We hear so much about jobless growth in India, but this may be changing. We need to recognise and act to sustain it. Let us examine various types of evidence. Multiple recent surveys show better job creation. After the many shocks of the 2020s, in the Annual Survey of Unincorporated Sector Enterprises (ASUSE) FY23 employment at 5.4 million was lower than in FY16, but it had overshot by FY24. The MSME Udyam portal has jobs rising from 121 million in 2023 to 201.9 million in 2024.
The Annual Survey of Industries (ASI) FY23 found manufacturing employees increased 7.5 per cent to 18.4 million from 17.2 million in FY21. Periodic Labour Force Survey (PLFS) shows the average rate of growth of manufacturing employment rising from 1.15 per annum (pa) over 2017/18-19/20 to 5.8 pa over 2019/20 to 2022/23. In the RBI KLEMS database, 46.7 million jobs created in FY24 were more than double the 19.1 million in FY23.
Another relevant piece of evidence is increasing diversity in rural jobs and the rise in women’s labour force participation rate (LFPR), especially in rural areas. As males migrate or shift to rural non-farm employment (RNFE) more women are working. The 2023-24 PLFS annual report shows only 59.8 per cent of usual status rural workers are in agriculture, the rest are in various types of RNFE. Those with skills get higher paying RNFE. The share of male workers in agriculture fell to 49.4 per cent and that of female rose to 76.9 per cent.
A study of an Eastern UP village over 2006-2023 found income growth from agriculture was only 0.1 per cent pa but that from RNFE, including remittances, grew at 7.3 per cent pa; the share of agriculture in average household income fell from 22 per cent to 8 per cent.
Since PLFS data began in 2017/18, the rise of rural manufacturing employment at 4 per cent has exceeded the 3.8 per cent growth in urban manufacturing. Construction and trade are also large employers. Government schemes contribute to many of these activities.
In the 2000s, migration of males had coincided with a fall in women’s LFPR. Research suggests that women’s LFPR first falls as family incomes rise but then rises after income crosses a threshold. So the current rise in women working may not be due to need but to rising aspirations with income levels. Women’s LFPR is rising even in urban areas where migration is not a factor. At higher incomes, women can afford more household help and are less tied to the household.
It is argued high youth unemployment points to inadequate jobs. But youth try for better jobs. Above 35 years the waiting stops and unemployment falls. Many apply for government jobs, which pay much more than market rates at entry points (although much less at higher levels), have less work and more security. If these entry level jobs are made contract-based, youth unemployment will fall steeply.
As a result of these aspirations there are shortages and more wage growth in lower level jobs. PLFS shows the self-employed had the largest average wage growth in 2023-24 at 9.6 per cent, followed by casual workers at 7.4 per cent. Their daily wage of ₹433 compared well with the monthly stipend of ₹21,103 for regular wage earners, which grew at only 5.5 per cent.
Wages and incomes
Both rural and urban real wages are largely constant. ICRIER reports based on analysis of PLFS data show that since 2019, nominal and real urban wages have grown at 6 per cent and 0.5 per cent pa respectively. Is this consistent with more jobs and rising family incomes?
Labour productivity and surplus affect real wages. At this stage of labour absorption, income growth tends to come more from moving up the job ladder with skill-growth than from rising average real wages. Until the labour slack is absorbed real wages are unlikely to rise, except in skills where there are supply shortages.
Steady high growth of the past few years is, however, delivering more jobs at all levels. Despite some distortions, Indian labour market seems to be working with signs of structural changes across the country.
Skilling facilities and job-specific training will help staff climb the quality and rewards ladder. Constant real wages are regarded as a failure of development policies, but in the 2010s high inflation became entrenched when real wage growth exceeded productivity.
Before 2010, informal and rural real wages did not adjust fully to food inflation, or did so only with a lag. Real wage growth was normally around zero.
But real rural farm and non-farm wages grew at about 7 per cent over 2010 to 2013, peaking in double digits. They returned, however, to the iteration around zero after severe tightening of financial conditions following double-digit inflation. The rise over 2010-2013 was due to unique and unsustainable conditions. Food inflation rose with global food prices in 2007.
Persistent high food inflation raised the demand for higher wages. High post GFC fiscal deficits with large expenditures pumped into construction in agriculture raised the demand for rural labour without relieving constraints on food supply. The rise in farm wages exceeding productivity further raised costs and prices. So wage growth exceeding productivity is unsustainable.
But slow income growth reduces consumption demand. Real private final consumption expenditure (PFCE) fell and fluctuated after the pandemic.
It grew only at 4 per cent in FY24 but had recovered to the pre-pandemic growth of about 7 per cent in FY25, implying some job growth and recovery in incomes. The slight dip to 6 per cent in Q2 was part of the cyclical slowdown that should reverse as financial conditions ease.
Sustaining job growth
Growth was steady and averaged 8.3 per cent in the three-year period 2021-24. Firms may be more willing to create jobs when they see steady growth. Growth was volatile in earlier periods of slow job growth. Recent cyclical changes support this conclusion. The labour market weakened in Q2 FY25 as growth fell to 5.4 per cent with an unemployment rate (UR) of 6.6. As government capex revived, Q3 UR fell to 6.4 per cent.
Average labour productivity has risen in the post-reform period but as yet has contributed largely to higher corporate margins, profits and savings. Sticks as well as carrots are required to induce more corporate investment and job creation. More competition can reduce margins. But uncertainty deters corporate expansion. Many external shocks created volatility despite domestic stability. Post-pandemic countercyclical macroeconomic and other supportive polices were able to sustain growth despite external shocks, giving business the confidence to hire and build for the future.
The traditional advice for emerging markets facing heightened global volatility is precautionary tightening. But policies that proved both feasible and effective post pandemic must be continued to deliver high growth and more jobs. India has reached a level of depth and diversity to be able to smooth external shocks. Such policies are the best response to Trumpian volatility and necessary to sustain fledgling labour market changes.
The writer is Emeritus Professor, IGIDR