Economic growth and employment: An introspection

The fact that an economy, even when it experiences a higher growth rate in the capatilist segment, is saddled with an increasing unemployment rate, goes against the gain of conventional growth theory as indeed of the basic presumption underlying policymaking. In India, for instance, faced with growing misery in the midst of accelerating growth, the standard response has been that such “exclusion” will disappear if the growth rate can be further accelerated. The proposition that an acceleration of the growth rate in the capitalist segment will be accompanied by an increase in unemployment in the economy as a whole, which the basic element underlying poverty (as Marx had recognized) cuts at the foundation of all such claims. The four stylised facts relating to growth performance across the Indian states during the period 2001 to 2009 are: First, consistent with the fact that the decade was the best one for Indian macroeconomic performance, growth increased across almost all major states in 2001–09 compared to 1993–2001. Second, nevertheless, we continue to see the phenomenon of divergence or rising inequality across states, on average the richer states in 2001 grew faster in 2001–09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001–07 suffered the largest deceleration. Since high growing states were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend-a young population boosting economic dynamism -was evident before 2000, there is little evidence that there was any dividend in the 2000s. demography alone cannot be counted on for future economic growth.

The present paper explores employment trends in India since the mid-1990s based on study of various rounds of National Sample Survey unit level data. The major findings are of a structural transformation with an absolute fall in agricultural employment and a rise in non-agricultural employment, increasing participation in education, decline in child labour, mechanization of agriculture and rising living standards in rural areas due to growth in real wages which led to a decline in workforce, most of which was of women leaving the workforce. A fall in demand for manufacturing exports and increasing capital intensity also resulted in a decline in manufacturing employment during 2004–05 -2009-10. The paper estimates that approximately 17 million jobs per annum need to be created in non-agriculture during 2012–17. Based on these estimates, the paper makes policy suggestions to increase non-agricultural employment in India. There has been considerable debate in India about the impact of growth on employment especially in the organized manufacturing sector for different periods since the early 1980s. However changes in the coverage of the Annual Survey of Industries demand a fresh look at the issue over a longer period. this paper attempts such an analysis for 1981–82 to 2004–05. For the period as a whole as well as for two separate periods -the pre-and post-reform phases -the picture that emerges is one of "jobless growth" due to the combined effect of two trends that have cancelled each other. One set of industries was characterized by employment-creating growth while another set by employment -displacing growth. Over this period, there has been acceleration in capital intensification at the expense of creating employment. A good part of the resultant increase in labour productivity was retained by the employers as the product wage did not increase in proportion to output growth. The workers as a class thus lost in terms of both additional employment and real wages in organized manufacturing sector.