1. Employment Situation in India R Nagaraj, Indira Gandhi Institute of Development Research, Mumbai. Email: nagaraj@igidr.ac.in

2. October 2, 2007UN Meeting2 Economys Size and Structure India is the worlds 12 th largest economy at current exchange rates, and 4 th largest in PPP. It ranks 144 th in per capita income, and its HDI ranking is 126 th as its health and educational attainments are modest. It is still a agrarian economy with a strong domestic orientation, as exports accounts for 14% of GDP, constituting barely 1% of world trade.

3. October 2, 2007UN Meeting3 Growth and Transformation Economy accelerated to 5.7% p.y since 1980, more than doubling per capita income growth, as population growth slowed slightly. Services are the leading sector since 1990, contributing 53% of GDP in 2006. Structural transformation of workforce got under way in the 1980s, with agricultures share declining 15 percentage points by 2005.

4. October 2, 2007UN Meeting4 Unemployment and Poverty Yet, no acceleration of employment growth. Decline in employment elasticity of growth. Deterioration in conditions of work. –Casualisation of workforce economy-wide, –Decline in self-employment in rural areas. Decline in the official measure of income poverty, but the trends are disputed. Persistence of nutritional poverty.

5. October 2, 2007UN Meeting5 Labour Market Size Consists of 430 million workers in 2004-05, growing 2% annually, with a stable worker- population ratio of 40%. Lower level of womens participation in workforce (28%) – perhaps an underestimate. Low level of open unemployment (3.1%) – high level of disguised unemployment (or under- employment), mostly in rural areas and in agriculture. Child labours share in workforce declining – yet quite large in absolute numbers, at 13 million in 2001.

6. October 2, 2007UN Meeting6 Labour Market Structure Labour market consists of 3 sectors. Rural workers constitute over 60% of the workforce. Organised sector employs 8% of the workforce, producing 40% of GDP. But its employment share declining. Thus, urban informal sector is the growing sector – represents the residual.

7. October 2, 2007UN Meeting7 Labour Legislations Mostly deals with the organised sector. Extent of protection and benefits for workers rise with size of firm or factory. No national minimum wage; No economy-wide social security. Labour being a concurrent subject in the constitution, states are empowered to enact separate legislations. The legislations tend to aspirational, with limited enforcement. Best illustrated by the job-security law: firms employing 100 or more workers are mandated to seek the states permission to retrench or lay off a worker.

8. October 2, 2007UN Meeting8 Employment Growth Structural transformation – agriculture's share declining from 68.5% in 1983, to 55.4% in 2004-05 (table).table But, workforce is shifting more towards services, than to industry. Low or declining employment elasticity. Between 1997 and 2004, 1.8 million (6.3%) jobs lost in organised sector including 1.2 million (18%) in manufacturing.

9. October 2, 2007UN Meeting9 Wages Agricultural wages have since 1980s; yet lower than the minimum wages (for lack of enforcement of the laws). Wages still low to overcome absolute poverty. Casualisation of wage contracts in all sectors. Decline in self employment, especially in agriculture.

10. October 2, 2007UN Meeting10 Major Concerns Little improvement in employment scene, despite acceleration in output growth since 1980. Deceleration in agriculture since 1990 (Figure 1), causing agrarian distress – farmers suicides, political extremism.Figure 1 Alleged labour market rigidity in the organised sector. –Inadequate freedom for employers to hire and fire workers.

11. October 2, 2007UN Meeting11 Alternative Perspectives on Labour Market Rapid industrialisation to speed up structural transformation: –Invest in industrial infrastructure. –Liberalise financial sector and foreign investment rules. –Dismantle labour market legislations. Refocus on agriculture and rural development with employment generation programmes. –Employment guarantee. –Step up rural investment.

12. October 2, 2007UN Meeting12 National Rural Employment Guarantee Scheme (NREGS) Initiated in 2005-06, EGS aims at livelihood security in rural areas of 200 (out of 500) districts. Provide 100 days of guaranteed employment in a year for all self selected adults for unskilled manual labour. Wage employment programme to create infrastructure and rejuvenate natural resources.

13. October 2, 2007UN Meeting13 NREGS II Implemented by local elected self- governing institutions. In 2006-07, Rs 11300 ($2.8 bn) are allotted for this scheme, making it perhaps the worlds largest EGS. As on December 2006, 536.5 million person days of employment has been generated, official data show.

14. October 2, 2007UN Meeting14 NREGS III The EGS, together with Right to Information Act, implemented by local bodies has great potential, say the protagonists of the EGS. But, critics have dubbed the EGS the massive gravy train, with enormous potential for corruption. On the ground, implementation is uneven – with some encouraging reports from backward states, like Rajasthan where local institutions seem active.

15. October 2, 2007UN Meeting15 Is labour Market Rigid? Labour market is conceived as a small and declining organised sector workers with high and growing wages with job security – amid an ocean of unorganised, and competitive labour market. Implications?Leads to labour market rigidity: –Substitution of capital for labour, –Reducing economic growth, –Hurting labour intensive manufactures and exports.

16. October 2, 2007UN Meeting16 Evidence? No nominal or real wage rigidity. In unit labour cost (Figure 2).Figure 2 –True in public sector too (Figure 3).Figure 3 No evidence of adverse effects of job security law. Secular in union strength. More lockouts than strikes (Figure 4).Figure 4 In wage-rental ratio (Figure 5).Figure 5 Thus, the rigidity hypothesis is suspect.

17. October 2, 2007UN Meeting17 Then What Is the Truth? There exists functional flexibility that the unions are prepared to negotiate. Wage agreements are mostly linked to productivity, and incentives. Job-security law has little bite. Evidence: –18% of organised industrial workers lost jobs 5 years, without a murmur of protest. Does it mean the labour market is working fine? No. Need for rationalisation of the labour laws. Need for a new compact between capital and labour under the changed economic environment.

18. October 2, 2007UN Meeting18 In Sum I Economic growth accelerated since 1980, without a corresponding increase in employment. Structural transformation has happened since 1980s, but employment growth has occurred more in services than in industry. Income poverty is said to have declined, but nutritional poverty has not, as employment growth has not improved.

19. October 2, 2007UN Meeting19 In Sum II Orthodoxy advocates market oriented reforms, infrastructure investment and deregulating the labour market to speed up industrialisation to transform the workforce rapidly. Heterodoxy argues for improving agriculture productivity – which is still 1/3 of chinas – to augment employment and expand domestic market.

20. October 2, 2007UN Meeting20 In Sum III NREGS was launched last year, perhaps the most ambitious EGS in the world. With RTI and local self government institutions, there is a better chance of its success. But, critics dub it as the biggest grave train of corruption.

21. October 2, 2007UN Meeting21 In Sum IV Reformists believe lack of flexibility in industrial labour market is holding up industrial out and export growth. Evidence does not seem to support such a proposition. But it does not mean that the labour market is working fine – far from it. Need to a new compact between capital and labour in the changed economic environment that includes income security, more rational labour laws, and greater shop floor democracy.

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23. October 2, 2007UN Meeting23 Thank You

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27. October 2, 2007UN Meeting27 Figure 5: Wage-rental ratio 0 20 40 60 80 100 120 81 83 85 87 8991 9395 9799 2001 Year ending Index Wage-rental ratio

28. October 2, 2007UN Meeting28 GDP and Workforce Distribution 19831993-942004-05 % GDP % Workfor ce % GDP % Workforc e % GDP % Workfor ce Agricul ture 40.068.530.064.020.256.5 Industr y 24.313.825.214.926.118.8 Service s 35.717.648.821.153.7.724.8