The Jobs Crisis in India

By Raghavan Jagannathan

If you’ve read about self-driving cars, blockchain, and the internet of things (IoT), registered for a massive open online course (MOOC), considered dealing in cryptocurrencies, or asked Alexa to play your favourite song, the chances are you are one of the select few Indians adjusting to the reality of a brave new world driven by technology and automation. But somewhere you will also acknowledge the growing disquiet in society, where there is job-deficient growth, rising farm distress, and youths from different communities agitating for job reservations in government or the public sector. Like elsewhere on the globe, in India, too, the worlds of those with skills to handle technology, and those without, are diverging.
This book presents us with insights, explanations, and possible solutions to the aggravating jobs crisis in India. Raghavan Jagannathan comprehensively and skillfully explains the various micro and macro factors that impact the overall job scenario, including the rise of the ‘gig’ economy, the use of robots, new technologies and artificial intelligence (AI) that displace human labour on the shopfloor and in the services sector, and the economic uncertainties that lie ahead. Archaic labour laws designed to protect employees from exploitative employers are not helping matters at a time when capital is cheaper than ever. The world of long-term and predictable jobs and careers is shrinking. The only people who will benefit in this scenario are those who are willing to constantly upskill, relearn, and relocate to improve their job and income prospects. The world is getting older demographically, and older people always find the speed of change difficult to cope with; India, with its younger population, can do better, but government and business have not got their act together yet.

• Language: English
• Publisher: Pan Macmillan
• Release date: Oct 18, 2018
• ISBN: 9781529016376

Book preview

The Jobs Crisis

in India

Raghavan Jagannathan

MACMILLAN

CONTENTS

List of Tables

List of Abbreviations and Acronyms

Prologue: The Setting

1.   The New Pessimism over Jobs

2.   Making Sense of India’s Jobs Data

3.   Whodunnit? Who, or What, is Killing Jobs?

4.   Automation: Job Polarizer or Job Killer?

5.   Where the Jobs Are

6.   Demography, Urbanization, and Jobs

7.   A Matter of Skilling

8.   No Job? Employ Yourself, Become an Entrepreneur

9.   Jobs or Gigs? What Will the Future be Like?

10.   Is Universal Basic Income the Answer?

11.   Toolkit for Survival

12.   Conclusion: Restating the Jobs Challenge

Postscript

Epilogue: A Wide-angle View of the Jobs Problem

Appendix: Three Perspectives on Jobs

Acknowledgements

Notes

Index

TABLES

2.1    Employment and underemployment estimates (based on UPS)

2.2    Percentage share of labour force based on average monthly earnings

2.3    Census 2011 employment figures (in million)

2.4    Key employment–unemployment indicators using different approaches

2.5    Unemployment rate based on UPS and UPSS approaches for fifteen-plus population (all-India)

2.6    Working population, male and female

5.1    Underemployment is the norm (all-India in %)

6.1    Jobs to investment ratio for select industries

6.2    Workforce and migration for economic reasons, 1991–2011

9.1    Landholdings in rural India

9.2    Where new jobs will come from over the next five years

10.1  UBI amounts, poverty rate, and cost to GDP (in %)

12.1  Sectoral employment elasticity as per the Twelfth Five-Year Plan

12.2  Sectors with high and low employment elasticity (annual average in %)

ABBREVIATIONS AND ACRONYMS

PROLOGUE: THE SETTING

The world is flooded with excess capital and labour.

Nearly a decade after the global financial crisis, which began formally with the collapse of Lehman Brothers in September 2008, upending growth, big US companies today are sitting on trillions of dollars of free cash on their balance sheets. One estimate puts the amount of spare cash held by US companies outside the country at more than $2.6 trillion¹—which was bigger than the size of the Indian economy in 2016–17. US companies hold their cash abroad to escape domestic taxation.² This may change if President Donald Trump’s steep tax cuts are implemented; however, this will not change the overall size of the US companies’ cash piles.

