Sneak Peek: The India Labor Market Report: a 5-year Special


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Today’s world is not what it used to be just two years ago. And India – with all the resilience she has shown over the last 10 quarters – has the potential to emerge an economic might only if the teeming millions that are born and brought into the workspace are allowed to break free of the shackles of the Ovarian Lottery. What this takes is the moot point the 5-year Special addresses.

Take a sneak peek at The India Labor Report: 5 year Special. Comment or message me if you liked it and you will receive the complete report when it releases early November.

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Sneak Peek: The India Labor Market Report: a 5-year Special

  1. 1. The India Labor Market Report Preview: a 5-year summary account of the Indian labor marketinTouch analytics 10/7/2011
  2. 2. The India Labor Market Report Labor markets: the coming of ageIndia’s journey on the path of economic reforms has indeed brought her a long way – we are one of theworld’s fastest growing economies today. Along this journey, the country has been favored withserendipity – its large and growing population is a potential asset, and this *demographic dividend* canquadruple GDP and catapult India into the developed economies league over the next decade. All this ifa billion people could be transformed into a productive workforce.For over half a decade now, India has been chanting the demographic mantra with little real progressseen on the ground. Because, with opportunities come challenges. The Services sector – which is key tothe demographic transformation – needs many million knowledge workers but has to contend with onlyfew. Lack of employability is endemic, and India has been willy-nilly about solving this mother of all(demographic) problems. Mediocrity in the education system feeds low quality talent into low quality,unorganized employment.On the other hand, India’s largely skill-based labor force – an inheritance from the agrarian economy ofthe past – has been stubborn in transition. Jobs in Agriculture and Manufacturing – the employmentbastions of yore – have stagnated for long thanks to factors of cost, competition and commoditization.And over 90% of the labor force stays inadequately skilled and therefore chooses betweenunemployment and casual employment.The 15 year milestone is in striking distance. Jobs continue to be created, mostly needing an educatedworkforce and many in sunrise sub-sectors. There is a problem of plenty, of jobs and of people. Weneed to recognize new opportunities for what they are, prepare the supply side, and appropriatelymatch both ends. For this, we need immediate fixes to the overall labor ecosystem that create adequateemployable supply from a reformed education and vocational set up.The Demand pie in the skyThe debate about jobless growth – stagnating organized sector employment vis-à-vis rising casualemployment in the unorganized sector – scratches the surface of a reality India has been living with, andin denial, for some time now: that the organized sector, especially services, is a fertile breeding groundfor jobs. The denial is thanks to an inadequacy in converting this opportunity into large scale knowledge-based employment.While policy makers were not looking, job demand patterns have morphed into a mature and diverserequirement of skills and knowledge. The demand pie includes new age clusters of services- andknowledge-intensive jobs within its expanded envelope – quite the global growth trend. New sub-sectors have emerged and many existing industry sectors have graduated to a higher plane of operationthat requires knowledge-based talent. Page 2
  3. 3. The India Labor Market Report Fig. 1 Share of sectors in India – follow global trends of economic growth [Source: Central Statistical Organization (CSO) for FY1951-FY 2009] Range: Log Employment (Hours) Dependent Var: Log (Value Added) of Sector Low Skilled High Skilled Agriculture -0.57 0.22 Manufacturing -0.25 0.43 Wholesale Trade, Retail Trade, Transport, Public -0.23 0.53 Administration & Defense Education, Health, Hotels, Other Services -0.52 0.48 Finance, Communication, Business Services -0.52 0.61 Table 1: Global Employment Elasticity – Modern service sectors (gray shaded) score substantially higher [Source: The Service Sector as Indias Road to Economic Growth, Barry Eichengreen and Poonam Gupta, February 2011]A mature stage of growth must also indicate that job creation could follow global trends as well.Another reality, India chooses to ignore, is that the services sector is immensely capable of creating farmore jobs compared with other sectors; albeit, jobs that require high skilled people.India, even with its recent skill development initiatives, is busy filling low skilled and low paying jobs thatextend right beyond the doors of the unorganized sector. There is a failure to both visualize and Page 3
  4. 4. The India Labor Market Reportactualize an enormous employment prospect. This, actually, is at the root of the problem oftransforming the large and growing demographic potential into dividend.Bridging the divideThe first step to address this issue would require India’s planning and policy institutions to recognize ashift in the labor demand paradigm. The immediate burning issue is to put the nearly 50 millionunemployed people to work. In the medium term, however, there is a dire need to stop looking in therear view mirror and formulate policies based on current and forecasted labor demand. Given the 58%,and growing, share of services in GDP, solving for the large deficit of graduate and post-graduate level,employable talent is an imperative.Filling a substantial proportion of the additional 270 million working age population in the servicessector would have a multiplier effect: increased marginal growth in GDP, thanks to significantly higherincomes and improved tax revenue, thanks to growth in the organized sector. Add to this, broaderdemographic and societal benefits of improved literacy and reduced poverty, and we would have holisticand qualitative transformation.Three key steps policy makers need to take to effectively capture and capitalize on tomorrow’s labordemand prospects – • Identify and include greenfield and newage subsectors with promising medium to long term prospects in the industrial framework • Set up a mechanism to map current and future demand at industry subsector level, working closely