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Employment Trends in India: A Fresh Look at Past Trends and Recent Evidence Himanshu Fellow, Economics Centre de Sciences Humaines.

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Presentation on theme: "Employment Trends in India: A Fresh Look at Past Trends and Recent Evidence Himanshu Fellow, Economics Centre de Sciences Humaines."— Presentation transcript:

1 Employment Trends in India: A Fresh Look at Past Trends and Recent Evidence Himanshu Fellow, Economics Centre de Sciences Humaines

2 Workforce Participation Rates tend to decline over time in rural areas. The exceptions in this regard are 43 rd round CDS estimates, 50 th round and 61 st round.

3 Urban WPR have remained stable for most period, except for sudden jumps in 50 th and 61 st round

4 Unemployment rate for rural males have been rising for most periods except for 50 th round and 43 rd round CDS. For females, they show fluctuations before 50 th round but have been rising since then.

5 Urban male unemployment rates have been coming down over the periods with sharp fall for 50 th round and increase during 55 th round. However CDS estimates of 61 st round show increase. For females, unemployment rates increase sharply in the 61 st round.

6 The trend in LFPR is similar to the trend observed in the case of WPR for rural areas.

7 Urban male LFPR has been stable till 43 rd round, jumps sharply for 50 th round and even sharper during 1999-2005. the trend for females is also similar

8 Percentage of Self-employed workers among total workers in rural areas was declining till 55 th round but saw a reversal of the trend for 61 st round. For females, the increase was sharp enough to nullify the decline till 55 th round.

9 The reverse is true for casual wage labour in rural areas

10 Urban males also saw self-employment increase sharply at the cost of wage labour during 1999-2005. for females, the trend of increasing regular employment continued.

11 Primary sector employment among rural male workers has been coming down steadily except for 50 th round when there was almost stagnation. For females, 50 th round actually saw primary sector employment increase. However, 61 st round saw sharp non-farm diversification for both males and females.

12 Tertiary sector is the largest employer in urban areas with share increasing since 38 th round. But saw a sharp fall in 61 st round.

13 The decline in tertiary sector employment is balanced by a huge increase in secondary sector employment, which was otherwise declining till 55 th round

14 Why do 43 rd round daily status estimates behave differently? 43 rd round CDS employment estimates in rural areas appear out of place compared to estimates from CWS, PS and Usual status. More importantly, the fact that CDS estimates for 43 rd round are very close to CWS estimates for this round raise suspicion on the official estimates of 43 rd round CDS. In general CDS and CWS estimates will never be close because of the way these are collected. Unit level data suggest that the official estimates are probably wrong The corrected estimates as obtained from unit records fit in line with the expected trend.

15 For 50 th round, the large increase in LFPR and WPR and sharp fall in unemployment rates appear suspicious. This round also shows abnormal trends in terms of employment status and industrial distribution. For example, 50 th round shows almost no non-farm diversification while all other rounds show non-farm diversification. This round also shows abnormal fall in share of regular employment Such large increase during initial years of reform where even the government conceded that employment may fall, appears suspicious

16 What happened during 50th round? Basically a change in method of classifying usual status activity In the earlier NSS quinquennial surveys the identification of usual status involved a trichotomous classification of persons into 'employed', 'unemployed' and 'out of labour force' based on the major time criterion. In the 50th round, the procedure prescribed was a two stage dichotomous procedure which involved a classification into 'labour force' and 'out of labour force' in the first stage and the labour force into 'employed' and 'unemployed' in the second stage.

17 More specifically, the change meant the following Number of Months in Activity Labour Force Not in Labour Force Principal Usual Activity Status by 50 th Round Person EmployedUnemployed A 543 Employed B453 Unemployed C435 Employed D417 Out of Labour Force Note: In case of C as per the procedure followed in past rounds, he would have been categorised as not in labour force whereas he/she is now categorised as employed.” [Instructions to NSS investigators for 50th Round of EUS, Section Five, Item: 5.4.11]

18 Changes regarding weekly and daily status in the 50 th round In the earlier surveys, the current weekly status (CWS) of a person was first assigned on the basis of the response to the questions relating to his participation in gainful activities (non-gainful activities) and thereafter the daily time disposition data was collected only for those in the labour force as per the CWS. In the 50th round, the daily time disposition was collected for all the persons surveyed and the CWS was determined based on the time disposition data so collected, without probing any further on this point.