Tech companies like Apple, Microsoft, Google, Cisco, Oracle, Amazon, Facebook, and Alibaba are rolling in money, with Apple alone said to hold nearly $280 billion of cash, cash equivalents, and marketable securities as of end December 2017.³ Japanese companies, faced with more than two-and-a-half decades of stagnation, have been reporting huge corporate savings as domestic investments are not needed in a slow-growth or no-growth economy. Normally, households save and corporations borrow. But, in Japan even corporations save. There is thus a ‘savings glut’, but not restricted to Japan alone.⁴ A research study by three US economists showed that between 1980 and 2015, global corporate savings rose from below 10 per cent of global gross domestic product (GDP) to 15 per cent.⁵ This represents a massive shift in financial power from households to corporations as the overall global savings rate remained more or less the same. China, often called ‘the world’s factory’, had amassed $3.14 trillion in foreign exchange reserves by December 2017.⁶ While about $1.56 trillion represents China’s liabilities to the world, the rest of it is money awaiting investment opportunity.⁷ Little wonder, it wants to remake the world with its $1 trillion Belt and Road Initiative (BRI).⁸ But that investment is not going to happen overnight and so the savings glut will remain unused capital for a while.

Another estimate recorded the overall global corporate cash surpluses, including money available with venture capitalists and private equity funds, at over $7 trillion in 2014.⁹ This figure would surely have changed by now, but given the slow pace of pickup in investment demand, the dent in the cash pile is unlikely to be significant. In fact, it may have grown, with almost every tech company reporting a steady rise in free cash.

A Bain & Co. estimate published in Harvard Business Review found that global financial assets—which represent capital already invested or available for investment—could be more than 10 times the global GDP by 2020, up from 6.5 times global GDP in 1990.¹⁰

All these constitute various facets of a world awash with capital.

Now contrast this with what is happening with jobs as a result of large labour surpluses. The International Labour Organization’s (ILO) ‘World Employment Social Outlook: Trends 2017’ held the number of unemployed people around the globe at 201.1 million, while the same report for 2018, using improved methods of estimation, recorded this figure at 192 million while predicting a rise by 1.3 million in 2019, with more people entering the job market.¹¹

But even this large number of the unemployed, which constitutes 5.5 per cent of the global labour force, understates the problem. This is because the employment numbers include the 1.4 billion workers who are either self-employed or working within family-based units. The ILO calls this ‘vulnerable employment’, and the bulk of these ‘jobs’ are in South Asia, with India’s contribution being the highest. In 2015–16, the Chandigarh-based Labour Bureau’s Fifth Annual Employment–Unemployment Survey indicated that 41.3 per cent of India’s self-employed earned less than Rs 5,000 per month, and another 26.2 per cent less than Rs 7,500 per month.¹² This means over two-thirds of those ‘employed’ earned far below the per capita monthly income of Rs 7,774 for that year.¹³

Since the number of the vulnerably employed constitute 42 per cent of the total global workforce, and if we add the actual number of the unemployed (around 5.5 per cent), nearly half the people working or willing to work are essentially self-employed or unemployed, the former with poor quality jobs and almost no social security.

NITI Aayog, India’s new think-tank which replaced the earlier Planning Commission, produced a new three-year action agenda in early 2017 which underlines the same problem.¹⁴ The National Sample Survey Office (NSSO) has revealed formal unemployment (the employed comprise those with full-time and part-time jobs, including the self-employed) to be as low as around 5 per cent of the workforce for decades now. Even the most conservative definition of unemployment (current daily job status of workers) gives us numbers in the range of 5–6 per cent. The action agenda notes, ‘Underemployment and, therefore, low-wage employment rather than unemployment is the key challenge faced by India today’.¹⁵

In short, the world’s unemployment problem is not very much different from that of India.

The real problem of jobs lies in the interplay of two surpluses—excess capital and excess labour. Capital has to be invested in the right places and in building the right kinds of skills to take care of excess labour and joblessness. From a societal point of view, it is actually easy to misallocate capital, since excess capital that is available at low rates of interest or for speculative purposes will make automation cheaper and more attractive for most employers, especially in high-wage countries; and inflexible labour laws in many countries, including India, will make it easier to opt for labour-saving technologies.

