The McKinsey Global Institute released a new paper stating that it is time for India to focus on improved quality of work and the income derived from it, not simply the number of jobs being lost or created. Indian labour markets are undergoing a significant structural shift, away from agriculture and towards the non-farm sector, particularly construction, trade, and transport. Released in June 2017, the McKinsey discussion paper looks at labour market trends, global forces affecting labour market dynamics and opportunities for more gainful employment.
Is India experiencing jobless growth?
Statistics showing that India’s overall labor-force participation declined between 2011 and 2015 have prompted a heated public debate about whether the country is experiencing jobless growth. Scratch the surface, however, and it becomes clear that Indian labor markets are in fact undergoing a significant structural shift, away from agriculture and towards the non-farm sector, particularly construction, trade, and transport. Employment in agriculture shrank by 26 million in 2011 to 2015, while non-farm jobs rose by 33 million over this period (exhibit).
460 million-strong Indian workforce
The debate highlights a lack of timely and reliable data in India to identify significant trends in the labor market. More broadly, we see the need for a new emphasis in India on the notion of “gainful employment” for the 460 million-strong workforce to focus on improved quality of work and the income derived from it. Gainful employment covers a range of issues, including the quantity and type of work done by people already in employment, growth in labor productivity, higher earnings, and aspects of work quality such as greater safety, cleanliness, flexibility, income security, and intellectual challenge.
Labor-force participation and the number of jobs do not in themselves measure gainful employment. Declining labor participation may indicate that more young people have stayed in education or that more women from households once in extreme poverty are entering the middle class, for example. Likewise, supplementary income opportunities (such as temporary work on a construction project or selling home produce through a digital platform) may not increase the number of jobs, but they may raise the income level, choice, flexibility, and security of an underemployed worker engaged in low-productivity work.
The rise in microentrepreneurship
Several global trends that are affecting economies around the world could lead to more opportunities for gainful employment, even as they pose significant challenges for India.
Three are particularly relevant to India:
- To bridge India’s infrastructure gaps, the government has raised public investment in roads, railways, rural development, power, telecom, housing, and “soft” areas of health care and education, creating work opportunities for an estimated seven million workers, at wages that are 70 percent higher than for average farm workers.
- Rapid advances in automation technologies are affecting India’s information technology and business process outsourcing sectors. These sectors have remained net job creators, and the industry estimates that companies could hire up to three million more workers by 2025, provided they can acquire the skills to meet changing needs.
- The global rise of independent work and microentrepreneurship, aided by new digital ecosystems, is mirrored in India, where they are providing new work opportunities with better pay and links to organized value chains, including in parts of the country less covered by formal labor markets. Our initial estimates are that the rapidly growing sectors of cab-hailing platforms, e-commerce, digital financial services through networks of banking correspondents, and lending for microentrepreneurship and self-help groups have improved income opportunities for 18 to 22 million workers in about the past three years.
India needs to collect more frequent, timely, and relevant labor market data
For this new emphasis on gainful employment that we suggest, India will need to collect more frequent, timely, and relevant labor market data to understand trends. But the issue is a policy focus as much as a data concern. Some segments of India’s workforce have been reaping clear benefits from the resumption of strong GDP growth, the increasing shift into non-farm employment, and the country’s high-tech prowess—but tens of millions more could also do better.
A renewed emphasis on gainful employment
Indians aspire to higher pay, better and more productive working conditions, and safer, cleaner, and more stimulating work. A new emphasis on gainful employment would help Indians meet these aspirations. It will require a conscious effort on the part of the government, including in terms of measuring employment more holistically, targeting spending on initiatives, and changing regulation of private-sector investment and innovation to remove barriers to gainful employment. While these and other possible policy steps are challenging, the effort and energy required to put them in place will be amply rewarded if they achieve their end goal of a more fulfilled, better rewarded, and more productive Indian workforce.
For further information on the McKinsey Global Institute Paper ‘India’s Labour Market: A new emphasis on gainful employment’ by Jonathan Woetzel, Anu Madgavkar and Shishir Gupta, visit www.mckinsey.com