19 Estimates from the 61 st round 61 st round estimates are also different from the general trend but so far there is no evidence that this could be result of any change in methodology. These are in fact also supported by trends from the intervening annual rounds. However, Sundaram and Tendulkar have argued that these annual rounds after 55 th round are probably giving estimates which are biased and suffer from large RSE and non-sampling errors. However, in a curious argument they also suggest that the rural estimates of 59 th round are less biased and hence probably right. But the urban are biased and have large non-sampling errors. Unni and Raveendran are not convinced by these estimates and suggest that the 55 th round was an underestimate because it was not a normal agricultural year? However, these trends are consistent with actual events in rural and urban areas and the trends after 50th round are comparable to each other.

20 The decline in wage employment was mainly in the agricultural sector. However, the increase in self-employment was seen for both agriculture as well as non-agriculture. But within non-farm, rural growth was higher than urban growth, while it was reverse in the previous period

21 But why should increase in LFPR and WPR be viewed with suspicion? Basically two reasons: 1. The first relates to the demographic pattern. LFPR and WPR can increase simply because the share of working population in the total population increases. That is, even if all the age groups maintain their respective LFPR and WPRs, the overall LFPR and WPR will increase simply because the weight of high LFPR and WPR age group increases. 2. Educational attendance, which drives down WPR and LFPR especially among young 3. The net impact may depend on the balance of these two if nothing else happens.

22 Income effect? Then there is the income effect which ST argue was responsible for driving down the LFPR and WPR during 50-55 th round. That is LFPR declines when income improves and conversely, may increase if income declines. This appears plausible for 61 st round. There was overall deceleration in agricultural output. It was also accompanied by sharp fall in prices of agricultural products Moreover wage rate growth collapsed for both casual and regular workers In other words, agrarian crisis could have pushed some people in the labour force

23 By age group: the growth in labour force for 25-59 age-group for males appears consistent with their increased share in population. However, 1999-05 also shows increase in labour force for 5-25 age-group which was showing decline in earlier period or growing slower. Same is true for old age population.

24 Break up by land owned classes throws up another interesting fact: for males, the increase is higher for the land-less but for the females it is actually happening in households which own more than 1 acre of land.

25 Break up by industry and land size class also suggests that the shift towards non-farm employment is essentially due to the shift of land-less and marginal land owning classes.

26 But within non-farm employment, percentage of informal employment has increased substantially including among regular workers.

27 Nonetheless, total non-farm employment which was almost stagnant in the 1990s saw employment increasing very sharply during 1999-05.

28 Casual wage rate growth decelerated for all categories and all sexes

29 Even for regular wages, the only class which saw positive increase was graduates and above. All others saw real wages decline

30 This is also seen from the ASI data for the factory sector, where the growth of worker wages which increased slowly in nominal prices but has seen decline in real terms for both rural and urban areas. However, it is also seen that managerial emoluments which were growing at more or less similar rate before the reforms increased faster than worker wages after reforms and the gap has been increasing faster since 1999-00.

31 ASI data also shows that the percentage of wages and profits in Net Value Added in the factory sector was fairly stable in the 1990s. But after that, percentage share of profits almost doubled. Moreover, the decline in wage share during 1999-05 was despite NVA/worker almost doubling during the same period.

32 has Indian Economy become more Lewisian? It appears so: Non-farm employment, led by manufacturing, increased substantially at almost constant wages. Wage share has declined and profit share increased allowing the capitalist class to invest more, also reflected in the growing investment rate This was also facilitated by the weakening of trade unions and workers bargaining power.

33 But is it sustainable?

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