Syllabus
GS Paper 3 – Indian Economy and issues relating to planning, mobilization, of resources, growth,development and employment.
Applications where to apply?
When asked about
– Labour market
– Jobless Growth
– Inequality
Context
India’s labour market is pivotal to its economic growth, especially in the phase of demographic dividend. However, the majority of the workforce is engaged in low-quality jobs, resulting in the suboptimal utilization of labour.
Source
The Hindu | Editorial dated 9th March 2024
India’s suboptimal use of its labour power
India’s majority of its workforce earns their livelihoods through labour rather than capital ownership. The recent improvements in labour force participation rates and declining unemployment figures seem encouraging on the surface, yet a closer examination reveals a complex picture.
Despite the apparent positive trends, the quality of employment remains a concern, with a significant portion of the workforce engaged in low-paying and precarious jobs.
Trends in Labour Force Participation and Unemployment Rates
Overall unemployment rates have declined from 6.2% in 2017-18 to 4.2% in 2021-22, with similar trends observed for youth unemployment.
The Labour Force Participation Rate (LFPR) has increased steadily to 58.35% in 2021-22, driven mainly by rural women.
Composition of Employment
- The growth in LFPR and decline in unemployment are primarily propelled by self-employment, notably unpaid family workers.
- Self-employed come in three categories — own-account workers, unpaid family workers, and employers who employ outside labour.
- The proportion of self-employed individuals, particularly unpaid family workers, has risen significantly.
- Fraction of the self-employed who are employers has gone up marginally by less than one percentage point from 3.78% in 2017-18 to 4.57% in 2021-22,
- the bulk of the growth in self-employment has come from the rise of unpaid family workers, which has increased from 26% to 31.4% over the period.
- Own-account workers, like those running small shops or food stalls, make up the biggest share of the workforce, around 35%.
- This is a significant increase compared to other employment categories like salaried employees or casual workers, which have all seen a decrease in their proportion since 2017-18.
Earnings Trends
- Daily earnings across India went up by an average of ₹10 (around 4% increase), between 2017 and 2022. This increase happened in both rural and urban areas.
- Wage and salaried workers experienced stagnant earnings, while casual workers saw a notable increase of about 20%.
- Despite the increase, casual workers’ earnings remain close to the poverty line
Concerns
- Rise in Self-Employment and Unpaid Family Workers:
- The increase in self-employment, particularly driven by unpaid family workers, signifies a shift towards informal and potentially insecure forms of employment.
- Unpaid family workers often lack formal contracts, benefits, and protections typically associated with regular wage or salaried employment.
- This trend indicates a reliance on family-based enterprises and informal labour arrangements, which may not offer stable incomes or avenues for career advancement.
- Earnings Disparities Among Salaried Workers:
- The observed drop in real daily average earnings among the top 20% of salaried workers suggests widening income inequality.
- Despite being in formal employment, a segment of the workforce experiences deteriorating earnings, which could reflect issues such as wage stagnation, job insecurity, or shifts in industry dynamics.
- Low-Productivity Workforce:
- A significant portion of the workforce engages in low-productivity activities, such as own-account workers and casual labourers.
- This indicates underutilization of human capital and limited opportunities for skill development and economic mobility.
- Low productivity hampers overall economic growth and competitiveness, as it constrains the ability to generate higher value-added goods and services.
- Stagnant Earnings and Consumer Expenditure:
- Stagnant earnings, particularly among poorer sections, could limit disposable income and constrain consumer spending.
- Reduced consumer expenditure may dampen overall economic demand, negatively impacting businesses and employment opportunities.
- Investment-to-GDP Ratio Decline:
- The decline in the investment-to-GDP ratio suggests reduced capital formation and potential constraints on future economic growth.
- A declining investment-to-GDP ratio could impede productivity enhancements, innovation, and job creation, further exacerbating structural challenges in the economy.
Conclusion
In conclusion, India’s labour market confronts significant hurdles, including low-quality employment and stagnant wages, undermining the potential benefits of its demographic dividend. The suboptimal use of labour must be addressed through comprehensive reforms to foster inclusive, resilient economic development.
Related Topics
Demographic Dividend
The demographic dividend refers to the potential economic growth that can arise from a shift in a country’s population age structure. This typically occurs when there’s a decline in fertility rates and mortality rates, leading to a larger working-age population relative to the dependent population (children and elderly).
According to the Economic Survey 2018-19, India’s demographic dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, the population is expected to hit 59%.
Factors:
- Declining Fertility Rates: Fewer children being born means a smaller dependent population in the future.
- Lower Mortality Rates: People are living longer, but this doesn’t necessarily translate to a larger dependent population if accompanied by declining fertility rates.
- Increased Working-Age Population: A larger proportion of the population is in the prime working years, leading to a potential increase in the workforce and national productivity.
Benefits:
- Increased Labour Supply: More workers can contribute to economic growth.
- Higher Savings Rate: A larger working-age population may save a greater portion of their income, which can be invested for future growth.
- Increased Tax Revenue: More workers translate to a larger tax base for the government, which can be used for social programs and infrastructure development
References
Practice Question
Discuss the dynamics of the Indian Labour Market and its Implications for economic growth and welfare? [150 words]
How to approach this question?
Introduction (20 words):
- Begin by briefly explaining the concept of the labour market.
- Highlight the importance of the labour market in the Indian context.
Body (100 words):
- Dynamics of the Indian Labour Market:
- Discuss the unique characteristics of the Indian labour market, such as the high proportion of informal employment, the rural-urban divide, and gender disparities.
- Discuss recent trends and changes in the labour market, such as the impact of technology and automation, changing employment patterns, and the effects of the COVID-19 pandemic.
- Implications for Economic Growth and Welfare:
- Discuss how these dynamics affect economic growth, for example, through productivity, income levels, and consumption patterns.
- Discuss the implications for welfare, considering aspects such as job security, income inequality, and social protection measures.
Conclusion (30 words):
- Summarize the main points discussed in the body of the answer.
- Conclude with a forward-looking statement on the need for effective labour market policies to promote economic growth and welfare.
Remember to provide a balanced answer, incorporating relevant facts and figures, and propose feasible solutions. Structure your answer well, with a clear introduction, body, and conclusion. Also, ensure that your answer is within the word limit specified for the exam. Good luck!