One argument that we keep hearing about the attractiveness of the Indian economy and the stock markets is the demographic dividends.

The demographic dividend is all about having a large proportion of youth in the total population. Countries like China and Japan are facing a problem of aging populations. As people age, they depend on the economic system for social security and are unable to contribute towards productivity. It, therefore, falls upon the working population to bear this cost. Consider the chart below:

india vs. china unemployment rate 2018

Compared to China, India has a much higher proportion of a “young” population. Over the next 30 years, India will see a lot of young men and women enter and consolidate their positions in the job markets. The pyramid of Indian age distribution is likely to work as a demographic dividend for the next 30 years as the ratio of the productive population will remain higher than the unproductive population.

The big question is; what will the youth do if there are no jobs?

Demographic dividends can backfire without jobs

The biggest concern is that enough jobs are not created to productively employ this growing army of youth. According to a study done by the Azim Premji University, unemployment in India is at a 20-year high. The 3.5% number put out by the ILO could be closer to 5% if the vulnerable jobs are also adjusted for. But that is hardly the problem.

According to the Azim Premji University report, the real problem is that youth employment is as low as 16%. This can have negative repercussions for the large army of youth entering the job market every day.

This low level of employment is further worsened by the low wages. For example, over 80% of the male Indian workers and 90% of the female Indian workers earn less than Rs10,000 per month, which is not even subsistence level. According to the report, the paradox is that a 10% increase in GDP does not even lead to a 1% growth in jobs courtesy of automation, underutilization of labor, and the capacity slack in the manufacturing sector. That is why the combination of weak jobs growth and a solid demographic dividend can actually backfire.

Jobs; thou art changing!

One thing that the government and job seekers need to appreciate is that the nature of jobseekers is gradually changing. The government needs to encourage entrepreneurial efforts, which not only leads to self-employment but also to job creation. For example, a classic example is that of Germany. It built its industrial base on the strength of the concept of “Mittelstand”, which refers to the small and medium scale segment, a big contributor to employment and industrialization in Germany.

The second model is the Chinese model of creating clusters along the coastal areas to cater to export-oriented industries, a perfect example of hitting two birds with one stone. With a vast coastline, India can surely replicate the Chinese model.

Economics has a strange system of interconnectedness. For example, to be profitable, businesses need to automate and that means lower jobs. But lower jobs also mean lower purchasing power, so this automatically restricts the size of the domestic market. We are talking about a likely demographic disaster that could snowball into a real crisis as we saw in places like West Bengal in the 1970s.

The manner in which the Indian industry and policies manage this contradiction will hold the key. 

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