Employment in the Time of Rapid Economic Growth

EMPLOYMENT IN THE TIME OF RAPID ECONOMIC GROWTH

In the period since 1983, India's economy grew at an average annual rate of 6.3 % (Table 1). Growth, moreover, was accelerating through the period; from 5.2% during 1983-1994, the average annual rate of growth climbed to 8.6% during 2005-2010. It seems fairly clear, too, that the economic reforms of the early 1990s, which opened up India's hitherto quasi-closed economy to trade and foreign capital, played a role in boosting economic growth. (4) Accelerating economic growth was obviously associated with growing trade orientation of the economy. The trade-GDP ratio rose steadily in the post-1994 period and particularly rapidly after 2000. (5) And the pace of economic growth was undoubtedly faster in the post-1994 period than during 1983-1994.

How did employment conditions change during this period of high economic growth? Answering this question is not in fact as straightforward a matter as it might appear at first sight. In judging trends in employment conditions in any given country, we would normally look at trends in unemployment, employment and wage rates. But, in the context of India's economy, these standard indicators tell us very little about employment conditions and we need to look for other indicators. There are issues of methodology to be sorted out and a digression is warranted.

A digression on methodology

India's economy has been and remains a dual economy with surplus labour. (6) It is composed of two distinct sectors--an organised sector and an unorganised sector. In the organised sector, which employs only a small proportion of the labour force (as we shall see below), employment is much like that in developed countries; it is regular, full-time and wage-paid. Government regulations have a determining influence on wage, non-wage benefits, job security and social protection associated with jobs in the sector. Moreover, the employees are organised in trade unions that engage in collective bargaining with the employers over all these. The average wage in the sector, not surprisingly, is much above what workers earn on average from employment in the unorganised sector.

In the unorganised sector, which employs the bulk of the labour force, there are neither government regulations nor institutions of collective bargaining. And there is no institutionalised non-wage benefit or social protection available to anyone. Self-employment and casual wage employment are the dominant forms of employment. Two important aspects of these types of employment need to be underlined. First, both self-employment and casual wage employment allow, indeed facilitate, work sharing. When the number of workers in a household increases while its asset base (eg, landholding) remains unchanged, each individual worker works for less time than before and nobody is wholly unemployed. When, Ceteris paribus, the number of workers seeking casual wage employment increases, each individual worker finds wage employment for less time than before and again nobody is wholly unemployed. It is this feasibility of work sharing that makes it possible for the unorganised sector to function as a reservoir of surplus labour, which exists in the form of underemployment of many workers rather than in the form of unemployment of some workers. Second, the two forms of employment--self-employment and casual wage employment --are closely interlinked. The self-employed and the casual labourers do not constitute non-overlapping categories. Self-employed persons work as casual wage labourers some of the time just as casual wage labourers work as self-employed persons some of the time. And it is quite normal for households to have both self-employed persons and casual wage labourers.

Given these characteristics of employment in the economy, the standard indicators of employment conditions require careful re-interpretation. Because institutionalised social security is available only to a tiny section of the workers employed in the organised sector, the vast majority must work to survive even if the work they can find generates only below-subsistence incomes. Given the high wage and non-wage benefits associated with jobs in the organised sector, most people would obviously prefer to work in that sector but only a few actually manage to. Those who do not find work there can find it in the unorganised sector where additional workers can always be accommodated through work sharing.

A first implication is that unemployment is a luxury good that only a few can afford, those few who belong to well-off households and would rather wait for jobs in the organised sector. Thus, the unemployment rate (as it is usually measured) reflects the extent of queuing for jobs in the organised sector and not the extent of excess supply of labour in the economy.

A second implication is that, outside the organised sector, employment growth can be a pure consequence of labour force growth and is not a reliable indicator of growth of labour demand. Growth in the number of persons in employment in the unorganised sector could mean nothing more than growth of underemployment. The same thing can be said about employment growth in the economy as a whole, given that the vast majority of the workers actually work in the unorganised sector. Thus, employment growth is not easily distinguished from labour force growth just as employment rate is not easily distinguished from labour force participation rate. Statements such as 'employment grew by x% in the last 5 years' or 'X number of jobs were created in the last 5 years' or 'employment growth decelerated over time' are really quite misleading. Estimates of employment elasticity, except in the case of the organised sector, are similarly devoid of meaning. And nothing much can be deduced from observed changes in employment rate, which does not unambiguously indicate the state of labour demand.

Finally, there obviously is no single integrated labour market. Instead, there are two markets in wage labour, both characterised by excess supply of labour. In the case of the organised sector, labour supply is virtually