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Resource centre on India's rural distress
 
 

Employment conundrum

The recently published survey of employment and unemployment in India, conducted in 300 districts across the country, shows once again that without a reform of India’s archaic labour laws, the share of salaried employed will continue to remain low. The employment-unemployment survey was conducted by the Labour Bureau of the Union Ministry of Labour and Employment. Public attention has largely focused on the unemployment number that the survey threw up. It shows an unemployment rate of 9.4 per cent in the year 2009-10. That is 94 persons out of 1,000 in the labour force were “available” for work but not gainfully employed. In absolute terms, this rate yields a figure of approximately 40 million persons. This is a very high number. It is possible that the economic slowdown in 2009, following the global economic slowdown, and the sharp fall in production in export-oriented sectors may have contributed to this. This cannot, however, be an important part of the explanation since a substantial part of the total number unemployed comes from rural areas, with a 10 per cent rate of unemployment in rural areas and around 7.3 per cent in urban areas. However, in the absence of more detailed information, it is difficult to jump to any conclusion.

Indian employment data has long had conceptual and coverage problems. The “availability” criterion has its inherent definitional problems because all those “available” for work, or even “seeking” work, need not be necessarily “unemployed”. No agency puts together actual data on total employment, so surveys are all we have. One reason for the poor quality of employment-unemployment data is the very structure of employment in India. For a modern economy, the share of “self-employed” and “casual employed” is inordinately high. For an economy like India’s, a high share of self-employed (457/1,000) and casual labour (435/1,000) in total rural labour force is understandable. However, if even in urban areas the self-employed (439/1,000) and casual labour (393/1,000) dominate the total labour force, with salaried employed being the residual, it is because labour policy in India discourages firms from hiring full-time salaried workers and encourages casualisation of labour. The so-called “self-employed” are also potential workers since the self-employment of many is not a choice but a necessity.

Apart from unemployment, the “casualisation” of labour as well as the high figure for self-employed point to persistent distortions in India’s labour market. To be sure, government policy is not the only factor contributing to this, but it is probably the more important one. Labour market reforms aimed at easier entry and exit norms can encourage firms to employ full-time staff. Firms benefit from loyalty of workers. Loyalty pushes up productivity. The idea that daily wage workers, facing the constant threat of firing, work harder and that permanent employees become lazy is an idea borrowed from experience in governmental organisations. In the private sector, job security has had the effect of enhancing worker loyalty and, therefore, productivity. Policies that promote job security, without denying firms the freedom to hire and fire, can help improve employment rates and worker productivity.