PYQ Relevance:

Prelims:
Disguised unemployment generally means (UPSC CSE 2013)
a) A large number of people remain unemployed
b) Alternative employment is not available
c) Marginal productivity of labor is zero
d) Productivity of workers is low

Mains:
1. Account for the failure of the manufacturing sector in achieving the goal of labor-intensive exports. Suggest measures for more labor-intensive rather than capital-intensive exports. [UPSC CSE 2017]

2. How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? [UPSC CSE 2016]

3. The nature of economic growth in India in recent times is often described as jobless growth. Do you agree with this view? Give arguments in favor of your answer. [UPSC CSE 2015]

Note4Students:

Mains: Sectors of Indian Economy; Employment;

Prelims: Types of Employment;

Mentor comments: India’s labor market is grappling with issues such as underemployment, low-quality jobs, and high unemployment rates. In such a scenario, we need to focus on creating high-wage jobs and improving the quality of employment opportunities to tackle rising unemployment rates and disparities across regions, gender, and generations. Addressing these challenges requires a comprehensive approach that focuses on creating better job opportunities across various sectors while preparing the workforce for the future.

Let’s learn.

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Why in the News?

According to the recent Labour Force Participation Rate, India’s labor market faces challenges with a vast majority of the population earning income through informal employment, lacking job security and benefits.

What is the current state of the Indian Labor market?

According to the Periodic Labour Force Survey (PLFS), the labor force participation rate is 50%, with a lower female participation rate of 23% compared to 67% for males.
In 2017–18, 90.7% of employment was in the informal sector, marked by low productivity and underemployment. Self-employment accounts for 52% of workers, while only 23% are regular salaried workers.

Context:

Although the recent data shows an increase in labor force participation and a decrease in unemployment rates in the Indian Market, the growth is primarily driven by self-employment and unpaid family workers.
There has been stagnation in real earnings for wage/salaried workers and the self-employed. The dominance of low-quality work in India’s labor market poses macroeconomic growth concerns and highlights the need for creating better job opportunities.

What are the current major shifts in the Indian Labor Market?

Dynamics of job creation and loss: India’s job market is characterized by a scarcity of good jobs, with a large portion of the workforce employed in informal, low-wage, and insecure sectors like agriculture.
- Services sector: It contributes significantly to both job creation and loss, with wholesale and retail trade playing a substantial role.
- Construction sector: It is known for insecure working conditions and low pay, generates a significant number of new jobs, raising concerns about job quality. Unemployment rates have been high even before the pandemic, with challenges exacerbated by the COVID-19 crisis.
Improvements in Labour Market:
- Labour Force Participation and Unemployment Rates: LFPR increased steadily from 52.35% in 2017-18 to 58.35% in 2021-22, driven notably by rural women. Overall unemployment rate decreased from 6.2% in 2017-18 to 4.2% in 2021-22, with a similar downward trend for youth unemployment.
- Self-Employment Dynamics: LFPR and unemployment rate improvements largely attributed to self-employment. Rise in unpaid family workers and own-account workers reflect a decline in job quality within the workforce.
Earnings:
- Earning Trends:
  - Aggregate Earnings: All-India average real daily earnings increased by around ₹10 between 2017-18 and 2021-22, a 4% increase.
  - Rural and Urban Earnings: Both rural and urban daily earnings increased by an average of ₹10 to ₹14.
  - Earnings Disparities: Wage and salaried workers had the highest earnings, followed by self-employed and casual workers. Salaried and self-employed earnings stagnated, while casual workers saw a 20% increase.
- Employment Trends:
  - Self-Employment Growth: Self-employed workers saw the highest growth in employment between 2017-18 and 2021-22. The subcategory of unpaid family workers experienced significant growth in numbers.
  - Earnings Disparities: Top 20% of salaried workers experienced a drop in real daily average earnings.
- Structural Transformation:
  - Labour Force Participation Rate (LFPR) rose, but closer examination reveals disparities in employment types.
  - Notable rise Female Workforce Participation driven by self-employment in agriculture.
  - Sectoral Shifts: Movement from agriculture to construction observed among male workers

How can the challenges faced by the Indian Labor Market can be addressed?

Building Quality over Quantity: Government needs to explore innovative solutions to generate demand and create employment opportunities. Secondly, it also needs to support skill development initiatives, by bridging the skill gap by enhancing the industry-academia linkages, fostering internships, and encouraging entrepreneurship for better absorption of skilled labor.
Need for Labor Reforms: Advocate for rational and progressive labor reforms that consider the interests of both workers and employers.
Building good Work Culture: Promoting transparency, responsible business practices, and fair labor market operations through effective leadership and employee engagement initiatives is the need of the hour.
Need for constructive work: Strive for constructive dialogue, collaborative decision-making, and a cooperative environment to address disguised unemployment, seasonal unemployment, and educated unemployment through policies promoting job creation.

Conclusion: According to NITI Aayog, India has potential to grow at 8% as the country is labor-rich with enough institutional maturity of a functioning democracy. In simpler terms, the Investment to GDP ratio is the area where we need to focus as it plays a crucial role in the demand-side of the economy.