Assessing The State Of Employment In The Indian Economy

The steady decline in growth in the Indian economy from 8 percent in the first quarter of FY19 to 5 percent a year later, has sparked concerns about job creation.

While growth may recover from the lows of 5 percent, the economy’s trend rate of growth over economic cycles has been declining, pointed out Sonal Varma, chief India economist at Nomura in a recent conversation. India’s central bank, too, has acknowledged the decline in trend growth in the economy.

What could this mean for employment?

In the absence of high-frequency job statistics, economists are using corporate databases and private indices to assess the state of job creation and unemployment in the economy. The same can also be judged using the elasticity of growth of different industries and the growth in these industries.

Growth In Sectors With High Employment Elasticity

According to a 2014 research paper by the RBI titled, “Estimating employment elasticity of growth for the Indian economy,” employment is fairly responsive to growth in manufacturing, mining, utilities, and construction.

The study found that agriculture, which employs a large percentage of the rural population, had negative elasticity, suggesting that employment in the sector is not sensitive to growth. In contrast, construction exhibited ‘unit elasticity’, with employment growth in the sector near proportionate to economic growth. Mining, manufacturing and utilities too had relatively higher levels of elasticity.

While the extent of elasticity may have changed since then, in the absence of a large structural change, growth in these sectors, or lack of it, would continue to have a larger bearing on employment compared to others.

Data on gross value added across these sectors shows that mining, manufacturing and utilities have seen a steady decline in growth rates over the last two years, suggesting that the employment growth in these sectors would have declined. Construction, however, saw a pick-up, perhaps supported by the Government’s efforts in the infrastructure and rural housing segments.

The RBI study further identified sub-segments of manufacturing which had high elasticity of employments.

BloombergQuint analysed growth rates across eight sectors seen to have high employment elasticity, using data from the Index of Industrial Production. The data shows that six of these eight sectors showed a decline in growth in the April-June 2019 quarter. In contrast, a year ago, five of these sectors exhibited positive growth.

Corporate Employment Data

Another way to assess employment, atleast in the organised sector, is to study corporate employment trends.

CARE Ratings recently analysed data across 969 companies from March 2017 to March 2019 to gauge how total head count has moved.

According to CARE Ratings, total employment for the sample companies increased from 5.44 million as of March 2017 to 5.78 million in 2018, which is an increase of 6.2 percent. In FY2019, the increase was lower at 4.3 percent with the total number of employed personnel being 6.03 million.

The rating agency’s study concluded:

• Growth in employment for the sample companies has not been commensurate with GDP growth.
• Patterns in growth in employment have varied across sectors with services tending to be relatively better.

Formal sector employment can also be judged using payroll data of Employees’ Provident Fund Organisation (EPFO), Employees’ State Insurance Corporation (ESIC) and National Pension System (NPS).

According to the RBI’s annual report released in August, these indicators present a mixed picture with regard to job creation in 2018-19 compared to a year ago. “Net new subscribers added to EPFO per month increased (0.56 million in 2018-19 from 0.19 million during 2017-18) while new subscribers to NPS slowed down. The number of members who paid their contributions to ESIC increased marginally during 2018-19.”

CMIE Unemployment Indices

While the first two indicators assess the pace of employment creation based on sectoral growth rates and corporate data, they do not provide an assessment of unemployment, which would have a greater bearing on unemployment in the economy.

The Center For Monitoring Indian Economy puts together an unemployment rate, based on a survey of 5,22,000 people. It provides employment or unemployment status for each member (who is greater than or equal to 15 years of age) of each household in the database, the CMIE explains.

This index suggests that unemployment hit a three-year high of 8.4 percent in August. While urban unemployment stood at 9.5 percent for the month, rural unemployment stood at 7.8 percent.

Put together, most indicators suggest that job creation in the economy has taken a beating over the past year.

“The cyclical slowdown has affected sectors that are large employment generators, suggesting that income or employment growth in these might have suffered, said Crisil economists Dharmakirti Joshi and Dipti Deshpande, in a research note dated September 4, 2019.