Jobless growth

Topic: Employment, Unemployment and Informalisation · NCERT: Class 10, Ch 2 "Sectors of the Indian Economy"; Class 11, Ch 6 "Employment: Growth, Informalisation and Other Issues"

Meaning

Jobless growth is a situation where the economy's output (GDP) grows, but the number of jobs grows much more slowly or does not grow at all. It matters because GDP growth only lifts people's incomes if it gives them work. In India, a large number of new workers join the labour force every year, so growth that does not create jobs leaves many people stuck in low-income farm work or informal work.

The usual measure is employment elasticity:

Employment elasticity = % change in employment ÷ % change in GDP

Explanation

How jobless growth works

• Output and jobs are two separate things.
• Output can rise because each worker produces more, or because firms use more machines.
• The number of jobs rises only when firms need more workers.

• When output rises mostly because of machines or higher output per worker, GDP grows but hiring barely moves.

• In India, this began in the late 1990s.

• Employment growth fell back to the level of the early planning years.
• The gap between GDP growth and job growth grew wider.
• So the economy produced more goods and services without creating matching jobs.

Measuring it: employment elasticity

• Employment elasticity shows how many jobs each unit of growth creates.
• Worked example:
• GDP grows 7% and employment grows 1.4%.
• Elasticity = 1.4 ÷ 7 = 0.2.

• Meaning: each 1% of GDP growth adds only 0.2% more jobs.

• How to read the value:

• Elasticity = 1: jobs grow as fast as GDP.
• Elasticity between 0 and 1: jobs grow more slowly than GDP. The closer it is to 0, the closer the economy is to jobless growth.

• Elasticity = 0: jobs do not grow at all. This is fully jobless growth.

• A low elasticity is not always bad. It can mean each worker is producing more. The danger comes when new workers cannot find jobs outside farming.

What makes growth jobless

• Capital-intensive growth. Capital-intensive means firms use more machines and fewer workers.
• Firms buy machines instead of hiring people.

• Output rises, but hiring does not rise as much.

• Services that need skilled workers. IT and finance grow fast, but they mainly hire educated, skilled people. They do not take in workers who leave farms.

• Premature deindustrialisation. This means manufacturing's share of jobs peaks and starts falling while a country is still poor.
• Factories normally give jobs to low-skill workers who leave farms.

• When factories hire fewer of these workers, that route out of farming stays narrow.

• A huge base of workers. Even a small growth rate in jobs means a very large number of new jobs every year, and this is hard to reach.

What makes it better

• Labour-intensive sectors are sectors where wages are a large part of total cost, so each ₹ of output needs many workers. Examples are textiles and apparel, leather and footwear, food processing, construction and tourism.
• When growth comes from these sectors, the employment elasticity goes up.

In India

• The long-run trend (NCERT Chart 6.3): GDP grew faster than employment across 1951-2023. Employment grew at 2% a year or less in every period except two: 1999-2005 and 2022-23.
• Employment elasticity: roughly 0.1–0.2 in the 2000s and 2010s, and it has been falling. These are RBI KLEMS-type estimates, so check the current figure.
• Structural change has stalled. Structural change means workers moving out of farming into factories and services.
• Agriculture's share of workers went up, from 44.1% (2017-18) to 46.1% (2023-24) [5].

• Manufacturing's share fell from 12.1% to 11.4% in the same years [5].

• RBI KLEMS database gives a different picture. KLEMS stands for Capital (K), Labour (L), Energy (E), Materials (M) and Services (S). It measures output and inputs industry by industry.

• Total employment was 64.33 crore in 2023-24, up from 47.5 crore in 2017-18 [6].

• That is about 16.83 crore more jobs in six years [6], or roughly 5% a year.

• But job quality has weakened (2017-18 → 2023-24):

• Self-employed workers rose from 52.2% to 58.4% [5].
• Regular wage/salaried workers fell from 22.8% to 21.7% [5].

• Casual workers fell from 24.9% to 19.8% [5].

