How to deal with growing pains
Over 200 million people are jobless globally. The scale and impact of this problem is acute in India
India’s high rate of informality in the job sector is a drag on its economic development and a source of considerable inequity
Growing economic inequality, more joblessness and severe weather are going to be among the top 10 challenges for the world this year, according to experts at the World Economic Forum. Persistent economic growth refers to the phenomenon where economies exiting recessions exhibit steady economic growth but there is a decline in the level of employment. This tends to happen when a relatively large number of people have lost their jobs during the recession and the ensuing recovery is insufficient to absorb the unemployed, the under-employed or even the newer members of the workforce. Harvard Professor Larry Summers writes in an article that this global threat is brought on by technological changes and that “automation is certainly the biggest single contributing factor” to the problem.
“The transformations and job displacements associated with technological progress are happening faster, and may even be more dramatic in their impact than anything we’ve experienced before, and the task of providing a meaningful, substantial role for everyone is going to be hugely important. But I believe that this presents us with a huge opportunity to take advantage of current low costs of borrowing and under-utilized labor resources, and embark on large-scale projects to build and repair essential infrastructure in our developed and emerging economies,” Summers writes.
Economies experience cyclical as well as structural changes when they recover from a recession. In a cyclical economy, employment growth and decline follows the expansion and contraction of the economy. A structural change displaces many unemployed workers as their companies cannot recover fully. In cyclical economies, companies are able to rehire the workers when the economy stabilizes. The core industries remain strong and viable so that they are able to recover quickly.
Currently, more than 200 million people are jobless across the world. The scale and impact of this problem is pretty enormous and is particularly acute in India.
In 2013, the problem of jobless growth was staring the country in its face. In our April 2013 Cover Story ‘Jobless Growth’, we found that the number of entrants into the workforce in the period 2005-10 was an average of 12 million per annum. But, the country managed to create only 5.5 million jobs in the industry and the services sector during the period. This was a period when the company grew at an average of 8.7 per cent and above 9 per cent in three of the five years. While the new job addition in the five-year period was 27.5 million, the number of self-employed people also reduced by 25.5 million, leading to a net increase of 2 million in the employed population. More than half the workforce is working in the agriculture sector. But employment in the sector has shrunk from 57 per cent to 53 per cent in the five-year period from 2005-10. The agricultural sector itself is plagued by disguised unemployment. More than 15 million workers have migrated to bigger cities in search of work. Unfortunately, a lot of them become casual laborers and work in the low productivity construction sector. The high productivity sectors of manufacturing and the services, on the other hand, need a highly skilled and trained labor force. The lack of good talent is a deterrent for many companies, which have been lamenting about it for some time now.
According to the Economic Survey 2013, India could see as many as 16.7 million ‘missing jobs’ by 2020. India’s high rate of informality in the job sector is a drag on its economic development and a source of considerable inequity. A strong correlation exists between informality (of jobs) and poverty in India. In organized industries, the jobs have shifted from regular to contract work resulting in casualization of labor. Manufacturing shed five million jobs, while services employed only 3.5 million workers during this period.
More than 200 million people were unemployed in 2013 globally, an increase of almost 5 million compared with the year before. Most of the countries across the world are finding it difficult to generate sufficient jobs to keep up with the labor supply.
The bulk of the increase in global unemployment is in the East Asia and South Asia regions, which represent over 45 per cent of additional jobseekers, followed by Sub-Saharan Africa and Europe. By contrast, Latin America added fewer than 50,000 additional unemployed to the global number – or around 1 per cent of the total increase in unemployment in 2013.
The recession in 2008 opened a can of worms and the job gaps have just become wider. In 2013, this gap reached 62 million jobs, including 32 million additional jobseekers, 23 million people who no longer look for jobs and 7 million economically inactive people who prefer not to participate in the labor market.
The present government recognizes the need for skilling and employment and is pushing the ‘Make in India’ campaign quite aggressively. What is required is more than just a band-aid solution. They will need to work on more than just a high-profile campaign. A lot of work will need to be done on the ground level with reforms in the education sector, revisiting policies on apprenticeships and creating retraining opportunities.
Even China, which has seen rapid industrialization and usage of technology and automation, has seen a decline in employment in the manufacturing sector.
If the current trends continue, it will spell catastrophe for the world. At least 215 million jobseekers will be unemployed globally by 2018, according to an ILO report. The report further stated that during the period up to 2018, around 40 million net new jobs would be created every year, which is less than the 42.6 million people that are expected to enter the labor market every year.
This is particularly worrisome for India as the country is placing its bets on the rich demographic dividend and hoping to reap its benefits in the coming years. It is with an eye on the upcoming generations that the government has focused its attention on skilling. The global unemployment rate has reached 13.1 per cent and is quite high in the Middle East, North Africa, parts of Latin America and the Caribbean and Southern Europe.
What can it lead to?
Severe unemployment is a social catastrophe. Idleness means loss of skills, loss of self-respect, plummeting of morale, family disintegration and socio-political unrest. Being out of work for more than six months can have a big impact on the person, her family and the respective communities.
When they are out of work, workers skills can erode over time. This depreciation increases as time passes and it becomes more difficult for the person to find a new job the longer they are out of work. Being out of work may also reduce a worker’s “social capital”— the network of business contacts that make finding new and good jobs easier.
If a person loses her job, she tends to earn less when she finds a new job and also tends to be in poorer health, prone to depression and suicide. At the individual level, research links increases in suicide, homicide, cardiovascular mortality and mental illness to high unemployment. In the end, communities also end up bearing the weight of the unemployed; the crime rates and violence in such communities tend to be higher.
It is not just the government’s imperative that people in the country are given employment opportunities. It should be the duty of the corporates, be it private or public, to ensure that employment is not just a state subject. Unless the various corporates and the government work together on this, we will have a massive problem on our hands with no apparent solution.