Calling underemployment serious problem, top pro-Modi economist dismisses jobless growth as a statistical issue
Even as taking issue with those who talk of "jobless growth", well-known pro-Modi economist Arvind Panagariya, who resigned as vice-chairman of the Planning Commission's new avatar, Niti Ayog, has said, there is something fundamentally wrong with the way in which employment in India, is calculated, insisting, "though the unemployment rate in India is low, the country does suffer from a serious long-term underemployment problem".
According to Panagariya, who resigned from his Government of India saying that he wanted to return to the academic world in the Columbia University, where he is professor, "Given the limited availability of social safety nets, nearly all adults in India must engage in some economic activity to survive."
"Consequently, underemployment of a disproportionately large part of the workforce... continues", calling it "a key weakness needing urgent redress", Panagariya says, in India "there is not enough economic activity to genuinely employ most workers full-time", adding, this is one major reason why "often two or more workers are found performing tasks that one worker working full time at the normal level of effort could perform."
"As an example, if a plumbing job is to be done, frequently, two or more workers would show up", he says, adding, "And as one of the workers performs the job, the others simply watch him do it. To put the matter differently, a longstanding problem afflicting India since before Independence has been the lack of rapid growth in high-productivity, high wage jobs for low-skilled or unskilled workers."
According to Panagariya, "In nearly all countries that have achieved rapid transformation in the post-Second-World-War era, such as Singapore, Taiwan, South Korea and China, these jobs have been created by export-oriented labour-intensive industries such as apparel, footwear, furniture and other light manufactures."
As for India, he says, "with these industries highly fragmented, far too many workers remain self-employed or employed in tiny enterprises where their labour is grossly underutilized. Growth in the country has been driven by capital- and skilled labour-intensive sectors such as auto, auto parts, two wheelers, machinery, petroleum refining, telecommunications, pharmaceuticals, information technology and finance, which create few jobs for the unskilled or low skilled."
Jobless growth a statistical problem
Ironically, despite the sharp focus on underemployment, which he dismisses in just two paragraphs in his new 36-page paper, "India: Three and a Half Years of Modinomics", the first since he quit his job last year, Panagariya says the whole talk of jobless growth in India because of "government policies" is based on "media reports of worker layoffs and employment creation estimates from a quarterly enterprise survey conducted by the Labor Bureau of the Ministry of Labour and Employment. "
Believes Panagariya, "Both sources of information suffer from serious problems", adding, "Few informed analysts would disagree that any conclusion regarding job creation on the basis of media reports is patently unscientific. Indeed, since bad news sells a lot better than good news, it is job losses that get disproportionately greater play in the media."
As regards the enterprise survey, Panagariya says, "In India, it too suffers from serious problems. This is because a very large proportion of the labor force in India is either self-employed or employed in very small enterprises that typically do not form a part of the enterprise surveys."
He says, "If self-employed workers find a job in a larger enterprise covered by the enterprise survey, no change in the total employment would have taken place and yet the survey would report increased number of jobs. Symmetrically, if a worker is laid off from a large enterprise and finds employment in a small enterprise that is not covered by the enterprise survey, we would conclude that the number of jobs has fallen despite no net change in this number."
Further criticizing enterprise survey for confining itself to enterprises with 10 or more workers in a selected set of sectors", Panagariya says, "In India, these enterprises account for a very small proportion of employment. Even when we include all sectors, according to the Sixth Economic Census, conducted in 2013-14, enterprises with 10 or more workers account for only one-fifth of non-agricultural workers. By excluding the selfemployed and employees of enterprises with less than ten workers each, the survey fails to cover four-fifths of non-agricultural labour force."
"This exclusion means that nothing from the survey allows us to say anything about the total employment", he says, adding, Claims of jobless growth by critics thus lack valid empirical foundations... India has conducted these surveys every five years since 1972-73 and they do not support the hypothesis of jobless growth. The unemployment rate was 4.9% in 2013-14 and 5% in 2015-16."
Notes the top economist, "As a purely accounting matter, growth in the GDP is the result of growth in inputs and productivity. Studies overwhelmingly show that in the best of times, productivity growth does not contribute more than 3-percantage points to GDP growth. Therefore, a substantial proportion of the 7.5% GDP growth experienced during the last three years has to have been contributed by growth in capital and labour".
Based on this, he adds, "Recognizing that growth in capital has seen a slight deceleration during the past three years, as a matter of pure arithmetic, labor input growth could not have been any slower than during the earlier years of rapid growth. Criticisms of jobless growth are thus seen to be without sound empirical or logical foundation."
Believes Panagariya, "Both sources of information suffer from serious problems", adding, "Few informed analysts would disagree that any conclusion regarding job creation on the basis of media reports is patently unscientific. Indeed, since bad news sells a lot better than good news, it is job losses that get disproportionately greater play in the media."
As regards the enterprise survey, Panagariya says, "In India, it too suffers from serious problems. This is because a very large proportion of the labor force in India is either self-employed or employed in very small enterprises that typically do not form a part of the enterprise surveys."
He says, "If self-employed workers find a job in a larger enterprise covered by the enterprise survey, no change in the total employment would have taken place and yet the survey would report increased number of jobs. Symmetrically, if a worker is laid off from a large enterprise and finds employment in a small enterprise that is not covered by the enterprise survey, we would conclude that the number of jobs has fallen despite no net change in this number."
Further criticizing enterprise survey for confining itself to enterprises with 10 or more workers in a selected set of sectors", Panagariya says, "In India, these enterprises account for a very small proportion of employment. Even when we include all sectors, according to the Sixth Economic Census, conducted in 2013-14, enterprises with 10 or more workers account for only one-fifth of non-agricultural workers. By excluding the selfemployed and employees of enterprises with less than ten workers each, the survey fails to cover four-fifths of non-agricultural labour force."
"This exclusion means that nothing from the survey allows us to say anything about the total employment", he says, adding, Claims of jobless growth by critics thus lack valid empirical foundations... India has conducted these surveys every five years since 1972-73 and they do not support the hypothesis of jobless growth. The unemployment rate was 4.9% in 2013-14 and 5% in 2015-16."
Notes the top economist, "As a purely accounting matter, growth in the GDP is the result of growth in inputs and productivity. Studies overwhelmingly show that in the best of times, productivity growth does not contribute more than 3-percantage points to GDP growth. Therefore, a substantial proportion of the 7.5% GDP growth experienced during the last three years has to have been contributed by growth in capital and labour".
Based on this, he adds, "Recognizing that growth in capital has seen a slight deceleration during the past three years, as a matter of pure arithmetic, labor input growth could not have been any slower than during the earlier years of rapid growth. Criticisms of jobless growth are thus seen to be without sound empirical or logical foundation."
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