India’s jobs crisis, the macroeconomic reasons 

1. The Dimensions of India's Labor Market

The labour market in India presents a multifaceted challenge characterized by various forms of employment, including wage employment and self-employment. A nuanced understanding involves distinguishing between wage employment and self-employment, recognizing that labour demand and supply are distinct in these categories. Further differentiation can be made between wage labour and jobs, where jobs refer to relatively better-paid, regular wage or salaried employment. The focal point of the discussion revolves around the inadequacy of labour demand, particularly for regular wage work.

India's historical economic landscape has witnessed both open unemployment and high levels of informal employment, encompassing self-employed and casual wage workers. The stagnation in the employment growth rate of salaried workers in the non-agricultural sector over the past four decades indicates persistent challenges. The term "disguised unemployment" is aptly applied to informal employment, reflecting a scarcity of formal sector opportunities.

Factors Influencing Formal Sector Labor Demand

Output and Demand Dynamics

• Profit-Driven Employment: Firms in the formal sector hire workers to produce output for profit. Therefore, labour demand is intricately linked to the demand for the goods and services that firms can sell.
• Output Growth: Labour demand increases when there is a rise in the demand for output. Economic policies that stimulate higher output growth are expected to positively impact employment growth.

Technological Impact on Labour Demand

• Role of Technology: The state of technology plays a pivotal role in determining labour demand. Introducing labour-saving technologies allows firms to maintain or increase output levels with fewer workers.
• Productivity Growth: Rising labour productivity, defined as output per worker, can lead to a reduction in the number of workers needed to produce a unit of output.

Analysis of Employment Growth Rate

Despite substantial growth in GDP and value-added during the 2000s, the employment growth rate in the formal non-agricultural sector remained unresponsive. This phenomenon is indicative of jobless growth, where the correlation between labour productivity growth rate and output growth rate is crucial. A deeper analysis reveals that the lack of responsiveness is rooted in the intricate relationship between these two growth rates.

Policy Implications

Policy frameworks predominantly focused on output growth need to consider the interconnected dynamics of labour productivity growth. While promoting higher economic growth is essential, policies must also address the impact of rising labour productivity on employment growth. Striking a balance that fosters economic growth while ensuring inclusive employment opportunities is imperative for addressing India's persistent job crisis.

2. Unemployment

Unemployment rate

The unemployment rate in India is the percentage of the labour force that is unemployed
The unemployment rate in India has been fluctuating in recent years.
In 2020, the unemployment rate was 10.20%, which was the highest it had been in decades. 
The unemployment rate then declined to 7.71% in 2021

3. The Periodic Labour Force Survey (PLFS)

• The Periodic Labour Force Survey (PLFS) is a sample survey conducted by the National Sample Survey Office (NSSO) of India to provide information on the labour force and employment situation in the country.
• The survey is conducted annually in all the states and union territories of India.
• The PLFS provides data on various employment indicators, including the labour force participation rate (LFPR), unemployment rate (UR), worker population ratio (WPR), and employment by industry and occupation.
• The PLFS sheds light on the proportion of individuals seeking employment, the unemployment rate, gender disparities in employment and wages, and the sectoral distribution of workers.
• Additionally, it details the types of employment, such as casual labour, self-employment, and regular salaried jobs.
• This comprehensive data is crucial for understanding the dynamics of the Indian labour market and formulating effective employment strategies.

4. The macroeconomic reasons for the job crisis in India

The trajectory of economic growth is conventionally associated with increased productivity, a phenomenon driven by economies of scale. However, the interplay between output growth and labour productivity growth unveils distinctive characteristics of jobless growth, particularly in the context of the Indian economy. This analysis categorizes jobless growth into two regimes based on the relationship between output growth and labour productivity growth.

Weak Responsiveness Regime

• Automation and Labor-Saving Technology: In this regime, the connection between labour productivity growth and output growth is weak. Jobless growth primarily stems from the adoption of automation and labour-saving technologies.
• Positive Impact of GDP Growth: Despite the challenges posed by labour-saving technologies, the positive effect of a higher GDP growth rate on employment remains dominant. Solutions to the jobs crisis in this regime revolve around fostering more rapid economic growth.

High Responsiveness Regime (Indian Context)

• Distinctive Characteristics: India falls into the second regime, characterized by high responsiveness of labour productivity growth rate to the output growth rate.
• Kaldor-Verdoorn Coefficient: The extent to which labour productivity growth responds to output growth is measured by the Kaldor-Verdoorn coefficient. India exhibits a higher-than-average coefficient in its non-agricultural sector compared to other developing countries.
• Challenges in Employment Growth: Unlike the weak responsiveness regime, the positive impact of the increased GDP growth rate on employment is insufficient to counteract the adverse effects of labour-saving technologies.

Challenges in India's Macroeconomic Policy

India's distinctive form of jobless growth regime sets it apart from other countries, posing a unique macroeconomic policy challenge. The challenge lies not merely in pursuing higher economic growth but in addressing the intricate dynamics between labour productivity growth and output growth. The traditional solution of accelerating GDP growth may fall short of resolving the jobs crisis due to the heightened responsiveness of labour productivity growth in the Indian context. Policymakers face the task of navigating this nuanced landscape to formulate strategies that foster inclusive growth and employment opportunities, taking into account the distinctive features of India's jobless growth.

6. Macroeconomic Policy for Employment

The evolution of macroeconomic policy frameworks, shaped by Keynesian principles and structuralist theories, has traditionally centred on increasing output growth as a means to enhance employment. In the Indian context, the Mahalanobis strategy emphasized capital goods availability as crucial for output and employment, while debates during the 1970s and early 1990s explored agrarian and balance of payment constraints. Despite these frameworks, a common presumption prevailed that elevating the non-agricultural sector's output growth would inherently boost formal sector employment.

Contrary to conventional wisdom, current evidence indicates that addressing the employment challenge necessitates more than simply accelerating GDP growth. A paradigm shift is imperative, requiring a dedicated policy focus on employment, distinct from the overarching GDP growth agenda.

Components of Comprehensive Employment Policies

Demand-Side Interventions

• Direct Public Job Creation: Recognizing the limitations of relying solely on market forces, there's a need for direct public job creation initiatives to stimulate demand for labour.
• Balancing Skills Gap: To counter the trend of firms opting for automation due to a shortage of skilled labour, improving the workforce's quality through enhanced public education and healthcare provisions becomes pivotal.

Supply-Side Enhancements

• Skill Development: Bridging the skills gap requires targeted efforts in skill development, making the workforce more adaptable to evolving technological demands.
• Health and Education Infrastructure: Strengthening public provisioning of education and healthcare ensures a healthier and more educated workforce, contributing to increased employability.

Financial Sustainability and Debt Stability

Effectively financing these interventions while maintaining debt stability demands a reorientation of the current macroeconomic framework. This includes:

• Enhancing Direct Tax Revenue: Increasing the direct tax to GDP ratio by reducing exemptions and improving compliance creates fiscal space for targeted employment initiatives.
• Innovative Macroeconomic Policies: A creative use of macro-policy instruments becomes essential to align fiscal strategies with a constructive employment agenda.

7. Conclusion

The reimagined macroeconomic policy framework must transcend the traditional emphasis on GDP growth and incorporate a nuanced approach to address the intricacies of employment challenges. By integrating demand-side and supply-side interventions, along with innovative financial strategies, policymakers can lay the foundation for inclusive and sustainable economic growth, placing employment at the forefront of economic policy priorities.