and continually with subsector stakeholders • Share demand intelligence with private training and vocational institutions and set up career counseling cells to prepare the supply side for new opportunitiesA skewed supply landscapeThat one in four engineers, one if five IT graduates, or an even smaller proportion in case of MBAs,graduating from Indian colleges and universities is all that is employable is a statistic we are living withfor close to a decade now. While there is gross addition to the talent pool, poor employability and skillgaps are constraints the knowledge economy in India is delivering against.These statistics are still the tip of a lopsided supply iceberg India has built for itself. The Indian laborlandscape is a complex terrain. Unemployable or inadequately skilled labor is an 83 million overhang wehave been able to do little about over the past 5 years.Force-fitting this under-employable labor landmass to demand feeds the unorganized sectordisproportionately and stretches the employment envelope on the casual side. Evidently, perpetuatingthis practice is not what we want to be doing to our demography. Architecting a supply landscape that Page 4
  5. 5. The India Labor Market Reportbetter suits the demand dynamic requires us to overhaul an archaic HRD regime and thereforerestructure a vexed education-vocation set up.Immediate and medium term actionThe immediate term focus needs to be on policies that positively reinforce the country’s impaired skilldevelopment infrastructure. We need to dramatically improve the throughput of trained manpower –train 10 times the just-over-a-million people being trained currently. This demands quadruplingvocational training capacities from the present 3.1million to 12.8 million. The imperative is a shift offocus from the formal public training system to increased private participation. The Government has,indeed, taken several laudable steps towards skill development over the past 5 years but its strangleholdover policy implementation, given the numerous limitations of the present state of governance, leavesmany a question unanswered.The medium-to-longer term focus must be a two-pronged strategy to restructure education – greateraccess and greater quality. While capacities are being created in education, they are only aggravating theproblems of access – especially to the underprivileged – and quality. Opening up the sector tosubstantial participation by industry and foreign institutions should imbue it with superior academicstandards that help leapfrog employability. This model must accommodate subsidized education to thepoor and deserving to ensure equity. This step to restructure education gestates over a longer period oftime but holds the promise to deliver us to dividend.A few critical interventions are required at the state level to make the above transformation a reality – • Augment public-private partnerships in vocational education with industry linkages right at the policy level, and down to the curricula and outcome stages, to include inputs of the demand dynamic throughout the vocational education lifecycle. • Implement a performance ranking system for vocational institutions to arm candidates with information to make the right choices. Vesting candidates with the funding option – through appropriate vouchering and other mechanisms – also links funding to outcomes. • Link accreditation of higher educational institutions to their capability to contribute to incremental employability. This, in turn, puts lower limits on quality of pedagogy and infrastructure, and forces an eventual consolidation in the sector.A mismatched jigsaw puzzleHistorically, the issue concerning unemployment has been that a 10% unemployment rate in 2006 wouldinflate to about 29.5% in 2020. Over the past 5 years though, sustained, recession-proof economicgrowth and state intervention led hope that structural problems of the labor market are beingaddressed by interventions in the HRD regime, seem to have allayed these concerns a bit. Thateconomic growth is not entirely, and on its own, effective in creating the magnitude of jobs needed is anearly realization that stirred the government machinery into skill development related action. Page 5
  6. 6. The India Labor Market ReportPersistent growth in casual employment, and a constantly, relatively smaller share organizedemployment, reminds us that we continue to live under the threat of a systemic failure to capturedemographic potential. For an inherent lack of demand-supply equilibrium to be addressed, the complexlabyrinth made of the three structural mismatches needs to be straightened out. - The Sectoral mismatch, a demand-side issue discussed above, is yet to be effectively addressed. - The Education-and-Skills mismatch is a huge supply-side issue discussed above. The recent skill development initiatives, stressing on vocational education, would partly address this issue. - The Geographic mismatch, also inadequately addressed so far, is discussed in a later section of heterogeneity and needs strong rural-to-urban transitional interventionsTowards effective transformationWhile individualized interventions – such as skill development – are much needed to tackle each of themismatch areas, they risk the possibility of being isolated, part-solutions to a bigger problem. The rootcause of labor market heartburn is regulatory cholesterol. Arriving at an effective solution to labormarket woes needs not just medicinal dosages, but a set of new eyes as well. In other words, a holistic,interconnected, vision of 3Es – Education, Employment and Employability – is to be cultivated fromwhich all regime reform is conceived.This is not difficult. Like most attitudinal changes, this one requires a tangible, measurable goal – andreducing transactional costs of labor markets is it. Archaic, arbitrary and dysfunctional laws, as well asover-legislation, are the drivers of this cost.Key steps to be taken in this regard are – • The very roles of government and its departments in formulating, and executing on, the regime needs to be rethought to reduce multiplicity and encourage individual state government implementation. • Labor laws need to be freed from their present convoluted form; the complex nomenclature needs to be simplified and where required de-duplicated and unified. • In order that unorganized employment is not incentivized laws that constitute distractive and wasteful expenditure for employers (EFPO and ESI are examples) need to be repealed. Page 6