• The size of the task:

• NCERT: 2% of about 545 million workers is more than 1 crore new jobs a year.
• Updated: the workforce was about 56.5 crore in 2022-23 [3], so 2% growth now means about 1.13 crore jobs a year.

• The Economic Survey 2023-24 says India must create about 78.5 lakh non-farm jobs every year until 2030 [3][4].

• Official steps to raise job creation:

• PLI (Production Linked Incentive) scheme: expected to create about 60 lakh jobs over 5 years [3].
• PM MITRA textile parks: expected to create about 20 lakh jobs [3].
• The Annual Survey of Industries (ASI) by MoSPI found factory employment up by more than 7% in FY23 over the previous year [5].

Don't confuse with

• Unemployment rate: this is the share of the labour force (people working or looking for work) that has no work. It was 3.2% in 2023-24 (PLFS) [2]. Jobless growth compares job growth with GDP growth. The unemployment rate can be low even during jobless growth, because people who find no good job take up low-paid farm or self-employed work.
• Disguised unemployment: people look busy but add nothing to output, because their marginal product (the extra output one more worker adds) is zero. It is a condition inside a sector, usually farming. Jobless growth is about the whole economy failing to create enough new jobs. Jobless growth keeps disguised unemployment high, because workers cannot leave the farm.
• Premature deindustrialisation: this means manufacturing's share of jobs peaks and starts falling while the country is still poor. It is one cause of jobless growth, not the same thing.
• Productivity-led growth: output per worker rises. It also gives a low employment elasticity, but it can be healthy. It becomes jobless growth in the harmful sense only when the workers who are not needed have nowhere else to go.

Prelims Hooks

• Employment elasticity = % change in employment ÷ % change in GDP. A value near 0 means jobless growth. A value of 1 means jobs grow as fast as GDP.
• Trap: in NCERT Chart 6.3 (1951-2023), employment grew by more than 2% a year in only two periods, 1999-2005 and 2022-23. In all other periods it grew at 2% or less.
• RBI KLEMS: 64.33 crore employed in 2023-24, against 47.5 crore in 2017-18 [6]. KLEMS = Capital, Labour, Energy, Materials, Services.
• Trap: a question may say workers have moved out of farming steadily since 1991. In fact agriculture's share of workers rose from 44.1% (2017-18) to 46.1% (2023-24) [5].
• Economic Survey 2023-24: about 78.5 lakh non-farm jobs a year until 2030 [3][4].
• Manufacturing employed only 11.4% of workers in 2023-24 [5], while construction employed 13.0% in 2022-23 [3]. So construction, not manufacturing, is the larger employer in the secondary sector.

Mains Points

• Is India's growth jobless? Both sides of the debate:
• Yes: growth is capital-intensive, manufacturing's job share is stuck at about 11–12%, and employment elasticity is only about 0.1–0.2.
• No: KLEMS shows about 16.83 crore more jobs between 2017-18 and 2023-24 [6].

• Balanced view: the number of jobs rose, but their quality did not. More workers are self-employed or unpaid family helpers, and the share with regular salaries fell from 22.8% to 21.7% [5]. So a better name is "good-job-less growth".

• Policy fix: make growth more labour-intensive. Push textiles, leather, food processing and construction through PLI (about 60 lakh jobs) and PM MITRA parks (about 20 lakh jobs) [3]. Add to this skilling, support for MSMEs and simpler labour codes (GS-III). Also build farm-linked work such as agro-processing.

• Demographic dividend at risk: the demographic dividend is the growth boost a country gets when most of its people are of working age.
• India needs about 78.5 lakh non-farm jobs a year [3].
• If growth stays jobless, young workers crowd into farming and informal services.
• Then the dividend turns into a burden. This links to GS-II (welfare of gig workers under the Code on Social Security, 2020) [3].

Related concepts

• Surplus labour
• Labour-intensive sectors
• Employment growth
• Employment elasticity

Read more

• Where people work and how fast jobs grow: sectoral shift and jobless growth