Barriers to Employment

In this review note, we reflect on the drivers/barriers to employment in terms of a wide range of factors. This helps us assess the efficacy of the policy reforms and the directions of investments so as to determine the future course of action. Some of the factors which are expected to contribute to employment growth and raise the employment elasticity are missing in the Indian context. On the other hand, certain dynamics tend to have retarded the employment growth, reducing the employment elasticity, significantly. Though this review note is not exhaustive, it makes an attempt to capture some of the key determinants of labour demand and suggest important policy directives. In particular, this chapter reflects on the limited spread of the industrial sector, technology, sluggish trade, labour market regulations and skill shortage. This review sets the perspective in the light of which the analysis has been carried out in the subsequent chapters.

This chapter focuses on a wide range of issues which may constrain employment growth. We try, using the state-level panel data, to identify some of the important correlates of employment elasticity, employment growth and quality employment. The period under consideration is 1999–2000 through 2018–19. Findings suggest that the roots to growth with employment generation can be strengthened by subscribing to policies that promote the provisioning of physical, health and educational infrastructure and encourage the population to acquire better skill and make themselves employable. Though the relative size of the service sector outweighs that of the industry, it is pertinent that the strategy of industrialization is instrumental to creating productive employment opportunities. Higher levels of investment, particularly in the urban spaces, are expected to yield higher returns. Considering the findings pertaining to the employment growth rather than the employment elasticity, the role of development indicators and educational attainments is prominent. The instances of beneficial effects on employment growth have been witnessed at the sectoral level, gender-wise and also in terms of formal–informal decomposition with important policy implications. Finally, the quality employment responds positively to higher levels of education, various development indicators, export volumes and the labour market conditions being pro-employer.

Based on various rounds of the periodic labour force surveys, this chapter reflects on some of the disadvantages envisaged in terms of poor educational attainments and caste background. With six configurations, namely informal casual, informal self-employed, informal regular, formal casual, formal self-employed and formal regular, the heterogeneity in the labour market is captured. The informal regular wage employment is highly negligible; hence, other than the casual employment overlapping between the formal and the informal sectors both, the informal self-employment, formal self-employment and the formal regular wage/salary employment are three more distinct categories. Finally, it estimates the occupational choice function and wage function in relation to some of the key variables like education and caste. The rural–urban spatial variations in occupational choices and the wage rates are significant. Those who are able to migrate to the urban spaces would naturally be better off compared to the rural residents. The barriers to migration, therefore, impinge on the labour market outcomes and the wages the workers earn. The caste factor also has an association with the occupational categories and the remunerations associated with them. The key to upward mobility can be envisaged in terms of better human capital formation. Educational and skill upgradation programmes and the policies which encourage participation and retention at secondary and tertiary levels of education including the diploma programmes must receive the priority.

Labour productivity (gross value added per worker) turned out to be much lower in manufacturing than in trade and services. The own account enterprises are worse off compared to the establishments. Further, the performance of the urban units is better than their rural counterparts. Capital–labour ratio proxied by fixed asset–labour ratio also follows a similar pattern. Manufacturing in both the rural and urban areas is endowed with lower capital–labour ratio and the establishments are more resourceful than the own account enterprises. Hence, it may be inferred that those who are self-employed are usually grossly engaged in low-productivity activities with poor capita endowment. In other words, the own account enterprises are the ones which comprise residual type employment while some of the establishments are dynamic and may have decided to remain small in order to avoid the tax burden. It may be further inferred that the subsidy and the provision of state support to the relatively larger units falling within the domain of the formal sector may not be adequate to encourage the unorganized sector units to register and become a part of the organized sector. The gains will have to be substantial for a firm to register itself as a formal sector unit. The unorganized manufacturing sector comprises a large majority of the total manufacturing employment in India. To ensure decent wages to the workers in this sector and to ensure pro-poor growth the units in this sector have to be made economically viable. One way of judging their economic viability is to consider the performance index in terms of technical efficiency relative to the organized sector units. The unorganized sector includes both household and non-household units. The analysis tends to offer little evidence in favour of positive links between the organized and the unorganized sector units perceived in terms of inter-sectoral efficiency differences and associations between them. Within the unorganized sector, units rather seem to reveal similar characteristics in terms of performance indicators while the organized sector units are much better performers. More importantly, the unorganized sector units are not able to benefit in the process of rapid economic growth.