A paradox will explain how policies to revive growth and expand jobs end up doing just the opposite. After the global financial crisis surfaced in 2008—a crisis brought on by financial whiz kids who did not understand the risks inherent in the sophisticated products they were creating, and where millions of subprime borrowers were lent money that they could not obviously repay—the world’s central banks have been offering near-zero interest rates and pumping in money to prevent another Great Depression. While this process was being slowly reversed in late 2017 and early 2018, especially in the US, the net result of super easy money for such long periods has been an even greater maldistribution of wealth, with stock markets hitting the stratosphere in the US, fattening the wealth of the very same finance whiz kids who brought the world down in 2008, thanks to excessive speculation and risky financial products. It is doubtful if the financial innovations, which allowed subprime borrowers to buy homes they could not afford and enabled banks and financial companies to securitize their iffy loans and pass them on to other investors, created any new jobs or incomes for anybody other than the ‘innovators’ themselves.

If money is offered at zero or very low cost, it becomes a spur to speculation before it gets invested in more job-creating avenues. Paper wealth running into trillions of dollars has been created in the US and elsewhere, concentrating wealth in the hands of a few, especially tech investors whose contributions to job creation may be marginal. A study by Michael Mandel of the Progressive Policy Institute in Washington, D.C., notes that today’s most valuable tech companies have produced fewer jobs than what the most valuable industrial companies did in the heyday of manufacturing in the 1970s.¹⁶ The top ten most valuable tech companies today employ 1.5 million people compared with 2.2 million employed by the top ten industrial companies in 1979. But the tech giants are rolling in cash today. Five of the top six cash-surplus US companies, namely Apple, Microsoft, Google, Cisco, and Oracle, are all tech companies, with GE (the sixth) being the lone exception.¹⁷

The world is now waiting for someone to create the right policy mix to put the capital accumulating at one end of the class spectrum to good use where it benefits larger sections of society. In short, the problem of job creation—or the lack of it—may be directly related to the problem of excess capital accumulation in fewer hands post the 2008 crisis.

The following chapters, focusing primarily on the job challenge in India, will also look at global trends to make arguments. While Chapter 1 takes an overarching view of what is driving jobs or shrinking them globally and in India, Chapter 2 looks at Indian jobs data and their limitations. Chapter 3 focuses on the specific factors, including technology leaps, that are a threat to jobs. Chapter 4 outlines the macro and micro factors impacting the Indian economy’s job-creating potential, while Chapter 5 takes a peek at where future jobs are likely to be. Chapter 6 looks at the impact of demographic changes and urbanization on economic growth and jobs; Chapter 7 underlines the importance of constant skilling to improve job prospects. Chapter 8 questions whether self-employment is the answer to poor job options, and Chapter 9 raises the possibility that in future more and more jobs may be temporary in nature—mere gigs. Chapter 10 discusses the idea of providing everyone with a basic income—universal basic income (UBI)—since job creation may be transient in nature. Chapter 11 provides a personal toolkit for individuals in the gig economy, and Chapter 12 wraps up the discussion on the challenges of the job market and what we need to do about it in India.

India’s problems may seem unique to us, but the world does not exactly run with a set of economic rules different than ours. Indian policies, whether on job creation or growth, borrow extensively from ideas floated and experimented with in the West. And Indian labour, whether exported to high-skill Silicon Valley or medium-to-low-skill Gulf regions, contributes its own dynamics to emerging global policies on protectionism, complicating the problem of reviving growth.

The solution to the job problem thus lies in rebalancing the roles of capital and labour, both of which are—at least temporarily—chronically in excess of needs.

1

THE NEW PESSIMISM OVER JOBS

‘Jobless growth.’

‘The new jobs crisis.’

‘Jobless future.’

‘Stagnant wages.’

‘Will robots take away your job?’

