november 21, 2015 vol l nos 46 & 47 EPW Economic & Political Weekly38

book reviewS

An Account of India’s Employment and Labour Market Problems

Dipak Mazumdar

Labour, Employment and Economic Growth in India edited by K V Ramaswamy, New Delhi: Cambridge University Press, 2015; pp xviii + 324, Rs 895 (hb).

This excellent volume is the prod-uct of a seminar held at the Indira Gandhi Institute of Development

Research in September 2013 on the occasion of the silver jubilee of the insti-tute. The papers are of high quality and together give what is probably the single-most comprehensive account of India’s employment and labour market problems in the fi rst decade of the 21st century. The editor provides a clear account of the contents of the volume, but for the benefi t of those who are yet to open the book, it might be worth-while to provide a summary of the edi-tor’s summary.

The book is in two parts: the fi rst part analyses different aspects of the problems of employment and growth in I ndia, while the second focuses entirely on the impact of labour legislation on employment.

Jobless Growth and Poverty

India’s employment growth has been slow relative to the pace of gross domestic product (GDP) expansion, but J Thomas points out in Chapter 2 that there have been considerable fl uctuation in the fi ndings of successive N ational Sample Survey (NSS) rounds conducted between 1999–2000 and 2011–12, making the alarmist view of “jobless growth” an over-statement. The contours of the employ-ment problem are, however, clear. Non-agricultural growth was led not by manu-facturing but partly by construction in the period between 2004–05 and 2009–10, and mostly by services. The issue of the service sector leading growth both in terms of employment and labour pro-ductivity is analysed by Ajit Ghose in Chapter 3, while the problems of stunted growth of the manufacturing sector, and particularly of the l abour-intensive type, are analysed by Deb Das, Sen and Pilu Das in Chapter 6.

Hasan, Lama and Sengupta explore the connection between employment, poverty reduction and inequality in Chapter 4 and extend their analysis to interstate variations. Issues of discrimi-nation in the labour market continue to be important. Two of them—gender and employment status (casual–regular)—are discussed by Goldar and Aggarwal in Chapter 7. In the long run, the age composition of the population and the problem of social security will become more important as demographic changes, migration (both domestic and interna-tional) and India’s evolution to a modern state gather momentum. Some of these complicated issues are dealt with by S Narayan in Chapter 5.

Turning to Part II, the detailed discus-sions on labour legislations analyse both economic issues such as how the labour market has tried to adjust towards more fl exibility and legal issues based on court cases. Extensive material on these subjects covers a third of the book.

Given the wealth of the material, the reviewer can only hope to pick up a few issues for analysis in this review. I will, therefore, comment on those which have been the subjects of my own re-search, particularly since I was unable to present a paper at this important confer-ence due to ill-health.

Aggregate Employment Growth

I start with the issue of aggregate em-ployment growth. Thomas has dispelled the idea of jobless growth by drawing a ttention to the fi ndings of the last two NSS rounds. In our work covering the

earlier period of post-liberalisation growth, we confronted the conclusions of the special committee of the Planning Com-mission that “jobless growth” had been a feature of the 1990s as well (Mazumdar and Sarkar 2008: Chapter 4). We found that it was important to make a distinc-tion between primary and secondary workers, or in the terminology of the NSS—labour force measured by their usual principal status (UPS) and their usual secondary status (USS). This dis-tinction particularly affected the rural sector. While in the 1990s, the UPSS cer-tainly declined relative to GDP growth, suggesting that “jobless growth” had been a feature of the entire post-liberali-sation upturn, the case was different if we used the measure of UPS.

The importance of considering labour in its secondary status separately is important for several reasons. First, the way enumerators used the participation of workers in their secondary status could vary widely from round to round. Second, the welfare implications of a d ecline in the secondary participation could be quite different if it is accompa-nied by an increase in the UPS. Instead of signifying sluggishness in growth of job opportunities, it might indicate a downward shift of the “supply schedule” of l abour as income levels increase. Third, it might be partly caused by a shift in the “demand schedule” due to technical changes within agriculture rather than capital-intensive growth in non-agricultural sectors.1

In sum, it is highly problematic to use aggregate employment growth based on the UPSS as an indicator of labour mar-ket conditions, in addition to the fl uctua-tions noted by Thomas in the fi rst dec-ade of this century.

