Employment: Five Strategies Which The Government Can Adopt To Create More Jobs In The Economy

What are the strategies the new government can employ to address growing unrest over the lack of adequate employment opportunities in the economy?

A deeper probe of recent macro employment data points towards bottlenecks and difficulties in achieving an immediate or substantial increase in employment.

The Secretariat takes a deep dive and suggests five strategies – three immediate and two longer term – to generate employment.

Recent Data Highlights Importance of Employment Generation

The unemployment rate is the percentage of unemployed persons in the labour force. India’s unemployment rate was 4.1 per cent in 2022, down from 6.0 per cent in 2018 but still way above 2.1 per cent in 2012.

However, India’s measurement process underestimates unemployment, more so as it measures unemployment taking into account the Usual Principal and Subsidiary Status (UPSS) method. A currently unemployed person would be counted as employed according to the UPSS, if she was engaged in some economic activity in a subsidiary role for 30 days in the previous year.

Even under the UPSS, the latest available unemployment is almost double the rate in 2012. Persistent unemployment, particularly in the rural sector, removes most of the sheen from the recent healthy GDP growth story.

The persons working or actively seeking work or unemployed constitute the labour force in the economy. The Labour Force Participation Rate (LFPR) is the percentage of working-age population in the labour force.

For the more than 15 years of age population, the LFPR has fallen from 63.7 per cent to 55.2 per cent in 2022. This is despite the growth in population, adding approximately 7-8 million young people to the labour force every year.

Though the LFPR has recovered from 49.8 per cent in 2018 to the current level, it is still more than 7.0 per cent below the high participation of workers in the economy in 2005.

The fall in the LFPR can be attributed to the people who are not looking for jobs any more. This happens when people in the working-age population give up after a prolonged period of futile job search.

Much has been written about India’s demographic dividend. An overwhelming majority of the Indian population is of working age. This composition is likely to hold for at least another decade, according to projections made in the IHD (Institute for Human Development) Employment Report 2024.

Most of the young workers who have joined the workforce in recent years will continue to look for jobs (if unemployed) in the next decade or so. Accordingly, the population in 15-59 years of age increased to 64 per cent of the total in 2021 from 61 per cent in 2011. This proportion is likely to reach 65 per cent in 2031 and remain there till 2036.

This demographic transition underlines the importance of creating new employment opportunities in the next five years.

Filling Up The Vacant Government Posts 

During the monsoon session of the parliament in 2023, the government informed that more than 9.64 lakh posts were lying vacant in the central government. Stating that filling up vacancies is a continuous process, the government highlighted its efforts in this direction made through “Rozgar Melas”.

Earlier in 2022, the Justice H. N. Nagamohan Das Commission had observed that there were more than 60 lakh vacancies in the union government, public sector undertakings (PSUs), and all state governments in the country. In the Karnataka state government alone, there were around 2.39 lakh vacant posts.

Though the government sector employment takes care of only around 2 per cent of employment, these are still big numbers. Apart from filling up existing central vacancies, the central government can always encourage and incentivise the state governments to fill up state-level vacancies as well.

In the area of employment generation, this is a low-hanging fruit that the newly installed government can immediately aim for.

Continuing Government Capital Expenditure In Infrastructure

The main engine of recent GDP growth is the steady growth in capital expenditure by both the central and state governments. In the FY 2019 revised estimate, combined capital spending by central and state governments was at a staggering Rs 11.8 lakh crore.

This has provided an expansion opportunity for sectors like infrastructure. India is still an infrastructure-deficient country. More highways, larger ports and airports, power plants, dams, and high-speed railway networks are needed to achieve India’s lofty development ambitions.

Continuing this government capex trend will ensure  job opportunities for millions in the workforce. Private capital expenditure and investment are likely to follow if the trend is continued.

This is one area where continuing existing policy measures can produce positive outcomes in the near future for the government.

Focussing Back On Labour-Intensive Industrial Sectors

India's jobless growth problem is too big to be left to large corporations. Small and medium enterprises' share is roughly 40 per cent in the country's total employment. That is about four times as much as corporate India employs.

Support for the MSMEs, which tend to be relatively labour-intensive, could help to generate thousands of jobs for youth. However, in recent times the government focused on paving the way for potential high-value investments in high-tech sectors in the digital economy.

The labour-intensive and potentially export-oriented micro, small and medium-sized companies in sectors like textile, leather and chemicals, as a result, have moved out of the government radar.

Small business often bears a disproportionately large burden in terms of compliance costs. Starting from registering a business to complying with various tax norms including GST in different states of the country, the costs of compliance sometimes compel the small and medium companies to shut down.

Proactively improving the ease of doing business and ease of exporting for these MSMEs can be another area where the newly incumbent government may take immediate action. Regulatory ease can generate employment opportunities across the labour force.

Improving Quality Of Education

Though it may seem a bit cliched policy suggestion, improving the quality of education and skills in the economy is essential for economic growth. No country in the economic history of the world achieved economic prosperity and an elevated standard of living without augmenting human development.

As more youth join the workforce, the expectation would be the creation of more high-quality formal jobs. IHD Employment Report 2024 noted that the Indian economy was going in that direction during 2000-2019 when youth found more opportunities in construction and services like software, finance, trade and transport.

There was a sharp decline in agricultural employment for youth in this period, which was a positive development. However, the trend reversed after the pandemic as agriculture started providing the bulk of the jobs to youth (14.4 million) during 2019-2022.

A deeper look into flagship schemes like Skill India is the need of the hour. The government has to take a long-term view of education and skill development. Otherwise, good quality jobs will keep on eluding Indian youth.

Increasing R&D Expenditure

India’s spending on research and development (R&D) is among the lowest in the world. While the world average has been 2.61 per cent of GDP in 2021, India spent 0.65 per cent of GDP on research and development in 2020, according to the World Bank database.

South Korea, Japan, and China spent 4.93 per cent, 3.30 per cent, 2.43 per cent of their GDP respectively on R&D in 2021. Brazil spent 1.15 per cent of GDP on R&D in 2020, and even Malaysia spent 0.95 per cent of GDP on R&D in the same year.

These figures highlight the low level of R&D spending in India. Countries with low R&D spending tend to lose high-quality workers in the long run. In the era of outsourcing and actual globalisation of services, this subsequently leads to the loss of new projects and opportunities in the economy.

For example, an IT company may have to create a new department abroad if the requisite skillsets are not available in India. So, it is not just an issue of brain drain.

Increasing public expenditure and incentivising private R&D expenditure can be another way to boost employment over a longer time horizon for the government.