India experienced a job growth of 3% per annum in the 1970s at a time when our economy grew at 3-3.5% per annum thus making for employment elasticity pretty close to unity but over the last 3 decades our economy grew at over 5-8% per annum but our job growth has been close to 1% per annum thus marking an employment elasticity close to 0.4 in the 90s which precipitously has fallen to 0.1 today. This in simple terms is what jobless growth is all about — employment growth not matching the GDP growth, a conundrum which rightly baffles even some economists.
Economists well-versed in fathoming the depths of this seeming oxymoronic phenomenon are wont to describe it in terms of labour obsolescence, as it were. One is familiar with technology becoming obsolete with the state of the art leaving the earlier one far behind, costlier in terms of production cost and quality often inferior, so much so that those who still cling to it are outcompeted in the marketplace. Much the same has been happening to labour. Consider the dawn of the 20th century, when automobiles replaced the horse and buggy. The companies that made buggies practically had to close shop except to the extent of catering to those harking back nostalgically to the good old, leisurely days. The people who made buggies were no longer employable and needed to acquire new, more sophisticated skills in order to assemble complicated automobiles with engines and drive trains. Workers who began in the auto industry were more skilled than cart makers, making it hard for former buggy workers to get a start. Important as skilling is, reskilling is even more important when the state of the art overtakes and overruns a product belonging to the previous generation. The turnover from automobiles obviously was a great deal more than from horse and buggies, thus enhancing the GDP but leaving the employees from the old business unemployed. This is, in simple terms, jobless growth. In the none-too-distant future the automobile industry is likely to witness another tectonic shift — electric vehicles rendering petrol-driven vehicles obsolete. It hasn’t happened so far because electric cars are far more expensive, so much so that both the versions are coexisting. But when electric cars become the norm, traditional autoworkers will have to reskill themselves. Till then they would remain unemployed even as the GDP leapfrogs.
The Indian IT majors TCS, Infosys and Wipro must be lauded for not letting this happen in their industry by giving extensive and intensive pre-job or induction training, often spanning six months. To be sure, Infosys founder Narayana Murthy made no secret of his displeasure with this avoidable cost. He openly said Indian graduates were unemployable. Of course, the young graduates aren’t to blame for the expenditure on induction training to make them employable, but the system of education that is not rooted in specifics is to blame. In Germany, industry-university nexus exists so that education can be tailored to suit existing and upcoming technology.
India’s jobless growth is also due to manufacturing languishing at 13% of the GDP in 2022 and people hurtling back to farming at the height of the Covid epidemic. It would take a tremendous manufacturing push to create massive employment opportunities. Banking activity may be on the upswing but modern banking is drifting towards branchless with phone and net banking largely adding to the banking industry’s contribution to the GDP without creating concomitant employment opportunities. Remember a typical PSB branch used to have about 50 staff members whereas now the technology-driven, do-it-yourself banks hardly have 5 to 10 staffers in their branches.
The International Monetary Fund also concedes that jobless growth, though seemingly oxymoronic, is a reality. Following the 2008 US financial crisis which was worse than the great depression of 1930, the economy slowly started climbing back but by pulling up its socks and cutting costs. Inevitably the axe continues to fall on labour. The likes of Amazon and Google mercilessly cut jobs through layoffs, even while growing thanks to automation and online operations.
The gig economy too is confounding matters. Gig workers typically aren’t borne on the rolls of any organisation but nevertheless contribute immensely to the economy and GDP growth. Cab drivers in India are doing reasonably well thanks to Ola and Uber. Delivery boys of Swiggy and Zomato crisscross the city roads and earn their keep. Carpenters, electricians and plumbers settle for the service charges fixed by app-based service aggregators, and sharing the spoils with them. That way they remain busy throughout the day. So, technology has changed the way we hire our workers and how workers see merit in becoming independent. Indeed, shape up or ship out is what technological innovations spell. All these things explain the mystery of jobless growth of economies all over the world. Thus, the current Indian unemployment rate of 3.7% is not all that alarming, as simultaneously the gig economy is also taking firm root.
Foxconn’s reliance on robots for manufacturing sums up how jobless growth is inevitable as we embrace technology and automation for what was earlier done by manual labour. The way forward is reskilling and not getting caught in the time warp insofar as education is concerned. Education must be contemporary but also futuristic, so that students are not left imbibing a dated technology. This is all the more so in engineering education.
S Murlidharan is a freelance columnist and writes on economics, business, legal and taxation issues
