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Economic Growth vs Unemployment: Decoding the ILO Report

The latest ILO report, titled ‘India Employment Report 2024’ is a treasure trove of mind-boggling statistics and projections about India’s GDP growth, unemployment rate, and the ever-elusive “human capital.” Most notable is a headline number that says India’s youth comprises more than 80% of its unemployed workforce.

India needs to increase its employment-intensive growth and production while improving the quality of jobs, according to the report by the International Labour Organisation (ILO)[10]. The report outlines some critical policy issues that need intervention at the national and state levels to address decent work deficits faced by youth in India:

1. Overcoming labour market inequalities

2. Making skills training and active labour market policies more effective

3. Bridging the deficits in knowledge on labour market patterns and youth employment [10]

Unemployment Statistics

First up, let’s try to take a tongue in cheek look at the global labor force participation rate, which stands at a whopping 60.8% in 2023. That’s like having a party where almost two-thirds of the guests showed up, but the rest are either fashionably late or just couldn’t be bothered. [5] And speaking of no-shows, the global unemployment rate is sitting pretty at 5.1% this year. That’s like having a table for 20 at your favorite restaurant, but one person didn’t get the memo. [5]

There’s more. The global working poverty rate in 2022 was a staggering 6.4%. That’s like inviting your friends over for a game night, but nearly one out of every 15 people showed up with an empty wallet and a rumbling stomach. [5]

Now, let’s talk about India’s unemployment situation. This is where things get real. According to the ILO report, a whopping 83% of India’s unemployed workforce is made up of youngsters. [6] [8]

But it gets even more mind-boggling. The share of educated youth (those with at least secondary education) among the unemployed has nearly doubled from 35.2% in 2000 to a staggering 65.7% in 2022. [6] [8] That’s like going to a job fair and realizing that most of the applicants have degrees, but no one’s hiring. It’s a challenge even IIMs have not been immune from this year.

Raghuram Rajan, the former Governor of the Reserve Bank of India, offers cautionary advice when talking of India’s challenges around employment and economic growth. He believes that buying into the hype around India’s economic growth would be a serious mistake, [10] which is to say it’s like that time you got excited about a fancy new restaurant in town, only to find out that the reviews were paid for and the food is mediocre at best.

Impact on Economic Growth

Rajan has a point, in that economic growth alone does not necessarily translate into more and better jobs, especially for the most poor and vulnerable sections of society [11]. The pattern and nature of growth matter, as it depends on factors like sector composition and capital/labor intensity [11].

While India has the world’s largest youth population and stands to benefit from its demographic dividend for at least another decade, with 7-8 million youth entering the labor market annually [10], the creation of decent and productive jobs in manufacturing and other sectors will be critical in meeting the needs of youth in the coming years [10].

Rajan has warned that the decline in the employment content of growth is a policy concern, and integrating employment and decent work into economic growth and poverty reduction policies can help maximize the benefits and ensure sustainable and inclusive growth [11]. The ILO advocates for global policy frameworks and partnerships to generate more quality employment opportunities, and at the country level, supports the development and implementation of coordinated policies and programs to promote quality job creation [11].

Skill Gap and Education Deficit

Let’s talk a bit about India’s skill gap and education deficit, and address the elephant in the room: India’s labor market is suffering from a severe shortage of quality jobs, with high levels of vulnerable and informal employment. [1] What’s more, women’s labor force participation has been on a downward spiral in recent years too.

Now, let’s talk about education. India’s education system has expanded, but learning outcomes remain low, and attainment levels among the adult population are nothing to write home about. [1]

To combat this, the government has been working on reforms to improve school education, vocational education and training (VET), and higher education. [1] It’s like trying to fix a leaky faucet with duct tape and a prayer – you’re not sure if it’ll work, but you’re willing to give it a shot.

Speaking of VET, the priorities include:

· Enhancing apprenticeships (because who doesn’t love a good old-fashioned on-the-job training?) [1]

· Creating an independent skills assessment board (because who doesn’t love a good old-fashioned bureaucracy?) [1]

· Improving the institutional structure (because who doesn’t love a good old-fashioned game of musical chairs?) [1]

Now, let’s talk about the National Policy for Skill Development and Entrepreneurship (2015). This policy had the ambitious goal of training over 400 million people by 2022, which was about as realistic as expecting a unicorn to show up at your doorstep. [1]

And let’s not forget about the formal VET system, which is the main channel for training but hasn’t exactly been expanding rapidly in recent years. [1]

The government has also introduced non-formal, short-term skills programs to reach disadvantaged groups[1], and let’s not forget about the National Skills Qualification Framework, which aims to standardize training outcomes and facilitate mobility. [1] But these approaches are something akin to trying to climb Mount Everest in flip-flops – you’re not sure how you’re going to make it, but you’re going to give it your best shot.

