Employment growth, poverty

and inequality in India

Mritiunjoy Mohanty
Indian Institute of Management Calcutta
February 2012

Source: Mohanty (2008): Dynamics of employment generation in India

and new trends in unionisation

Employment Shares - NSS

2005

2010

Agriculture

57

52

Mining

Manufacturing

12

11

EGWS

<1

<1

Construction

10

Trade, H&R

11

11

Transport stor & com

FIRE

Public ad & other serv

 Slow decline in rural share understates

extent of occupational and geographical
diversification
Share of agriculture declines by nearly
12%, from 68.5 to less than 57%
Share of rural non-farm increases by little
less than 6% to almost 21%
Share of urban non-farm increases little
less than 7% to nearly 23%

 Construction the most significant gainer

from 2 to 6%
Services from 17 to 24%
Mostly in trade and hotels on the one hand
and transport storage and communication
on the other
Share of manufacturing from 11 to 12%,
though from 1994/94 on a rising trend

Output shares
Agriculture declines by more than 15%, from 34 to
18.5%
Manufacturing increases from 14.5 to 15.1%
Services from 38.6 to 53.7, more than 15%
Constructions share increases from 5.8 to 6.5%
More or less along lines suggested by the economics of
structural change shares of both the rural economy
and agriculture have declined with increases in both rural
and urban non-farm
Only surprise is construction whose employment shares
increases significantly more than the output share and
services whose employment share is significantly lower
than its output

 In period III (1999-2004) per annum net new job

generation 12 million
In period II (1993-1999) net new jobs 4 million
jobless growth
Better also than period I (1983-93) net new job
creation of 7 million per annum
Period II also significantly different from both
others in the dominance of urban job generation
in that period with very low employment elasticity

 Volatility in the pattern of new job generation largely due to

agriculture
In period II agriculture essentially does not generate any jobs
In terms of trends, agriculture goes from being the largest generator
of new jobs in period I to the smallest in period III
Emergence of non-farm jobs as drivers of employment growth
Emergence of rural non-farm employment as driver of rural new
employment
Rising importance of rural non-farm employment generation in
overall non-farm employment growth
The rise to dominance of rural non-farm employment suggests that
urban employment shares will continue to increase but slowly
But an acceleration in diversification away from agriculture
Each period has seen different drivers in term of dominant
geographies suggesting a employment growth is undergoing a
transitional phase

 Manufacturing contribution to net new jobs increases 2.5

times between periods I and III
Constructions share doubles to almost 14%
Manufacturing becomes the largest generator of net new
jobs in period III
Construction has a share almost equal to that of trade
hotels and restaurants (a little over 14%)
Services shares declines between periods I and III
from 37 to 34%
Largely due to decline in a residual category other
services
Trade, hotels and restaurants and transport storage and
communication increase their share 17 to 21%

 Other services (9-10% of total employment) two broad

categories financial services and community, social
and personal services
Financial services share in total increased from 1.3 to
1.5% between 1999 and 2004
Public administration and defence, education, and
personal services accounted for between 3 and 2% of
total employment
No component of other services in a position to become
an important driver of employment growth
Diversification away from agriculture driven by
manufacturing and construction

 Manufacturing, trade hotels and restaurants, and other services (in

Pd III) important generator of net new urban non-farm jobs
In Pd II contraction in other services is explained largely by a
contraction in personal services
In other services growth is accounted for by financial services,
health, education, personal services and counterbalances a decline
in public administration and defence
If these trends continue, the smaller services should become
important contributors to the growth of urban non-farm employment
though the return to growth of personal services suggests continuing
slackness in the urban labour market
Construction and trade hotels and restaurants important generators
of net new rural non-farm employment
Other services not important in rural non-farm

 Reversal of the dominance of waged

employment in Period III
Contraction in the generation of casual
employment
Sharp deceleration in the generation in
regular jobs
Period III very different than Period I in
terms of quality of jobs

 It however appears that relatively high levels of

education are a sufficient condition to be a member of
the urban formal economy either as a holder of a
formal job (10.1 years average) or regular waged
informal job (9 years average).
Therefore education appears to be a discriminator for
both quality (formal) and geography (urban). In addition,
whereas high (relatively) levels of education do not
guarantee regular waged urban formal employment, low
levels of education do guarantee lack of access.

The caste hierarchy

Three upper castes the Priest, the
Warrior, the Merchant (may or may not
own land) - UCH
One lower caste Tillers of land (may or
may not own the land they till) OBC
Outcaste the Dirty jobs the Cobbler,
the Scavenger SC Dalits
Adivasis the ST

Source: Chen and Ravallion (2008)

Poverty Ratio

20
05

20
02

19
99

19
96

19
93

19
90

19
87

19
84

19
81

45
40
35
30
25
20
15
10
5
0

Source: Chen and Ravallion (2008)

India PR
China PR
80
70
60
50
40
30
20
10
0
1981 1984 1987 1990 1993 1996 1999 2002 2005

Source: Chen and Ravallion (2008)

China $2 PR
India $2 PR
120
100
80
60
40
20
0
1981 1984 1987 1990 1993 1996 1999 2002 2005

Source: Chen and Ravallion (2008)

India
India

300
290
280
270
260

20
05

20
02

19
99

19
96

19
93

19
90

19
87

19
84

19
81

250

Source: Chen and Ravallion (2008)

800
700
600
500

China

400

India

300

ROW

200
100

2005

2002

1999

1996

1993

1990

1987

1984

1981

Agriculture
L/O
4
3.5
3
2.5
2

L/O

1.5
1
0.5
0
1983

1993/95

1999/2000

2004/5

2009/10

Agriculture
O/L
0.6
0.5
0.4
0.3

O/L

0.2
0.1
0
1983

1993/95

1999/2000

2004/5

2009/10

Manufacturing
L/O

O/L

0.82

1.5

0.8
0.78

1.45

0.76

1.4

0.74
0.72

L/O

1.35
O/L

0.7

1.3

0.68

1.25

0.66
1.2

0.64
0.62

1.15

1983

1993/94

1999/2000

2004/5

2009/10

1983

1993/94

1999/2000

2004/5

2009/10

Construction
L/O

O/L

1.4

3.5

1.2

2.5

0.8
L/O

2
O/L

0.6

1.5

0.4

0.2

0.5

1983

1993/94

1999/2000

2004/5

2009/10

1983

1993/94

1999/2000

2004/5

2009/10

From Kannan and Raveendran (2012)