Few jobs, income inequality

But the latest figures posted by the Labour Bureau have brought home a sobering reality. Numbers indicate that employment in labour-intensive sectors dropped the most in 2015 since 2008.

 According to the data, only 1.35 lakh jobs were created last year, as opposed to 4.9 lakh new jobs in 2014. What’s worse, the final quarter of 2015 saw the loss of 20,000 jobs. In the last quarter, only the textile sector created jobs, while the IT/BPO sector recorded the sharpest losses in jobs. 

One of the central aims of economic reforms in the early ‘90s, which saw India take its first steps towards liberalisation, was to encourage the growth of labour-intensive industries, job creation and reduce income inequality.

One of the inspirations for India’s tryst with economic liberalisation was the success that certain East Asian countries achieved in the previous decades. These nations had witnessed increasing average incomes without rising inequality. 

But recent data released by the International Monetary Fund posits that both India and China—the two most vibrant Asian economies after 1990—have seen a rise in income inequality along with economic growth. The IMF’s analysis was basAed on the Gini coefficient, which is a measure used by economists to gauge inequality.

 Another global study by the LIS Data Centre in Luxembourg on inequality came up with figures similar to the IMF. Economists go on to contend that the inequality figures listed by the IMF and LIS Data Centre are much higher than official government estimates. Official estimates are “mistakenly based on consumption rather than income”, according to a report in Mint. With the studies available to the general public, it is clear that the Centre is yet to achieve any success with its employment generation programmes.

One of the major failures of the Indian liberalisation story has been its inability to generate enough factory and office jobs. In a recent report, the United Nations Development Programme assessed that India will need to generate 280 million jobs between now and 2050—the year when the number of people between 15 and 64 (working-age population) will reach its peak.

 In a stunning revelation, less than half the Indians who sought jobs between 1991 (liberalisation) and 2013 got them, according to the UNDP report. And that 22-year period saw India achieve its maximum economic growth. “In China, the number of jobs grew from 628 million to 772 million between 1991 and 2013, an increase of 144 million, but the working-age population increased by 241 million,” the report said. “A wider gap in India than China suggests a more limited capacity to generate employment—a serious challenge given the continued expansion of the workforce in India over the next 35 years.”

 

According to a recent editorial in Mint, the inability to generate enough jobs in the modern sectors of the economy has “stymied the overdue shift of people from low productivity to high productivity work”. The editorial goes on to highlight two interesting facets of India’s income inequality story. 

“First, there is a difference in productivity growth between the urban and rural areas. Second, there is the income gap within the cities between those who have been able to connect to the global economy and those who have not.

 One practical illustration of this is the millions of farmers who remain trapped in a stagnant agricultural sector. Those who have managed to escape tend to eke out a living in tiny enterprises that have no access to formal credit, growing markets, technology or modern management, as the new Economic Census released by the government last month so starkly highlighted,” it said.

East Asian economies that escaped this predicament in the decades preceding the ‘90s, achieved higher average incomes and lower income inequality through labour-intensive industrialisation. This transition moved millions from the farm to modern factories.

 Experts fear that India may not be able to achieve that transition for millions of its workers, with modern technology drastically changing the nature of industrial production. According to the Sixth Economic Census, the proportion of workers across agricultural enterprises in rural India has increased while the proportion of those working non-agricultural jobs has declined. 

It is a worrying trend. A rise in inequality could weaken economic growth if those with low incomes suffer poor health and low productivity as a result. The economic census also states that Indian companies are hiring fewer employees. Small companies are obviously in no position to take up the burden of job generation. They just aren’t productive enough. Meanwhile, many large corporate houses are submerged under a mountain of debt, sparking a circle of low growth, low bank credit, job cuts, low output and low growth.