C. P. Chandrasekhar and Jayati Ghosh Recent employment trends in India and China: An unfortunate convergence C. P. Chandrasekhar and Jayati Ghosh

Asian century? Both China and India have large populations covering substantial and diverse geographical areas, large economies with even larger potential size. Current “success stories” of globalisation: two economies that have apparently benefited. Success defined by the high and sustained rates of growth of aggregate and per capita national income; the absence of major financial crises; and substantial reduction in income poverty.

Not similar economies These economies are often treated as broadly similar in terms of growth potential and other features. But there are crucial differences between the two economies which render such similarities very superficial .

Institutional conditions India was a “mixed economy” with large private sector, so essentially capitalist market economy with the associated tendency to involuntary unemployment. China was mostly a command economy, which until recently had a very small private sector; there is still substantial state control over macroeconomic processes in forms that have differed from more conventional capitalist macroeconomic policy.

The financial sector India: financial sector was typical of the “mixed economy” without comprehensive government control over the financial system; financial liberalisation since early 1990s meant further loss of control over financial allocations by the state. China: financial system still under the control of the state, despite recent liberalisation. Four public sector banks handle the bulk of the transactions in the economy, and can regulate the volume of credit to manage the economic cycle, and direct credit to priority sectors.

Rates of GDP growth The Chinese economy has grown at an average annual rate of 9.8 per cent for two and a half decades, showing volatility around high trend. India’s economy has grown at around 5-6 per cent per year over the same period, breaking from “Hindu” rate of 3 per cent. But very recently the average growth rate for the last four years is just above 8 per cent.

Rates of investment The investment rate in China (investment as a share of GDP) has fluctuated between 35 - 44 per cent over the past 25 years, compared to 20 - 26 per cent in India. Aggregate ICORs (incremental capital-output ratios) have been around the same in both economies. Infrastructure investment from the early 1990s has averaged 19 per cent of GDP in China, compared to 2 per cent in India.

Structural change over four decades China: “classic” pattern, moving from primary to manufacturing sector, which has doubled its share of workforce and tripled its share of output. India: Move has been mainly from agriculture to services in share of output, with no substantial increase in manufacturing, and the structure of employment has not changed much. Share of the primary sector in GDP fell from 60 per cent to 25 per cent in four decades, but share in employment still more than 60 per cent.

Trade patterns China: Rapid export growth involving aggressive increases on world market shares, based on relocative capital attracted by cheap labour and heavily subsidised infrastructure. India: Lower rate of export growth, with cheap labour due to low absolute wages rather than public provision and poor infrastructure development. So exports have not yet become engine of growth, except in services.

Poverty reduction China: Officially 4 per cent of the population now lives under the poverty line, unofficially around 12 per cent. (Reflects earlier asset redistribution and basic needs provision in China under communism, plus larger mass market and recent role of agricultural prices.) India: Official poverty ratio much higher and persistent, currently 28 per cent. Food deprivation is much higher.

Human development China: earlier extensive public provision of health and education: universal education until Class X, and public services to ensure nutrition, health and sanitation. (In the 1990s, higher fees and some privatisation of such services led to reduced access and worsening indicators; since 2002 revival of public spending in these areas.) India: the public provision of all of these has been extremely inadequate throughout this period and has deteriorated in per capita terms since the early 1990s. Very recently slight increase in education spending but still well below China; government health spending still very low.

Inequalities In both economies the recent pattern of growth has been inequalising. China: spatial inequalities – across regions – have been the sharpest. More recently, vertical inequalities, especially for migrant population vis-à-vis others. India: vertical inequalities and the rural-urban divide have become much more marked.

Sustainability of current patterns China: high export-high accumulation model which requires constantly increasing shares of world markets and very high investment rates. Already signs of reduced unit values of exports and stagnation/decline of manufacturing employment. India: IT-enabled services experiencing current boom, but competitive threat from other countries, plus question about whether it will be enough to transform India’s huge labour force into higher productivity activities.

India: Employment growth

India: Growing role of self-employment

India: Growth rates of employment (Annual compound rates per cent)

India: Real wages of regular workers

India: Real wages of casual labour

India: Organised sector employment

India: Labour productivity in organised manufacturing

India: Wage share of value added in organised manufacturing

India: Real wages in organised manufacturing

India: Remuneration in self-employment

India: Unemployment rates

China: Work force distribution

China: Output and employment growth

China: Urban employment

China: Rural non-agricultural employment

China: Annual change in real wages

Unorganised and migrant workers in China These real wage data leave out the increasing proportion of unorganised workers, most particularly the rural migrants. Rural-urban migrants currently estimated by CASS to be around 150 -180 million (half the urban work force). Recent CASS survey shows that in 2005 a majority of migrant workers were in informal activities and typically faced long hours of work for all days of the week, for less than minimum wages and with poor residential conditions.

Current issues similar Most important problems in both economies are currently the same: Agrarian crisis Inadequate generation of employment in terms of “decent work” Public neglect of social sectors Growing inequalities.

Lessons For more inclusive growth, the generation of good quality productive employment is the most critical variable. Need growth strategy that allows and encourages labour productivity increases overall while significantly expanding expenditure – and therefore income and employment opportunities – in social sectors. Major role for state intervention, through direct public investment and through fiscal, monetary and market-based measures that alter the structure of incentives for private agents.