While the growth of employment in the aggregate based on the UPS and UPSS status of the labour force might differ, both measures show similar trends in the structure of employment in industrial groups. While the share of employment in agriculture has declined continuously, the increase in the share of employment in non-agricultural sectors has been led not by manufacturing but partly by

BOOK REVIEW

Economic & Political Weekly EPW november 21, 2015 vol l nos 46 & 47 39

construction, and more importantly by services. The failure of India to exploit its vast resources of cheap labour, and more signifi cantly the falling labour in-tensity in the manufacturing sector, is discussed by Das et al in Chapter 6, and the issue of the leading role of the ter-tiary sector in employment growth is examined by Ajit Ghose in Chapter 3. We will comment on these two issues in turn.

Declining Labour Intensity

Das et al confi ne their analysis to the “organised sector” of Indian manufac-turing, covered in the Annual Survey of Industries (ASI). This, of course, leaves out a large amount of non-household manufacturing (the so-called directory manufacturing establishment (DME) sec-tor employing a signifi cant proportion of wage workers),2 which was found to have employed only slightly fewer peo-ple than the ASI sector (Mazumdar and Sarkar 2008: 60). Because of the lax en-forcement of the law, a considerable pro-portion of DME units then exceeded the legal limit of employing more than six to nine workers. These enterprises domi-nated the labour-intensive manufactur-ing in India—operating with low tech-nology and characterised by low labour productivity—and have not decreased their employment share over the two decades of this century. This phenome-non has to be emphasised in conjunction with the fi nding of Deb et al that labour-intensity in ASI sector has de-clined over time.

Taking the DME and ASI sectors together, the distribution of manufacturing em-ployment in India has been strikingly dualistic throughout—one modal group employing six to nine workers, and the more than 500 workers—with a conspic-uous “missing middle.” The labour pro-ductivity difference between the two modal groups has also been huge—of the order of 10:1, signifying the persist-ing difference in technology. The signifi -cance of the “missing middle” for the healthy development of manufacturing has been discussed at length in our work (Mazumdar and Sarkar 2013). The con-trast with the East Asian model of growth is striking. In these countries,

the small and medium enterprise (SME) sector took a major role in the growth process, and while many small fi rms grew into medium size fi rms, they were instrumental in creating a virtuous c ircle of skill formation and productivity growth.

The inability of small enterprises in India to graduate into medium-sized ones is a major labour market problem that requires attention. Clearly, this c eiling had its origin in the reservation policy for industries adopted by the gov-ernment post independence. But the phenomenon seems to have survived the dismantling of that policy even several decades after liberalisation. A popular view has been that labour market regu-lations, which bite after a certain size is attained by fi rms, constitute a critical factor in the persistence of the phenom-enon of the “missing middle.” Our sur-vey of a group of small enterprises, how-ever, found that labour regulations did not come anywhere near the top of the list of constraints (discouraging gradua-tion) cited by the respondents. Problems of infrastructure, adequate power sup-ply and, especially, availability of land for expansion were the factors more f requently mentioned. The last point suggests an important contrast with the East Asian development model: the rela-tive sluggishness of spatial decentralisa-tion of manufacturing in India.3

Furthermore, India contrasts with East Asia in failing to develop a symbi-otic relationship between the large and small-medium enterprises in which the larger and more mechanised fi rms transferred skills to the latter, who often supplied them with standardised parts of requisite quality for their fi nal output. Another relevant point is that—as dis-cussed in several papers in Part II of the book under review—labour laws do not create as much rigidity as sometimes assumed. We have already seen that the legal limit regarding the employ-ment size of the DME sector has not been r igidly enforced. In the ASI sector, Saha has pointed out in Chapter 8 that “fl exibility was offered in practice” by the Contract Labour (Regulation and Abolition) Act, 1970 “which allowed fi rms to hire workers on contract, who

can be fi red at will and kept out of unions” (p 226).

Services-led Growth and Employment

In the absence of manufacturing, India’s employment growth in non-agricultural sectors has been led by the tertiary sec-tor. One might be tempted to speculate that this might be due to the well-publi-cised growth of telecom services and its role in exports. Ajit Ghose in Chpater 3 has, however, conclusively proved that this is not so. Using input–output tables, Ghose concludes: “The contribution of growth of services exports to growth of services output was just 6 per cent for the period 1981–2000, which increased to 13 per cent in 2000–10” (p 68).

The dominance of services in Indian growth cannot be supported by the hy-pothesis put forward by some writers. This hypothesis traces the phenomenon to the fact that there is a worldwide trend in modern manufacturing to add a growing component of services to its fi n-ished product. Ghose’s calculations from the input–output exercise show that “in-termediate demand (including splinter-ing) for services from industry and agri-culture has been small and declined” over time (p 68). He contends that “The rapid growth of services was clearly sustained very largely by the growth of d omestic fi -nal demand” (p 68).

