Inclusion & Growth in India: Some Facts, Some Conclusions Avoiding Rashomon: The Reality of Education, Employment and Earnings in India, Surjit S Bhalla Workshop on Employment World Bank - ICRIER New York, Sept 27, 2011 Sept 2011 Surjit Bhalla1 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Overview Work in progress Major focus: Inclusion and growth; Indian experience – lends itself to myriad of explanations – hence, the Rashomon effect Official view: Poverty has been declining at only 1 percentage point year, despite a tripling of per capita GDP growth To accelerate this decline, government needs to provide both direct subsidies (food, diesel, fertilizer) and large scale “digging” ditches employment program. All of these programs were in effect in 1983, and are in effect in equal and greater force today. Sept Surjit Bhalla Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions continued… Alternate view – the above perspective, and policies, are hugely outdated, most likely wrong, and most likely pernicious for the Indian economy Reality – globalization a major force, India benefitted hugely, and is today a transformed place; Poverty less than 10 percent of the population (not 32 percent), middle class close to 50 percent Need different employment and poverty reduction policies Sept Surjit Bhalla Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla Table 1: Discreet Creep of the World Bank Poverty Lines Poverty Line Ratios in Local Currency RegionPL05/PL93PL93/PL85PL05/PL85 Developed Economies East Asia China Russia & Eastern Europe Latin America Middle East & North Africa South Asia India Sub-Saharan Africa Total Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Problems in Measurements – Sharp Decline in NSS Estimates 5Surjit Bhalla Sept 2011 Survey to National Accounts Ratio in India YearSurveyNational AccountsSurvey/NA Ratio / / / / / Notes: The survey and national accounts estimates are in current rupees per capita per month; the NA estimate is for the base year prevailing at the time of the survey. Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Poverty – Sharp Decline 6Surjit Bhalla Sept 2011 Poverty and poverty gap in states of India, /10 Poverty - Tendulkar linePoverty gap Social categoryPercentage of populationPercentage distance from line / /052007/082009/ Dis-privileged SC ST SCST Muslims Privileged All groups Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Poverty – MDG reached a decade earlier 7Surjit Bhalla Sept 2011 Poverty and poverty gap in states of India, /10 Poverty - Official linePoverty gap Social categoryPercentage of populationPercentage distance from line / / /082009/ / /052007/ /10 Dis-privileged SC ST SCST Muslims Privileged All groups Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions With perfect targeting only 0.4% of GDP needed for Zero Absolute Poverty (Tendulkar Line) Cost of Poverty Removal 8Surjit Bhalla Sept 2011 Cost of poverty removal in India, / /841993/942004/52007/82009/102011/12 Population (in mil) Percentage poor (Tendulkar line) Poor Population (in mil) Poverty line (Rs. Per month) Percent poor gap Cost of removal of poverty with perfect targeting (000 cr) Nominal GDP (000 cr) Perfect targeting (% of GDP) Notes: All data for 2011 are estimates Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Consumption Inequality – Increase in last five years 9Surjit Bhalla Sept 2011 NSS Consumption Inequality (Gini) in India /10 Year /941999/002004/ Measure,Nominal Uniform Recall (30 days) Mixed Recall (30/365 days) Modified Mixed Recall (7/30/365)35.4 Adjusted to National Accts Measure,Real Uniform Recall (30 days) Mixed Recall (30/365 days) Modified Mixed Recall (7/30/365)32.0 Adjusted to National Accts Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Income Inequality 10Surjit Bhalla Sept 2011 Income Inequality in India Year Wage Income Per Person Wage Income Per Household NominalRealNominalReal % change 1983/ Source: NSSO employment-unemployment data, different years Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Real Consumption Growth, by percentiles, /10 11Surjit Bhalla Sept 2011 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Real Consumption Growth, Difference percentiles, /10 12Surjit Bhalla Sept 2011 Notes: Each percentile represents the difference in growth rates of the poor and rich percentile e.g. the first percentile represents the difference in growth of the 1 st and 100 th percentile; second the difference in growth of the 2 nd and 99 th etc. Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Real Wage Income Per Person Growth, by percentiles, /10 13Surjit Bhalla Sept 2011 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Real Wage Income Per Person Growth, Difference percentiles, /10 14Surjit Bhalla Sept 2011 Notes: Each percentile represents the difference in growth rates of the poor and rich percentile e.g. the first percentile represents the difference in growth of the 1 st and 100 th percentile; second the difference in growth of the 2 nd and 99 th etc. Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sharp Decline in Education Inequality 15Surjit Bhalla Sept 2011 Education Inequality in India YearIndiaRuralUrbanFemaleMale / / / / % change 1983/ Source: NSSO employment-unemployment data, different years Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Education – Girl Catch-up 16Surjit Bhalla Sept 2011 Progress of Youth Education in India, /10 Years of Education (ages 8-24) Literacy (% of population of age 8-24) State % change Female/ Male % changeFemale/Male Andhra Pradesh Bihar HP Madhya Pradesh Maharashtra Orissa Rajasthan Tamil Nadu Uttar Pradesh West Bengal All India Bimaru states Small states North East Notes: Bimaru states refers to the aggregate of the poor states - Bihar, Madhya Pradesh, Rajasthan and UP. Literacy is defined as greater than or equal to two years of education Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Education – the Poor Catch-up 17Surjit Bhalla Sept 2011 Youth Educational Attainment, /10 Social categoryAverage years of schoolingRelative female/male education (in %) / / /082009/ /942004/052007/082009/10 Dis-privileged SC ST SCST Muslims Privileged All groups Notes: Youth defined as those between 8 and 24 years. Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Evolution of Middle Class in India, 1980 – Surjit Bhalla Sept 2011 Notes: Middle Class line defined to be the poverty line in developed economies - PPP $8.2 per capita per day 1996 prices or PPP$ 4000 in 2010 prices. In 2010 rupees, the middle class line for India is Rs per capita per month or for a family of four, Rs. 1.8 lakhs a year. On a per capita per day basis, the Tendulkar poverty line in 2010 would be approximately Rs. 25; the middle class line, Rs. 121 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions  LFPR for age group declined from 62.1% to 56.6%  However if we take school/college going into account, LFPR(adj) decline from 71.2% to 68.9%  Thus some decline can be explained by movement from labor force into education  Most of the decline in LFPR is contributed by females in age (43.6% to 34.4%), especially rural females (50.7% to 39.9%)  Sharp decline in rural women of age self-employed in agriculture (27.2% to 18%)  The poor show a larger decline, but result preliminary Employment Trends 2004/5-2009/10 19Surjit BhallaSept 2011 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla TotalMaleFemaleTotalMaleFemaleTotalMaleFemale / / / Labor Force Participation Rates in India, Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla Decline for females, TotalMaleFemaleTotalMaleFemaleTotalMaleFemale / / / Adjusted for Education: Labor Force Participation Rates *Adjusted labor force includes persons reporting to attend educational institution Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla Consumption Percentiles MaleFemale / / Labor Force Participation Rate by Consumption Levels Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla MaleFemale / / Labor Force Participation Rates (25-59 years) Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla Real Wage per day per person OverallRegular SalariedCasual Labor TotalMaleFemaleTotalMaleFemaleTotalMaleFemale / / / / / Growth %24%38%34%35%40%28% 35% Growth %70%102%72%71%82%75%68%77% Real Wage *Wage was deflated using rural price index of 2004/05 as deflator Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions 25Surjit Bhalla Real Monthly Per Capita Wage Income Real Monthly Per Capita Consumption of those reporting wage income Overall Real Monthly Per Capita Consumption TotalRuralUrbanTotalRuralUrbanTotalRuralUrban / / / / / Growth Growth Wage Income Vs Consumption *Wage was deflated using rural price index of 2004/05 as deflator Sept 2011 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions 26Surjit Bhalla Real Monthly Per Capita Wage Income Real Monthly Per Capita Consumption of those reporting wage income Overall Real Monthly Per Capita Consumption TotalRuralUrbanTotalRuralUrbanTotalRuralUrban / / / Growth %2.6%1.6%0.9% Growth %3.6%3.5% Wage Income Vs Consumption *Wage was deflated using rural price index of 2004/05 as deflator Sept 2011 Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla Casual Worker workdays in a week (Mn) Total Workdays in a week (Mn)Ratio (a/b) Total (a)RuralUrbanTotal (b)RuralUrban / / / / / Workdays: Casual Vs Total Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla LFPR TotalMaleFemaleTotalMaleFemaleTotalMaleFemale / / / / / Labor Force Participation Rate Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla LFPR Adj TotalMaleFemaleTotalMaleFemaleTotalMaleFemale / / / / / Adjusted Labor Force Participation Rate *Adjusted labor force includes persons reporting to attend educational institution Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,

Inclusion & Growth in India: Some Facts, Some Conclusions Sept Surjit Bhalla Education, Wages and Per Capita Income, India - China, IndiaChina Education (Mean Years) Males Females Average Wages (Monthly, PPP $) NH Survey (urban areas only) Male Female All Economist Intelligence Unit, EIU (Monthly, US $) Per Capita Income (PCI): US $ PPP $ Relative Education Based Wages - China:India (in %) Average Relative Wages - China:India (in %) NH Survey EIU PCI US $ PCI PPP $ Notes: NH Survey - National Household Survey; Survey wages are for wage and salaried workers in urban areas; Economist Intelligence Unit (Monthly, US $) wage data for India and China are for the Manufacturing/Business Sector; Wages PPP $ are with a 2000 base; Per Capita Income PPP $ are with a 1996 base; For every 1 year of education, wages increase by 12%. Therefore, relative education based wages are calculated as - (mean education years for China - mean education years for India)*12 Sources: India - NSS Surveys 1993/94, 2007/08 and 2009/10; China - Urban Household Survey, 1992 & 2006 see Bargain et al.(2008); Economist Intelligence Unit (EIU);; Education data from Barro - Lee Dataset, Avoiding Rashomon: The Reality of Education, Employment and Earnings in India,