Recent employment trends

in India and China:

An unfortunate convergence

C. P. Chandrasekhar
and
Jayati Ghosh
 Asian century?
• Both China and India have large populations covering
substantial and diverse geographical areas, large
economies with even larger potential size.

• Current “success stories” of globalisation: two

economies that have apparently benefited.

• Success defined by the high and sustained rates of

growth of aggregate and per capita national income; the
absence of major financial crises; and substantial
reduction in income poverty.
 Not similar economies
• These economies are often treated as
broadly similar in terms of growth potential
and other features.

• But there are crucial differences between

the two economies which render such
similarities very superficial .
 Institutional conditions
• India was a “mixed economy” with large private
sector, so essentially capitalist market economy
with the associated tendency to involuntary
unemployment.

• China was mostly a command economy, which

until recently had a very small private sector;
there is still substantial state control over
macroeconomic processes in forms that have
differed from more conventional capitalist
macroeconomic policy.
 The financial sector
• India: financial sector was typical of the “mixed
economy” without comprehensive government control
over the financial system; financial liberalisation since
early 1990s meant further loss of control over financial
allocations by the state.

• China: financial system still under the control of the

state, despite recent liberalisation. Four public sector
banks handle the bulk of the transactions in the
economy, and can regulate the volume of credit to
manage the economic cycle, and direct credit to priority
sectors.
 Rates of GDP growth
• The Chinese economy has grown at an average
annual rate of 9.8 per cent for two and a half
decades, showing volatility around high trend.

• India’s economy has grown at around 5-6 per

cent per year over the same period, breaking
from “Hindu” rate of 3 per cent. But very recently
the average growth rate for the last four years is
just above 8 per cent.
 Rates of investment
• The investment rate in China (investment as a share of
GDP) has fluctuated between 35 - 44 per cent over the
past 25 years, compared to 20 - 26 per cent in India.

• Aggregate ICORs (incremental capital-output ratios)

have been around the same in both economies.

• Infrastructure investment from the early 1990s has

averaged 19 per cent of GDP in China, compared to 2
per cent in India.
 Structural change over four decades
• China: “classic” pattern, moving from primary to
manufacturing sector, which has doubled its share of
workforce and tripled its share of output.

• India: Move has been mainly from agriculture to services

in share of output, with no substantial increase in
manufacturing, and the structure of employment has not
changed much. Share of the primary sector in GDP fell
from 60 per cent to 25 per cent in four decades, but
share in employment still more than 60 per cent.
 Trade patterns
• China: Rapid export growth involving aggressive
increases on world market shares, based on
relocative capital attracted by cheap labour and
heavily subsidised infrastructure.

• India: Lower rate of export growth, with cheap

labour due to low absolute wages rather than
public provision and poor infrastructure
development. So exports have not yet become
engine of growth, except in services.
 Poverty reduction
• China: Officially 4 per cent of the population now lives
under the poverty line, unofficially around 12 per cent.
(Reflects earlier asset redistribution and basic needs
provision in China under communism, plus larger mass
market and recent role of agricultural prices.)

• India: Official poverty ratio much higher and persistent,

currently 28 per cent. Food deprivation is much higher.
 Human development
• China: earlier extensive public provision of health and
education: universal education until Class X, and public
services to ensure nutrition, health and sanitation. (In the
1990s, higher fees and some privatisation of such
services led to reduced access and worsening
indicators; since 2002 revival of public spending in these
areas.)

• India: the public provision of all of these has been

extremely inadequate throughout this period and has
deteriorated in per capita terms since the early 1990s.
Very recently slight increase in education spending but
still well below China; government health spending still
very low.
 Inequalities
• In both economies the recent pattern of growth
has been inequalising.

• China: spatial inequalities – across regions –

have been the sharpest. More recently, vertical
inequalities, especially for migrant population
vis-à-vis others.

• India: vertical inequalities and the rural-urban

divide have become much more marked.
Sustainability of current patterns
• China: high export-high accumulation model which
requires constantly increasing shares of world markets
and very high investment rates. Already signs of reduced
unit values of exports and stagnation/decline of
manufacturing employment.

• India: IT-enabled services experiencing current boom,

but competitive threat from other countries, plus question
about whether it will be enough to transform India’s huge
labour force into higher productivity activities.
 India: Employment growth
Annual rates of employment growth
for usual status workers (per cent)

4
3.39
3.5 3.22
3 2.77

2.5 2.27
2.03 1.97
2

1.5 1.36

1
0.66
0.5

0
Rural Urban

1983 to 1987-88 1987-88 to 1993-94 1993-94 to 1999-2000 1999-2000 to 2004-05

 India: Growing role of self-employment
Share of self-employment in usual status employment

65

60

55

50

45

40

35
1983 1987-88 1993-94 1999-2000 2004-05

Rural males Rural females Urban males Urban females

India: Growth rates of employment
(Annual compound rates per cent)
1993-94 to 1999-2000 to
1999-2000 2004-05
Agricultural self employment -0.53 2.89
Agricultural wage employment 1.06 -3.18
Total agricultural employment 0.03 0.83

