An Account of Indias Employment

and Labour Market Problems

Dipak Mazumdar

his excellent volume is the product of a seminar held at the Indira

Gandhi Institute of Development
Research in September 2013 on the
occasion of the silver jubilee of the institute. The papers are of high quality and
together give what is probably the
single-most comprehensive account of
Indias employment and labour market
problems in the first decade of the 21st
century. The editor provides a clear
account of the contents of the volume,
but for the benefit of those who are yet
to open the book, it might be worthwhile to provide a summary of the editors summary.
The book is in two parts: the first part
analyses different aspects of the problems
of employment and growth in India, while
the second focuses entirely on the impact
of labour legislation on employment.
Jobless Growth and Poverty
Indias 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 fluctuation in the
findings of successive National Sample
Survey (NSS) rounds conducted between
19992000 and 201112, making the
alarmist view of jobless growth an overstatement. The contours of the employment problem are, however, clear. Nonagricultural growth was led not by manufacturing but partly by construction in
the period between 200405 and 2009
10, and mostly by services. The issue of
the service sector leading growth both
in terms of employment and labour productivity is analysed by Ajit Ghose in
Chapter 3, while the problems of stunted
growth of the manufacturing sector, and
particularly of the labour-intensive type,
are analysed by Deb Das, Sen and Pilu
Das in Chapter 6.
38

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

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 discrimination in the labour market continue to
be important. Two of themgender and
employment status (casualregular)
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 international) and Indias 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 discussions on labour legislations analyse both
economic issues such as how the labour
market has tried to adjust towards more
flexibility 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 research, particularly since I was unable to
present a paper at this important conference due to ill-health.
Aggregate Employment Growth
I start with the issue of aggregate employment growth. Thomas has dispelled
the idea of jobless growth by drawing
attention to the findings of the last two
NSS rounds. In our work covering the
november 21, 2015

earlier period of post-liberalisation growth,

we confronted the conclusions of the
special committee of the Planning Commission 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 distinction between primary and secondary
workers, or in the terminology of the
NSSlabour force measured by their
usual principal status (UPS) and their
usual secondary status (USS). This distinction particularly affected the rural
sector. While in the 1990s, the UPSS certainly declined relative to GDP growth,
suggesting that jobless growth had
been a feature of the entire post-liberalisation 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
decline in the secondary participation
could be quite different if it is accompanied 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 labour 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 market conditions, in addition to the fluctuations noted by Thomas in the first decade 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
vol l nos 46 & 47

EPW

Economic & Political Weekly

BOOK REVIEW

construction, and more importantly by

services. The failure of India to exploit
its vast resources of cheap labour, and
more significantly the falling labour intensity in the manufacturing sector, is
discussed by Das et al in Chapter 6, and
the issue of the leading role of the tertiary 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 confine their analysis to the
organised sector of Indian manufacturing, 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) sector employing a significant proportion of
wage workers),2 which was found to
have employed only slightly fewer people than the ASI sector (Mazumdar and
Sarkar 2008: 60). Because of the lax enforcement of the law, a considerable proportion of DME units then exceeded the
legal limit of employing more than six to
nine workers. These enterprises dominated the labour-intensive manufacturing in Indiaoperating with low technology and characterised by low labour
productivityand have not decreased
their employment share over the two
decades of this century. This phenomenon has to be emphasised in conjunction
with the finding of Deb et al that
labour-intensity in ASI sector has declined over time.
Taking the DME and ASI sectors together,
the distribution of manufacturing employment in India has been strikingly
dualistic throughoutone modal group
employing six to nine workers, and the
more than 500 workerswith a conspicuous missing middle. The labour productivity difference between the two
modal groups has also been hugeof
the order of 10:1, signifying the persisting difference in technology. The significance of the missing middle for the
healthy development of manufacturing
has been discussed at length in our work
(Mazumdar and Sarkar 2013). The contrast with the East Asian model of
growth is striking. In these countries,
Economic & Political Weekly

EPW

november 21, 2015

the small and medium enterprise (SME)

sector took a major role in the growth
process, and while many small firms
grew into medium size firms, they were
instrumental in creating a virtuous
circle 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
ceiling had its origin in the reservation
policy for industries adopted by the government 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 regulations, which bite after a certain size is
attained by firms, constitute a critical
factor in the persistence of the phenomenon of the missing middle. Our survey of a group of small enterprises, however, found that labour regulations did
not come anywhere near the top of the
list of constraints (discouraging graduation) cited by the respondents. Problems
of infrastructure, adequate power supply and, especially, availability of land
for expansion were the factors more
frequently mentioned. The last point
suggests an important contrast with the
East Asian development model: the relative sluggishness of spatial decentralisation of manufacturing in India.3
Furthermore, India contrasts with
East Asia in failing to develop a symbiotic relationship between the large and
small-medium enterprises in which the
larger and more mechanised firms
transferred skills to the latter, who often
supplied them with standardised parts
of requisite quality for their final output.
Another relevant point is thatas discussed in several papers in Part II of
the book under reviewlabour laws do
not create as much rigidity as sometimes
assumed. We have already seen that
the legal limit regarding the employment size of the DME sector has not
been rigidly enforced. In the ASI sector,
Saha has pointed out in Chapter 8 that
flexibility was offered in practice by
the Contract Labour (Regulation and
Abolition) Act, 1970 which allowed
firms to hire workers on contract, who
vol l nos 46 & 47

