7 Jul 2014

What is the Real Problem : New Jobs Creation or Skills Development?

The emphasis on Skill development by the Government of India (GOI) leads to few basic question, what, if we will impart appropriate skills to youth. Would they be able to find a job? Even if they will find a job will they be able to continue on the kind of remuneration given to them.

India has more than 50% of its population below the age of 25 and more than 65% below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan; and, by 2030, India's dependency ratio should be just over 0.4. With the population growth rate of 1.41 % per year India will surpass China to become most populous country in the world. This data shows that we have enough Human resource which needs to be skilled so that they can become employable. Now the basic question remains same. We are making people employable but where are the jobs? Agriculture sector employs nearly half of the population followed by service sector followed by manufacturing sector.

Over 99% of all employing organizations in the US are small businesses. The 30 million small businesses in the U.S. account for 64% of newly created jobs (those created minus those lost). Jobs in small businesses accounted for 70% of those created in the last decade.

The proportion of Americans employed by small business versus large business has remained relatively the same year by year as some small businesses become large businesses.

(Source: http://en.wikipedia.org/wiki/Economy_of_the_United_States)

Unemployment-rate-in-IndiaIf we carefully analyze the situation in USA and India the problem is not skills but the problem is Jobs. The high unemployment rate of India raises two basic questions: - why are workers not training themselves to find jobs, and why aren’t industries/firms investing in upgrading the skills of their employees? It’s simple ‘ if there will be requirement, firms/industries will certainly invest in training the workers to enhance productivity and also workers will be willing to take up those trainings as there will be assured jobs’.  So the problem is not with the skills but to promote small businesses likewise USA. To provide conducive environment for the small businesses to prosper and create jobs. We, in India are blessed with biggest consumer market. We don’t have to look around the globe to find market but we are assured of it. If we will shift our focus on establishing more on labour intensive industries we will certainly be able to generate sustainable employment.

We will analyze the questions coming up in three aspects:-

       1.  No. of people entering into job market vs. No. of jobs created per year
          2.   Growth vs. Employment
Point No. 1

Recent study shows that between 2005-10, less than 3 million new jobs created in the economy as compared to more than 12 million people entering into job market every year. Planning Commission figures states that in other developing economies like SA, Brazil or China the manufacturing sector has grown much faster than the GDP, this has not happened in India where the share of the manufacturing sector in GDP has remained stagnated at 16 per cent. China has succeeded in transferring as many as 150 million people from agriculture to the manufacturing sector and has a 15 per cent share in world trade while India has a mere 1.4 per cent share. The Planning Commission is of the view that "India has not been able to fully leverage the opportunities provided by the dynamics of globalisation that resulted in a dramatic shift of manufacturing to developing countries over the last decade." A recent report in a newspaper states that even 1% growth in manufacturing can create 20-30 million jobs.

India-GDP-Growth-RateSo the question remains the same: - Despite of having assured market for almost everything our manufacturing growth rate has been stagnant which has led to less creation of jobs. The imbalance between No. of people entering into job market every year to the no. of jobs created per year is due to various reasons, low growth rate of manufacturing sector is being one of them.

Point No. 2

Economic growth is a function of capital investment and Incremental Capital-Output Ratio (ICOR). The total production can increase in two ways first by increase the output by employing more worker or by increasing the productivity per worker or both. In first decade of new century, growth rate of GDP has been 7.5 % (average) and contributions of employment and productivity have been 1.5 and 6 percent. For the country like India having surplus labor this kind of growth is unacceptable and results into high unemployment. When GDP grew at a rate of 4.7 %, between 1972-82, employment growth was 2.4 %. In next 10 years GDP growth is increased to 5 % but employment growth is declined to 2 %. It becomes more interesting between 2004-10, as GDP grew at a rate of 9 % but employment growth declined to 0.22 %. Employment elasticity of this period has almost became zero.

India-Inflation-vs-UnemploymentThis trend raises many questions related to policies and thinkers who determine our economic policy. There is an insignificant number of Jobs added every year to the economy but we are focusing on skill development of our youth, I don’t know why?Do you have any answer?

The trends of economic growth of many developed countries are now available. To cite the example of UK, in 1801 the shares of agriculture, industry and services in the national output were 32 percent, 23 percent and 45 percent respectively. In 1901, the shares were 6 percent, 40 percent and 54 percent respectively. In 2002, the shares were 1.5 percent, 23.5 percent and 75 percent respectively.  Employment and Growth by C Rangarajan.

Every developed nation has the same story. The manufacturing and service sector should grow at such a rate that it should employ people who are coming out of agriculture every year. This will increase the GDP of the country, Per capita Income as well as Purchasing Power parity of the country. The economic growth should not be jobless but should create jobs at a much faster rate than the people entering into workforce. If our policies will be designed in this way, there will be great relevance to the skill development programmes aimed at wage employment otherwise it will generate distress among youth.

How India can develop a robust manufacturing sector?

What are the different sectors, where government must emphasize more on job creation and parallel skill development for youth?

What are the major factors/reasons for high unemployment rate in the country? What should be done to reduce it effectively?

(Written by Bibhu Mishra, an alumnus of NIRD (National Institute of Rural Development), Hyderabad and currently working as a Project Coordinator at ICICI Rural Self Employment Training Institute,Jodhpur)



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