Challenges abound when it comes to accessing skills development, with unequal access persistent across an urban-rural divide and gender disparities aplenty.[1] And let’s not forget about the fact that firms tend to underinvest in continuous training of their workers, leading to a skills gap that sometimes proves to be a leap too far.

Informal Sector and Job Insecurity

Through the report, a picture emerges: the informal economy dominates, characterized by informal employment with subsistence wages, employment

and social insecurity. Over 80% of the workforce is engaged in the informal sector, and about 92.4% is in informal employment. [9] The liberalization of the economy in 1991 exacerbated the trends of rising informalisation of the workforce, jobless growth, decentralization of bargaining, deteriorating working conditions, and weakened trade unionism. [9]

Informal employment has been growing, with a shift towards more casual and contract-based work, weakening of worker organizations, and decline in social security [13], and more often than not, women and other marginalized groups are more likely to be concentrated in subsistence self-employment and the lowest rungs of employment, with restricted access to education, skills, capital, and facing greater discrimination. [9]

Let’s not forget that the informal sector itself suffers from low productivity, poor working conditions, lower wages, and lack of social security compared to the formal sector. [13] That’s like having a party where the food is stale, the music is terrible, and the only drinks on offer are warm tap water.

The lack of employment opportunities in the formal sector, as well as the ability of informal firms to avoid taxes and regulations, [13] are major reasons driving the large informal sector. And let’s not forget about the lack of quality employment opportunities, which is reflected in the high level of unemployment among young people, especially those with higher education, who are unwilling to take on low-paying, insecure jobs. [6]

Regional Disparities

Urbanization and migration rates are anothe area of focus of the ILO report, with a prediction that these will increase. In fact, projections suggest a migration rate of around 40% by 2030. [8]

There’s also a persistent gender gap in the labor market, with women disproportionately represented in lower-paid occupations and the agriculture sector. [10] There are significant variations in employment outcomes across Indian states too, with states like Bihar, Uttar Pradesh, Odisha, Madhya Pradesh, Jharkhand, and Chhattisgarh struggling with poor employment indicators. [8]

The government has implemented affirmative action and targeted policies to help the Scheduled Castes and Scheduled Tribes, but they still lag in terms of access to better jobs, with greater participation in low-paid temporary casual wage work and informal employment. [6]

Conclusion

While the nation boasts a burgeoning youth population, the creation of quality employment opportunities remains a significant challenge. The ILO report highlights the persistent issues of unemployment, skill gaps, informality, regional disparities, and inadequate job security. These obstacles underscore the need for comprehensive policy interventions that prioritize inclusive growth and sustainable employment generation.

Heeding the words of Raghuram Rajan, the former Governor of the Reserve Bank of India, it would be a grave mistake to buy into the hype surrounding India’s economic growth without addressing the underlying deficits. Embracing a holistic approach that tackles labor market inequalities, enhances skills training, and bridges knowledge gaps is crucial for maximizing the benefits of economic progress and ensuring a prosperous future for India’s workforce.

References

[1] – https://www.ilo.org/wcmsp5/groups/public/—ed_emp/—ifp_skills/documents/genericdocument/wcms_742201.pdf

[2] – https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—sro-new_delhi/documents/publication/wcms_568701.pdf

[3] – https://www.ilo.org/global/docs/WCMS_921342/lang–en/index.htm

[4] – http://www.ilo.org/global/docs/WCMS_921154/lang–en/index.htm

[5] – https://ilostat.ilo.org/data/

[6] – https://www.thehindu.com/business/Economy/employment-scenario-in-india-grim-says-ilo-report/article67995387.ece

[7] – https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS

[8] – https://www.livemint.com/news/india/unemployment-crisis-83-of-jobless-indians-are-youth-says-international-labour-organisation-report-11711517084127.html

[9] – https://journals.sagepub.com/doi/full/10.1177/09500170221083511

[10] – https://m.economictimes.com/news/india/india-needs-more-employment-intensive-growth-and-good-quality-jobs-says-ilo/articleshow/108822443.cms

[11] – https://www.ilo.org/global/topics/dw4sd/themes/employment-rich/lang–en/index.htm

[12] – https://www.thehindu.com/business/Economy/ilo-sees-structural-imbalances-in-global-labour-market/article67727676.ece

[13] – https://www.arcjournals.org/pdfs/ijmsr/v4-i1/9.pdf

Karan Karayi
Karan Karayihttps://in-focusindia.com/
A part-time car enthusiast and full-time food aficionado, Karan is forever chasing his next big creative thrill. He also doesn’t enjoy writing in third-person.
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