can be fired at will and kept out of

unions (p 226).
Services-led Growth and
Employment
In the absence of manufacturing, Indias
employment growth in non-agricultural
sectors has been led by the tertiary sector. One might be tempted to speculate
that this might be due to the well-publicised growth of telecom services and its
role in exports. Ajit Ghose in Chpater 3
has, however, conclusively proved that
this is not so. Using inputoutput tables,
Ghose concludes: The contribution of
growth of services exports to growth of
services output was just 6 per cent for
the period 19812000, which increased
to 13 per cent in 200010 (p 68).
The dominance of services in Indian
growth cannot be supported by the hypothesis 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 finished product. Ghoses calculations from
the inputoutput exercise show that intermediate demand (including splintering) for services from industry and agriculture 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 domestic final demand (p 68).
It has been well known in literature
that in low-income countries consumer
demand has a large component of services, since bulk-breaking and selling in
small lots are so important for lowincome 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 relative value added per worker in the tertiary sector as a whole was way above

available at

Ideal Books
26/2082, Tutors Lane
Secretariat Statue
Thiruvananthapuram 695001,
Kerala
39

BOOK REVIEW

that in both manufacturing and construction in 200910, and this has increased over time. The solution to this
paradox is provided by our hypothesis,
developed elsewhere, that there is a
product market segmentation in the
Indian consumer markets such that services catering to low-income consumers
coexist with other services with attributes
demanded by higher income groups,
and the juxtaposition of the two categories pulls up the mean value added per
worker. The point becomes even clearer
when we break down the composition of
the tertiary sector. Information technology (IT) is not the only activity generating 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 financial services accounted for
only a third of the total tertiary employment (Mehta and Sarkar 2010). The
other sub-sectors, particularly transportation, 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 sector is higher than in the other industrial sectors. Further, the contribution
of the tertiary sector to overall inequality 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 economies, 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 detailed discussion
in this admirable volume is regarding
details of the increase in income
inequality in India. As we know, a summary measure like the Gini coefficient
leaves a lot of further questions unanswered about the experience of different 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 examined 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

2
3

Mazumdar and Sarkar suggested that while in

the early 1980s agriculture responded in the
short run to the second wave of the Green Revolution 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
labour stabilised at higher plateau.
The legal definition of the DME sector is that it
contains units with 69 workers, with at least
one full-time hired worker.
The case of India and those of selected Asian
countries have been discussed at length in
Mazumdar and Sarkar (2013).

References
Bauer, Peter T and Basil S Yamey (1951): Economic
Progress and Occupational Distribution, Economic Journal, Vol 61, No 244, pp 74155.
Mazumdar, Dipak and Sandip Sarkar (2008): Globalization, Labor Markets and Inequality in
India, London and New York: Routledge,
Paperback, 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
Reform Period, Economic & Political Weekly,
Vol XLV, No 37, pp 4555.

Must-haves from SAGE!

An ambassadors account of Indias relations with one of
her oldest engaging neighboursMyanmar.

My Myanmar Years
$'LSORPDW
V$FFRXQWRI,QGLD
V
5HODWLRQVZLWKWKH5HJLRQ
Preet Malik

7KH,QGLDQOHJHQGDU\WH[WVFDOOLW
6XYDUQD%KXPLRUWKH*ROGHQ/DQG
LWVFRORQLDOPDVWHUVFDOOHGLW%XUPD
DQGLWVPLOLWDU\JRYHUQPHQWUHQDPHG
LWDV0\DQPDU:KDWHYHUWKHQDPH
PLJKWEHWKHFRXQWU\KDVORQJEHHQ
LQ,QGLD
VFXOWXUDOKLVWRULFDODQG
SROLWLFDOFRQVFLRXVQHVV(VVHQWLDOO\
DIRUHLJQSROLF\GRFXPHQWWKLVERRN
GHDOVLQGHWDLOZLWKWKHJHRVWUDWHJLFLPSRUWDQFHDQGUHOHYDQFH
RI0\DQPDUWR,QGLD
V/RRN(DVW3ROLF\DVQDUUDWHGE\,QGLD
V
DPEDVVDGRUWR0\DQPDUGXULQJq

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

Order now and GET

A comprehensive assessment of how trade complementarities and

agreements help facilitate trade in services between India and the
European Union

Trade in Services and

Trade Agreements
Perspectives from India and
the European Union

Edited by Arpita Mukherjee, Rupa Chanda

and Tanu M Goyal
$oUVWRILWVNLQGLWDGGUHVVHVSROLF\LQLWLDWLYHV
on services trade between two economies that
DUHDFWLYHO\HQJDJHGLQWUDGHDJUHHPHQWV,W
HVWDEOLVKHVWKDWWKH%URDG%DVHG7UDGHDQG
,QYHVWPHQW$JUHHPHQW%7,$LIVLJQHG ZLOOEH
,QGLD
VoUVWDJUHHPHQWZLWKDPDMRUDGYDQFHG
UHJLRQDOEORFDQGDPDMRUWUDGLQJSDUWQHUDQGWKH(8
VoUVWDJUHHPHQWZLWKD
ODUJHHPHUJLQJPDUNHW,WLVWKHUHIRUHOLNHO\WRKDYHDIDUUHDFKLQJLPSDFWRQ
RWKHUODUJHWUDGLQJQDWLRQVVXFKDVWKH8QLWHG6WDWHVDQG&KLQD
2015 476 pages Hardback: `1,095 (978-93-515-0324-8)

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

w ww. sage pub.in

40

november 21, 2015

vol l nos 46 & 47

EPW

Economic & Political Weekly