ExplainSpeaking: What is the relationship between GDP growth and employment in India?

Have you ever wondered which should be a more important concern for policymakers: promoting economic growth or increasing employment?

For example, would you prefer a scenario in which India achieves the highest GDP growth rate even though millions of Indians are out of work, or do you prefer a scenario in which India’s GDP growth rate is not that high but most Would you like a scenario where Indians get high-paying jobs? Fast?

As it stands, India’s GDP (gross domestic product) growth rate, a measure of the overall size of the economy, dominates the country’s debate. The importance of employment and unemployment lags far behind. A recent book by Professor Ashoka Modi of Princeton University, “India is Broken”, challenges all Indian leaders, including Prime Minister Nehru and Prime Minister Narendra Modi, to target the right variable (employment, not GDP). He is scathingly scolding them for not doing so. growth).

But that doesn’t apply to all economies. In fact, you may have noticed a key difference when reading recent inflation-related news articles from the United States and India. In the United States, the world’s largest economy, the main concern is employment levels. , not GDP.

US Federal Reserve Chairman Jay Powell has been repeatedly cited as saying the US central bank’s two main concerns are maintaining price stability (including inflation) and achieving full employment.

Why don’t Indian policy makers, or indeed the general public, care more about jobs?

One oft-repeated answer is, “India, which has long been starved of economic growth, sees GDP growth as a necessary first step towards any kind of development and prosperity.” This has been especially true since economic reforms began in 1991. All policymakers, across most political party lines, seem to agree that the primacy of GDP growth is indisputable.

It is believed that rapid GDP growth automatically creates jobs.

At first glance, this argument makes sense. But does growth automatically lead to sufficient job creation, or more precisely, has economic growth created jobs fast enough in India?

This question has been answered in the past, but almost always in the negative. However, a new report published by the Center for Sustainable Employment at Azim Premji University called ‘The State of Work in India (SWI 2023)’ provides a new update on this very important question.

Employment findings are often buried in data. Especially whether the data comes from public sources or private companies. What makes the SWI 2023 report stand out is that APU academics and researchers used official employment and unemployment data to arrive at the results.

According to Amit Basool, lead author and director of the SWI, this is the fourth edition of the SWI, and it describes “India’s experience of structural transformation and how it has affected three major social identities (caste, gender, religion). The focus is on the long-term impact on Sustainable Employment Center. SWI 2023 analyzes data from 1983 to 2023 and uses a number of official data sources, including the Periodic Labor Force Survey (PLFS), National Family Health Survey (NFHS), 2011 Census, and 2013 Economic Census. Masu.

Understanding the findings of this study will help readers understand not only how economic growth impacts overall employment, but also how it impacts different sectors of the Indian economy . In other words, GDP growth itself may be party-neutral, but the benefits of its job creation are not equally distributed across the economy. Rather, the data shows that factors such as caste, religion, age, and gender tend to have a significant impact on how the benefits of growth are distributed in the economy.

Additionally, SWI 2023 also emphasizes the need to assess the quality of jobs created. For example, providing “temporary labor” in a MGNREGA (National Rural Employment Guarantee Program) workshop or construction workshop, or working part-time without pay in a family-owned business (“self-employment”) This is a very poor alternative. Provide regular wages.

So has India’s GDP growth created enough jobs?

not much. Job creation remains India’s main challenge and this is the biggest macro gain from his SWI 2023.

This has been known to some extent as unemployment has become more acute over recent decades. However, the SWI 2023 report shows that the relationship between growth and employment is weakening over time.

table 1 Since the 1980s, non-agricultural production, or GDP from non-farm sectors, has consistently shown that it has grown much faster than non-farm employment.

A good way to measure this relationship is to look at the employment elasticity of growth. This is the amount by which employment increases when GDP increases by one unit. It is calculated by dividing the employment growth rate by the production growth rate.

As you can see, the employment elasticity has consistently declined from 1983 to 2017, indicating that a 1% increase in GDP translates into less than a 1% increase in employment.

What will happen from 2017 to 2021?

The period from 2017 to 2021 stands out because of the sharp upturn in employment.

However, it is noteworthy that employment elasticity has increased so rapidly in recent years. As circled, non-farm employment growth improved over this period, but non-farm output growth (the denominator in this equation) also fell quite sharply, which helps in calculating the employment elasticity. It is also true that

Nevertheless, this change in direction raises legitimate questions such as:

Has India’s growth process become more efficient in job creation since 2017?

“In a superficial sense, yes. But that’s why this number (employment elasticity since 2017) is misleading, because if you look at what kinds of jobs are being created, it’s… Because it’s not the kind of job you want,” Basole said.

He explains that we need to distinguish between jobs created when employers want to hire people and jobs created when employers don’t want to hire people.

When the economy is strong and employers decide it is worthwhile to create new jobs, the types of jobs created are regular wage jobs or at least temporary labor jobs (like working on a construction site). But what this stage has created instead is self-employment.

“Self-employment is the work you create for yourself when no one will hire you,” he explained. This is a type of work that is clearly less compensated than other categories of work and is not paid a regular wage. Consider someone who is fired from their job and then decides to join a home-based company as a part-time worker.

“From 2017 to 2021, overall formal wage job creation slowed, but the share of formal employment (with a written contract and benefits) in total regular wage work increased from 25% to 35%. In 2020-21 (the year of the pandemic), formal wage employment fell by 2.2 million people. However, this net change included an increase of 3 million people in formal employment and an increase of around 5.2 million in semi-regular and irregular regular wage employment. Millions of people’s losses are being hidden,” the report said.

Women were the biggest losers in this process.

“Women accounted for half of the jobs lost, but only one-third of the gains in formal employment were gained by women. In net terms, this means that women lost more formal employment during this period. “This represents a lost opportunity. Not only that, but there was also a transition from hardship to self-employment,” the report emphasizes.

What does this mean for India’s growth strategy?

According to SWI 2023, the broader takeaways are: “Over the long term, there is no correlation between GDP growth and employment growth in India, suggesting that policies aimed at achieving faster GDP growth do not necessarily accelerate job creation.”

This leads to the obvious question of not only trillions of dollars in GDP but also millions of Indian jobs. What if India’s existing growth process is not creating enough jobs, or at least not enough quality jobs? ?

India’s desire to foster new job creation through industrial growth has repeatedly failed to materialize. Whether such plans will materialize in the future is an open question, especially as protectionist sentiment is clearly on the rise around the world. In a world like this, why do other countries import goods from India?

Some argue that India should double down on promoting labor-intensive manufacturing, even for domestic consumers, which they argue will create jobs.

Some argue that India should stop chasing the mirage of an industrial boom. That hasn’t happened and that time has now passed.

Still others argue that perhaps a shift to “green” manufacturing could give India an opportunity to redo its industrial revolution.

Mr Basole says there are no easy answers and much needs to be done to create jobs. He points to the national employment policy framework outlined in the last (2021) SWI report. (See Table 2).

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In it, Mr. Basole and his colleagues proposed a range of measures to address both the demand and supply of labor in India and to improve both the quantity and quality of employment.

Is India’s rapid GDP growth creating enough jobs? Should policy makers place more emphasis on job creation rather than just driving higher GDP growth? Job creation in the Indian economy What can we do to encourage this?

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Until next time,


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