It has been well known in literature that in low-income countries consumer demand has a large component of ser-vices, since bulk-breaking and selling in small lots are so important for low- income consumers (Bauer and Yamey 1951). But the peculiarity of the Indian service sector is that the value added per worker is not unduly low as this effect would tend to produce. In fact, the rela-tive value added per worker in the ter-tiary sector as a whole was way above

available at

Ideal Books26/2082, Tutors Lane

Secretariat StatueThiruvananthapuram 695001,

Kerala

BOOK REVIEW

november 21, 2015 vol l nos 46 & 47 EPW Economic & Political Weekly40

that in both manufacturing and con-struction in 2009–10, and this has in-creased over time. The solution to this paradox is provided by our hypothesis, developed elsewhere, that there is a product market segmentation in the I ndian consumer markets such that ser-vices catering to low-income consumers coexist with other services with a ttributes demanded by higher income groups, and the juxtaposition of the two catego-ries pulls up the mean value added per worker. The point becomes even clearer when we break down the composition of the tertiary sector. Information techno-logy (IT) is not the only activity generat-ing high income jobs in the tertiary sector. The IT sub-sector generated less than 1% of total employment in 2009–10, and the entire subgroup of business and fi nancial services accounted for only a third of the total tertiary employ-ment (Mehta and Sarkar 2010). The other sub-sectors, particularly trans-portation, communications, and hotels and restaurants, also began to create high income jobs.

Product market segmentation is, in fact, associated with the inequality in

the distribution of consumer incomes as both cause and effect. Our research has established that the distribution of per capita consumption expenditure among households in the tertiary sec-tor is higher than in the other indus-trial s ectors. Further, the contribution of the tertiary sector to overall inequal-ity is higher than the other two sectors.

The increasing inequality in income is one of the reasons why the elasticity of poverty reduction is lower in India than in many other Asian econo-mies, as discussed by Hasan et al in Chapter 4. One of the few topics on which the reviewer would have liked to have had a more d etailed discussion in this admirable v olume is regarding details of the increase in income inequality in India. As we know, a sum-mary measure like the Gini coeffi cient leaves a lot of further questions un-answered about the experience of dif-ferent parts of the Lorenz curve. But this is not a criticism of the project or the volume. As the summary at the beginning of this review shows, there are many other important topics exam-ined in the book which the reviewer

has been unable to discuss due to lack of space.

Dipak Mazumdar (dipakmazumdar1932@gmail.com) is a visiting professor at the Institute of Human Development, Delhi. He taught at the London School of Economics and the University of Toronto and also worked with the World Bank.

Notes

1 Mazumdar and Sarkar suggested that while in the early 1980s agriculture responded in the short run to the second wave of the Green Rev-olution by a lift in the participation of females in secondary status, it gradually shifted to the use of more regular workers as the demand for l abour stabilised at higher plateau.

2 The legal defi nition of the DME sector is that it contains units with 6–9 workers, with at least one full-time hired worker.

3 The case of India and those of selected Asian countries have been discussed at length in M azumdar and Sarkar (2013).

References

Bauer, Peter T and Basil S Yamey (1951): “Economic Progress and Occupational Distribution,” Eco-nomic Journal, Vol 61, No 244, pp 741–55.

Mazumdar, Dipak and Sandip Sarkar (2008): Glo-balization, Labor Markets and Inequality in I ndia, London and New York: Routledge, P aperback, 2011.

—(2013): Manufacturing Enterprise in Asia: Size Structure and Economic Growth, London and New York: Routledge.

Mehta, Balwant Singh and Sandip Sarkar (2010): “Income Inequality in India: Pre and Post R eform Period,” Economic & Political Weekly, Vol XLV, No 37, pp 45–55.

www.sagepub. in

Order now and GET 20% OFF! To avail discount write to marketing@sagepub.in with code EPWNOV0315!

Must-haves from SAGE!

Trade in Services and Trade AgreementsPerspectives from India and the European UnionEdited by Arpita Mukherjee, Rupa Chanda and Tanu M Goyal

on services trade between two economies that

2015 • 476 pages • Hardback: `1,095 (978-93-515-0324-8)

My Myanmar Years

Preet Malik

2015 • 260 pages • Paperback: `495 (978-93-515-0627-0)

An ambassador’s account of India’s relations with one of her oldest engaging neighbours—Myanmar.

A comprehensive assessment of how trade complementarities and agreements help facilitate trade in services between India and the European Union