Such headlines are now standard fare in almost every part of the globe. In India, we regularly talk about how 12 million people are entering the job market every year, and how the demographic dividend we expected by having a large number of people in the working-age group of fifteen to sixty-five could now turn into a demographic nightmare as jobs growth slows down to a trickle. If the world has convinced itself that jobs are shrinking, and those that remain will gradually disappear as robots, artificial intelligence (AI), immigration, competition, business consolidation, or economic adversity destroy them, then in India we have developed that sinking feeling that the economy, whether growing at a fast or slow pace, is incapable of providing jobs to our millions. What we witness every day are agitations by different caste and community groups across states seeking job reservations in the government.

Worse, many have now come to believe that jobs and incomes must be artificially created by fiat. During 2004–14, when the United Progressive Alliance (UPA) government was in power, it launched a make-work programme called the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). However, this was a partly defeatist solution, as it implicitly acknowledged that growth alone would not provide enough jobs in rural India even when the economy was growing at 7–9 per cent annually between 2003 and 2008. The National Democratic Alliance (NDA), which came to power in 2014 riding the anti-incumbency wave against the corruption-ridden UPA, initially offered brave critiques of the MGNREGS. But faced with the reality of a huge private-investment shortfall and banks staggering under a pile-up of bad loans, it decided that discretion is the better part of valour and quietly expanded spending on the scheme after a few tweaks.

In the first two decades of this century, public policy in many countries has been grappling with the truth that jobs will not grow on their own; they need the large-scale diversion of government funds from development and infrastructure building to boondoggles, projects that may be both a waste of time and money. The Keynesian solution of digging ditches and filling them up, meant to mitigate a specific economic situation in the 1930s where aggregate demand was unable to revive due to simultaneously falling investment and consumption, is now the preferred solution to a jobs problem that may be more structural in nature. Even as we are unable to do away with make-work projects, a more radical idea is growing wings abroad, and echoes of this have been heard even in India: that people must be guaranteed a universal basic income (UBI), never mind what this will do to the work ethic and productivity cultures that have been the bedrock of past growth miracles.

In a 2016 referendum, the Swiss rejected the idea of UBI by an overwhelming majority, but that has not stopped other countries from experimenting with it.¹ Finland, after doing a pilot study, looks set to abandon UBI, but Ontario, in Canada, is testing the idea in three cities, and Utrecht in Netherlands is carrying out a pilot with 250 unemployed people.

Echoes of UBI have been heard in India too, though policymakers are less than gung-ho, worried as they are about its economic costs. The Economic Survey 2016–17, presented in January 2017, while muttering a bit about UBI’s likely fiscal costs, has, however, admitted that ‘the time has come to think of UBI for a number of reasons’ and indulged in some hyperbole: ‘It is a radical and compelling paradigm shift in thinking about both social justice and a productive economy. It could be to the twenty-first century what civil and political rights were to the twentieth.’²

This certainly is a paradigm shift. If the Great Depression of the late 1920s and early 1930s created conditions where the state had to provide safety nets for the unemployed poor, today the role of the state is on the verge of being expanded to hand out actual incomes without commensurate work being done to pay for it. The operative word is universal, and not selective targeting of the poor who may actually need the money. From being an enabler of growth and jobs by adopting appropriate policies, the state’s role is transcending to guaranteeing livelihoods that are increasingly delinked from the economy’s ability to generate those resources in the first place. Free-market economists, who want the state to play a smaller role in our lives, may be gnashing their teeth in agony. Karl Marx predicted that in the ultimate stage of communism, the state would wither away. It is a goal cherished by free marketers too, but they may find that twenty-first-century capitalism is going in the opposite direction. There is now much talk of ‘saving capitalism from the capitalists’, and there is a book with that precise title written by Raghuram Rajan and Luigi Zingales of the University of Chicago Booth School of Business.³ Capitalism, it is feared, may wither at the roots, unless there is some kind of redistribution on a scale that only socialists, Leninists, and communists once dreamt of. What a reversal of ideological predilections less than thirty years after capitalism was triumphantly declared victor with the fall of the Berlin Wall, the collapse of the Soviet Union, and the emergence of China as the latest fan of markets-led growth, albeit without the trappings of liberal democracy.

