Context-

India's labor market presents a complex landscape characterized by a significant reliance on informal employment, limited job security, and stagnant earnings. Despite improvements in metrics like the Labor Force Participation Rate (LFPR) and unemployment rates, the quality of jobs and earnings remain concerning. In this analysis, we look into the dynamics of India's labor market, examining trends in employment types and earnings, and exploring their implications for economic growth and social welfare.

Labour Force Participation Rate (LFPR)

LFPR is defined as the percentage of persons in labour force (working or seeking or available for work) in the population.

And, the female labour force participation rate (FLFPR) is the percentage of working-age women currently employed or seeking employment.

Worldwide Trend in Female Labour Force Participation

Globally the level of female labour force participation remains relatively low.

World Bank estimates (2022) show that the worldwide LFPR for women was 47.3% in 2022.

Despite the remarkable advancements observed in the global economies, there has been a persistent decline in the LFPR of women in developing nations.

Hence, a significant disparity in labour market participation based on gender continues to persist worldwide.

Trends in Labor Force Participation and Unemployment Rates

The LFPR has shown a positive trend, rising steadily from 52.35% in 2017-18 to 58.35% in 2021-22. Notably, this increase is largely driven by women in rural areas, countering the long-term trend of decreasing LFPR post-liberalization. Additionally, the overall unemployment rate has decreased from 6.2% to 4.2% during the same period. However, youth unemployment rates, though declining, remain relatively high, indicating challenges in providing meaningful employment opportunities to the younger demographic.

Composition of Employment Types

An examination of different categories of employment reveals that the growth in LFPR and the decline in unemployment rates are predominantly fueled by self-employment. Within the self-employed category, a concerning trend emerges: the rise of unpaid family workers, which constitutes a significant portion of the overall growth in self-employment. Meanwhile, the proportion of regular wage/salaried workers has decreased, reflecting a deterioration in the quality of employment opportunities.

Implications for Earnings

Despite improvements in LFPR and unemployment rates, the state of earnings in the labor market remains stagnant. While the all-India average real daily earnings have increased marginally, the growth is not uniform across employment types. Wage and salaried workers continue to earn the highest average daily earnings, followed by the self-employed and casual workers. However, earnings for the self-employed and salaried workers have stagnated, with only casual workers experiencing moderate growth in earnings. This stagnation in earnings, particularly for the self-employed, exacerbates concerns about the quality of employment and its impact on overall welfare.

Macroeconomic Growth Repercussions

The dominance of low-quality work, including own-account workers, casual workers, and unpaid family workers, underscores the suboptimal utilization of India's labor capital. As the country enters its demographic dividend phase, characterized by a peak in labor productivity, the prevalence of low-quality employment poses challenges to sustained economic growth. Moreover, stagnant earnings among the majority of the workforce contribute to subdued consumer expenditure, exacerbating concerns about the demand-side of the economy and the declining investment to GDP ratio.

Way Forward

Promoting Labour Intensive Industries: There are several labor-intensive manufacturing sectors in India such as food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments.

Special packages, individually designed for each industry, are needed to create jobs.

Decentralization of Industries: Decentralization of Industrial activities is necessary so that people of every region get employment.

Development of the rural areas will help mitigate the migration of the rural people to the urban areas thus decreasing the pressure on the urban area jobs.

Drafting National Employment Policy: There is a need for a National Employment Policy (NEP) that would encompass a set of multidimensional interventions covering a whole range of social and economic issues affecting many policy spheres and not just the areas of labor and employment.

The underlying principles for the National Employment Policy may include:

• Enhancing human capital through skill development.
• Creating enough decent quality jobs for all citizens in the formal and informal sectors to absorb those who are available and willing to work.
• Strengthening social cohesion and equity in the labor market.
• Coherence and convergence in various initiatives taken by the government.
•  Supporting the private sector to become the major investor in productive enterprises.
• Supporting self-employed persons by strengthening their capabilities to improve their earnings.

Conclusion

In conclusion, while India's labor market has shown some improvements in terms of LFPR and unemployment rates, the quality of employment and earnings remains a significant concern. The dominance of low-quality work, particularly among self-employed and unpaid family workers, highlights the need for targeted policy interventions to enhance job creation and promote inclusive growth. Addressing the challenges in the labor market is crucial not only for improving the welfare of the workforce but also for sustaining macroeconomic growth in the long run. As India navigates its demographic dividend phase, optimizing the utilization of its labor capital will be paramount in realizing its full economic potential and fostering equitable development.

Source- The Hindu