India’s jobs crisis, the macroeconomic reasons

Central idea 

The article discusses the challenge of “jobless growth” in India, where the employment growth rate remains unresponsive despite increased GDP and value-added growth rates. It emphasizes the unique characteristics of India’s jobless growth regime, involving a high Kaldor-Verdoorn coefficient, and calls for a distinct policy focus on employment in addition to the traditional emphasis on GDP growth.

Key Highlights:

• The article discusses the distinction between wage employment and self-employment, emphasizing the challenge of inadequate labor demand, particularly for regular wage work in the formal sector.
• India’s historical employment scenario includes open unemployment, high levels of informal employment, and a stagnant growth rate of salaried workers in the non-agricultural sector.
• The lack of employment opportunities in the formal sector is attributed to factors such as output growth, labor productivity, and the introduction of labor-saving technologies.

Key Challenges:

• India faces the challenge of “jobless growth,” where the employment growth rate remains unresponsive despite a rise in GDP growth and value-added growth rates.
• The article highlights the connection between labor productivity growth rate and output growth rate, contributing to the phenomenon of jobless growth in India.
• The distinct form of jobless growth in India, characterized by a higher than average Kaldor-Verdoorn coefficient, poses a qualitative challenge for macroeconomic policies.

Key Terms:

• Kaldor-Verdoorn coefficient: A measure reflecting the responsiveness of labor productivity growth rate to output growth rate.
• Dual economy structure: An economic structure characterized by the coexistence of a modern and traditional sector, often seen in developing countries.
• Mahalanobis strategy: A development strategy that prioritizes heavy industrialization to overcome the constraints on output and employment.

Key Phrases:

• “Jobs generally refer to relatively better-paid regular wage or salaried employment.”
• “The lack of opportunities is reflected by a more or less stagnant employment growth rate of salaried workers in the non-agricultural sector.”
• “The positive effect of output growth rate on employment fails to counteract the adverse effect of labor-saving technologies in the Indian jobless growth regime.”

Key Quotes for value addition:

• “The Indian economy has historically been characterized by the presence of both open unemployment as well as high levels of informal employment.”
• “Jobless growth in India makes the macroeconomic policy challenge qualitatively different from other countries.”

Key Examples and References:

• Reference to the Mahalanobis strategy focusing on heavy industrialization as a policy for overcoming constraints on output and employment.
• Mention of the higher than average Kaldor-Verdoorn coefficient in India’s non-agricultural sector as a distinctive feature of jobless growth.

Key Facts:

• India’s employment growth rate in the formal non-agricultural sector has remained unresponsive despite significant increases in GDP and value-added growth rates.
• Jobless growth in India is associated with a high Kaldor-Verdoorn coefficient, indicating a strong connection between labor productivity growth rate and output growth rate.

Critical Analysis:

• The article critically examines the traditional presumption that increasing the output growth rate would be a sufficient condition for increasing the employment growth rate in the formal sector.
• It highlights the need for a separate policy focus on employment, including both demand and supply side components, in addition to the focus on GDP growth.

Way Forward:

• Advocate for policies addressing the skills gap and improving the quality of the workforce to make automation less attractive for firms.
• Propose direct public job creation as a demand-side component of employment policies.
• Suggest reorienting the macroeconomic framework to finance employment-related expenditures, including increasing the direct tax to GDP ratio and improving compliance.