But leaving aside the ideological confusion, what is undeniable is a new pessimism about our economic future. If an economy works, its outcome should be visible in jobs and income growth. However, this is palpably missing in many countries, especially after the Global Financial Crisis of 2008. This was followed by the eurozone crisis a year later, which increased the rate of youth unemployment in southern Europe, adding to the worries about jobs. But even as the US saw jobs recovering after eight years of continuous monetary stimulus, where interest rates were kept near zero, it has been neutralized by a parallel development in rising automation levels across industries and sectors. Increasingly, even jobs that were considered safe are now being automated. And US median incomes have stagnated since 1979.⁴ The middle class is now stuck in a rut without any growth.

In 2013, Carl Frey and Michael Osborne, professors at the Oxford Martin School, the former a co-director of a programme on Technology and Employment, and the latter a researcher in machine learning (ML), put a number to the jobs likely to be affected by automation. Using a new method to calculate the probability of 702 detailed occupations in the US, they estimated that 47 per cent of current US jobs would be vulnerable to computerization and automation. They do not actually predict when this threat will materialize fully, but these 47 per cent of jobs fall in the high-risk category, meaning they could be automated over the next decade or so. In a paper on the future of employment, they conclude:

Our model predicts that most workers in transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations, are at risk. These findings are consistent with recent technological developments documented in the literature. More surprisingly, we find that a substantial share of employment in service occupations, where most US job growth has occurred over the past decades, are highly susceptible to computerisation.⁵

Not surprisingly, the business media has since been having a field day speculating on the jobs that will disappear by 2020 or twenty years from now, thanks to robots and automation.⁶

The future threat to employment in the services sector should worry India, for this is where job growth has been fastest. These include financial services, organized retailing, transport and taxi services, logistics and delivery, construction, software, back offices, and customer call centres in multiple industries. If job growth in services is not sustained, the overall scenario will be bleak, for neither agriculture nor manufacturing can be major areas for growth, despite the Modi government’s emphasis on ‘Make in India’. And even in areas where India’s competitive labour costs make manufacturing employment growth possible (as in apparel), our labour laws hinder an expansion of employment.

As things stand, agriculture is rapidly shedding jobs with the rise in farm mechanization. MGNREGS, which helped push up wages rates in the countryside, could well have been a factor accelerating mechanization of agriculture. Rating agency Crisil estimates that 37 million jobs in agriculture were shed between 2004–05 and 2011–12.⁷ Luckily, this loss was more than made up by the job growth of 52 million outside agriculture. McKinsey Global Institute, in a publication titled ‘India’s Labour Market’, suggests that a further 26 million jobs were lost in agriculture between 2011 and 2015, but this was compensated by a 33 million increase in non-farm employment.⁸

But here’s the worry: Crisil estimates that employment outside agriculture will increase by only 38 million by 2018–19, when the Modi government will have to seek re-election, and 12 million people will have to return to dependence on farming at suboptimal levels of productivity.⁹ With agriculture supporting or employing more than three times as many people as its share of GDP (around 14–15 per cent), this can be catastrophic. This partially explains why members of even landed castes like the Patidars of Gujarat, Marathas of Maharashtra, Jats and Gujjars of Haryana, Uttar Pradesh, and Rajasthan, and Kapus of Andhra Pradesh were out on the streets (between 2015 and 2017) demanding reservation in government jobs. The problem of underemployment and labour surplus in the agricultural sector is metamorphosing as a jobs crisis in various geographies of India.

Data from the 68th Round of the National Sample Survey Office (NSSO) show that in 2011–12, agriculture’s share of employment fell to 48.9 per cent for the first time in history. And this number can fall further in future.¹⁰ Over the last century, agriculture’s share of employment in the US fell from 41 per cent to just 2 per cent; India is now roughly where the US was a century ago in terms of agriculture’s share of jobs.

In India, jobs in agriculture may not fall as rapidly as in the