Job Creation In India - A Perspective

A newspaper discussion on the topic of job creation in India has troubled and intrigued me for the most of last week. I am not an economics expert, but such subjects intrigue me.

What was the debate all about?

Well, some time last year, our very own Rahul Gandhi visited UC Berkeley (University of California at Berkeley). Rahul has an uncanny and unexplained habit of discussing ideas, related to India, on foreign soil.

A snippet of his speech is as below.

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At the heart of this powerful engine which India has built with its blood, sweat and bare hands since 1947, are jobs and economic growth. No amount of growth is enough for India if it’s not accompanied by the creation of jobs. It doesn’t matter how fast you grow. If you are not creating jobs, you are not actually solving the problem. So the central challenge of India is jobs. Roughly 12 million young people, 12 million, enter the Indian job market every year. 

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Currently we are not producing enough jobs. 33,000 new youngsters are joint the job market every single day and yet the government is only creating 500 jobs a day. 

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Here, Rahul was asserting that 12 million people enter the job market every year and the number of jobs created are not sufficient. Needless to say, this becomes a hot potato as far as politics is concerned.

You can read his full speech here.

What happened later?

The story of insufficient job creation has been discussed in threads and pockets since then. There are a group of political parties who agree with Rahul's assessment, while the ruling BJP think otherwise.

Coming to the rescue of the GOI was Arvind Panagariya. Well, he is an established economist and the ex vice-chairman of the Niti Aayog (a GOI think tank).

In an article in the Economics Times on 2 May 2018, Arvind puts up the below thought :-

• Around 15 Million people enter the 15-64 age bracket every year, but all of them don't enter the labor market because the Labor Force Participation Rate is low - around 54%

• The number of people entering the job market every year is close to 8.5 Million (approx 15 Million * 55%), a far cry away from the 12 Million number put up by RG.

You can read his entire blog too.

Needless to say, this article was picked up by magazines supporting the current government, which proudly proclaimed - Panagariya Brings Clarity To Debate On Jobs: We Don’t Have To Create 12 Million Jobs Annually

What are my views?

First of all, lets understand LPFR.

The labor force participation rates is calculated as the labor force divided by the total working-age population. The working age population refers to people aged 15 to 64. (Refer this site)

And yes, there are some mistakes (small and large) in views expressed by Rahul and Arvind.

My proposition go as below.

We can have a careful assessment of the population of the country in the decades under consideration. The info is as below.

Year	Population (in Million)
1950	361
1960	449
1970	553
2000	1053
2010	1231
2015	1309

A person is considered as a potential candidate for being a part of the working age population if he/she is between 15 to 64 years of age.

The population data reveals the below.

• Between 2000 and 2015, the population of the country grew by approx 17 Million per year. This means, almost 17 Million people will enter the working age population between 2015 and 2030.

• Between 1950 and 1970, the population of the country grew by approx 9.6 Million per year. This means, almost 9.6 Million people will exit the working age population between 2015 and 2030 (1950 + 65 years = 2015).

• Both these data points indicate that the net addition of the people to the working age population is approx 7.4 Million ( 17 - 9.6)

RG indicated that approx 12 Million people enter the job market every year. He is assuming a LPFR of approximately 70%, considering that 17 Million people are added to the working age every year. The aspirational assumption of LPFR at 70% is a good sign.

AP's assessment of 8.5 Million people entering the job market every year is grossly wrong. His first mistake - assuming a working population addition of 15 Million per year instead of 17 Million per year. His second mistake - he assumed a LPFR of 54% considering the current and historical data. 

India is an aspirational young country and we should target a LPFR which is prevalent in developed countries in the world. It will be worthwhile to note that the EU sees a LPFR of 73.2%  - which means that if there are 100 people in the 15-64 age group, around 73 people are a part of the active labor force. 

Net net, things will look like the below for the next 15 years :-

• Around 17 Million people are added to the working age population every year.

• Ideally, around 70% of them should be a part of the labor force. With this, almost 12 Million people should get the opportunity to be included in the labor force every year.

• The net addition to the working age population is approximately 7.4 Million per year. 

• Approx 5.2 Million (7.4 * 70%) new jobs have to be definitely created every year.

• 6.8 Million may get accommodated in the currently available jobs.

• Assuming some of the old jobs go out of vogue ( say 33% of the 6.8 Million), another 2.2 Million new jobs should be created every year. 

• This means around 7.4 Millions new jobs are to be created every year.

Summary :-

• 17 Million people will enter the working age population every year, for the next 15 years.

• Of these, 12 Million people should enter the labor force every year, for the next 15 years. At least 12 million people should get jobs in formal, informal and semi-formal sectors of the economy..

• 7.4 Million new jobs are to be created every year, for the next 15 years.

For a successful and a growing country, healthy job creation is very necessary. RG has broadly understood the expectations of the future, while AP has taken a constricted view of the subject.

I certainly hope that the jobs created in the future will give adequate income and stability to the population which comes of age in the next 15 years.