The Geographic Mismatch & A Ranking of Indian States by their Labour Ecosystem (Labour Demand, Labour Supply, Labour Laws)
India’s demographic dividend will increase our population from 1 billion in 2001 to 1.4 billion in 2026. 83% of this increase will be in the 15-59 age group.
If we harness this dividend by 2025, India will not only have 25% of the world’s total workforce but our per capita income will be $ 4100. This will rise to $9802 in 2040 and $20,836 in 2050. This will finally put poverty in the museum, it belongs.
But a demographic dividend does not mean people, but productive people. Converting our people into productive people requires radical reform of our labour market ecosystem that includes labour demand, labour supply, and labour laws.
India’s Three Mismatches
THE GEOGRAPHIC MISMATCH: Much of India’s demographic dividend will occur in states with backward labour market ecosystems. Between 2010 and 2020, the states of UP, Bihar and MP will account for 40% of the increase in 15-59 year olds but only 10% of the increase in income. During the same period, Maharashtra, Gujarat, TN and Andhra will account for 45% of the increase in GDP but less than 20% of the addition to the total workforce.
THE SKILLS / EDUCATION MISMATCH: About 89% of the 15-59 year olds have had no vocational training. Of the 11% who received vocational training, only 1.3% received formal vocational training. The current training capacity is a fraction of the 12.8 million new entrants into the workforce every year.
THE SECTORAL MISMATCH: Most employment opportunities will arise in sectors where people have little experience. The largest component of labour force growth is in rural areas but the most growth in employment is in areas that require greater human capital. Wage inflation projection till 2026 flag skill shortages.
India’s Failed Matching Ecosystem
Our employment exchanges are dysfunctional; they gave about 2 lac jobs to the 4 crore people registered.
The best performing employment exchanges were in Gujarat, Tamil Nadu, and
Maharashtra but the most new registration are in UP and West Bengal.
The Delhi Government budget shows that it costs the government Rs 228,381 for a single placement.
The employment exchange at Chitradurga in Karnataka has been unable to provide even a single job in the last four years.
India has only 0.25 million apprentices while Germany has 0.6 million, Japan has 2 million.
State Ranking of Labour Ecosystem
OVERALL LABOUR ECOSYSTEM RANKING: Andhra Pradesh tops followed by
Karnataka and Maharashtra. States that made significant improvements since 2005
include Bihar, Assam and J&K (though the last two continue to be below their levels of performance in 1995).
EMPLOYMENT ECOSYSTEM RANKING: Delhi tops followed by Andhra Pradesh and Rajasthan. Their ranking is mostly driven by all around infrastructure improvement e.g. the performance of Delhi and Gujarat is driven by power supply, high teledensity and low taxation, relative to the size of economy.
EMPLOYABILITY ECOSYSTEM RANKING: Karnataka tops followed by Delhi and Andhra Pradesh. The large infrastructure in education and professional education is one of the primary causes of Karnataka’s high ranking, which it has further improved on since the 2005 ranking.
LABOUR LAW ECOSYSTEM RANKING: Maharashtra tops followed by Andhra Pradesh and Karnataka. Maharashtra not only tops but has improved its performance since 2005 because of better performance in labour relations and average wages relative to minimum wages.
State governments are losing an important opportunity to differentiate themselves with specific reforms to their labour ecosystems. Over the next twenty years, this will be the difference between growth and poverty reduction.
States can take the lead in improving matching infrastructure by reforming employment exchanges, apprenticeship programs, assessment and certification capabilities, etc. This is the lo