Employment Conditions | Editorial Commentary

Employment and income have always been key issues in the Indian economy. Jobs remain a major political issue, and governments that fail to create enough of them may face electoral challenges. In this regard, the recent publication of the KLEMS (capital (K), labour (L), energy (E), materials (M) and services (S)) database by the Reserve Bank of India has contributed to the debate. While the provisional estimates point to a 6 per cent employment growth rate in 2023-24, the highest in the database dating back to 1980-81, a deeper sectoral analysis for labour-intensive sectors raises some concerns. Agriculture and allied sectors, the largest employment generator in the economy, have consistently been the lowest labour productivity—measured as value added per worker at constant prices in 2011-12—among the 27 industries or sectors covered in the database.

This underscores the pervasive problem of hidden unemployment in the sector. Labour productivity growth turned negative in 2019-20 and 2020-21 due to the increase in the agricultural labour force during the pandemic. Moreover, the share of labour income in the agricultural sector’s gross output registered only a modest increase of 2 percentage points from the levels recorded in 2011-12. Despite an annual growth rate of 4 per cent in gross output since 2017-18, the share of labour income remained at 45 per cent. This stagnation indicates that the gains from the growth in output have not translated into significant improvements in labour income in the sector. Similarly, the construction sector, the largest employer after agriculture, has experienced fluctuations in labour productivity and is yet to return to the levels seen in the 1980s. While it has generally shown a positive growth rate since 2011, 2020-21 was an exception. This anomaly can be attributed to the disruptions caused by the pandemic. Interestingly, the sector’s growth rate peaked in 2021-2022, largely due to a base effect from the previous year’s recession. Despite these fluctuations in productivity and growth, the share of labor income in the construction sector’s gross output remained relatively stagnant, consistently fluctuating between 27 and 29 percent. This stagnation suggests that, as in the agricultural sector, increases in output have not been sufficiently reflected in workers’ incomes and have largely benefited owners of capital.

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In the textiles, textile products, leather and footwear sectors, the database revealed a significant rebound in employment growth in 2021-22, after a decade and a half of negative or negligible growth. Despite this positive change, employment levels in 2021-22 remained significantly lower than in 2004-05. Moreover, as in the case of the agriculture and construction sectors, the share of labor income in gross output of the textile industry has not crossed 15 percent since the post-liberalization period. As one of the most labor-intensive industries and predominantly owned by micro- and small-scale enterprises, the failure of the textile sector to generate employment reflects the structural flaws of the economy. Moreover, the quality of work, measured by education and earnings, has shown little improvement in labor-intensive industries. Thus, the concerns extend beyond the generation of employment opportunities to consider where these employment opportunities are created and what share of output is allocated to workers. Economic growth at the expense of labor’s share of income will not be sustainable in the long run in a country with a large number of workers.