Rural non-agri self employment 2.34 5.72

Rural non-agri wage employment 2.68 3.79
Rural total non-agri employment 2.26 5.27

Urban non-agri employment 3.13 4.08

Secondary employment 2.91 4.64
Tertiary employment 2.27 4.67

Total non-agricultural
employment 2.53 4.66
India: Real wages of regular workers
Average real wages per day of regular workers
(at constant 1993-94 prices)

110.00
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
1993-94 1999-2000 2004-05

Rural males Rural females Urban males Urban females

 India: Real wages of casual labour
Average real daily wages of casual labour
(at constant 1993-94 prices)

45.00
40.00

35.00
30.00
25.00

20.00
15.00

10.00
1993-94 1999-2000 2004-05

Rural males Rural females Urban males Urban females

 India: Organised sector employment
Employment in the organised sector

80

70

60

50

40

30

20

10

0
1981

1984
1985

1986

1987

1988
1989

1990

1991
1992

1993

1994
1995

1996

1997

1998

1999

2000

2001
2002

2003
Public Sector Private Sector Total
India: Labour productivity in organised manufacturing

Net value added per worker (in constant prices)

2.3

2.1

1.9

1.7

1.5

1.3

1.1

0.9

0.7

0.5
1981

1984

1985
1986

1987

1988
1989

1990

1991
1992

1993

1994
1995

1996

1997
1998

1999

2000
2001

2002

2003
 0.10
0.15
0.20
0.25
0.30
0.35
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
Share of wages in value added

1996-97
1997-98
1998-99
in organised manufacturing

1999-2000
India: Wage share of value added

2000-2001
2001-2002
2002-2003
2003-04
 India: Real wages in
organised manufacturing
Average real wages in organised manufacturing

12000

11500

11000

10500

10000

9500

9000

8500

8000
1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003-
93 94 95 96 97 98 99 2000 2001 2002 2003 04
 India: Remuneration in self-employment

Per cent Per cent finding this amount of Rs. per month
finding their remunerative
self-
employed
activity 0- 1001- 1501- 2001- 2501- >
remunerative 1000 1500 2000 2500 3000 3000
Rural males 51.1 12.9 17.5 16.5 11.4 12.9 27.3
Rural females 51.4 34.2 23.5 15.4 8.9 7.2 9.9
Rural persons 51.2 21.2 19.7 16 10.5 10.7 20.5
Urban males 60.9 4.9 8.2 9.9 7.2 12.2 56.5
Urban females 50.9 32.8 20.2 12.6 7.7 8.1 18.3
Urban persons 58.6 10.4 10.6 10.4 7.4 11.5 48.9
 Chart 4: Per cent of self-employed workers who consider their own
income remunerative, by income-range considered remunerative

80
70
60
50
40
30
20
<1000

>3000
1000-1500

1500-2000

2000-2500

2500-3000
Rural Males Urban Males Rural Females Urban Females
 India: Unemployment rates
Rural India Urban India

15-19 20-24 All 15+ 15-19 20-24 All 15+

Males
Usual 1993-94 3.3 4.9 2.0 11.9 12.6 5.4
Status 1999-00 5.5 5.2 2.1 14.2 12.8 4.8
2004-05 7.9 6.2 2.1 14 12.5 4.4
Current 1993-94 9.0 10.3 5.6 16.2 17.0 6.7
Daily 1999-00 13.1 11.7 7.2 19 17.1 7.3
Status 2004-05 15 12.9 8.0 18.4 15.8 7.3
Females
Usual 1993-94 1.9 2.8 1.3 12.8 21.7 8.3
Status 1999-00 3.2 4.9 1.5 13.2 19.4 7.1
2004-05 6.7 9.3 3.1 15.6 25.8 9.1
Current 1993-94 8.3 8.2 5.6 18.6 28.5 10.4
Daily 1999-00 12.8 12.1 7 18 25.9 9.4
Status 2004-05 12.6 14.9 8.7 16.4 27.3 11.6
China: Work force distribution
Primary Secondary Tertiary
1952 83.5 7.4 9.1
1965 81.6 8.4 10.0
1975 77.2 13.5 9.3
1985 62.4 20.8 16.8
1995 52.2 23.0 24.8
2005 44.8 23.8 31.4
China: Output and employment growth
1980- 1990-
90 2000
Primary sector
Annual employment growth 2.8 -0.8
Annual Value Added growth 6.2 3.8
Employment elasticity 0.45 -0.21
Secondary sector
Annual employment growth 5.9 1.6
Annual Value Added growth 9.5 13.5
Employment elasticity 0.62 0.12
Tertiary Sector
Annual employment growth 7.9 5.1
Annual Value Added growth 12.2 9.1
Employment elasticity 0.65 0.56
All sectors
Annual employment growth 4.1 1.1
Annual Value Added growth 9.3 10.1
Employment elasticity 0.44 0.11
 China's exports

800 60

700
50

600
40
500

400 30

300
20

200
10
100

0 0
1981 1982 1983 1985 1986 1989 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Total exports, $ bn Per cent processed in total exports

 US clothing imports from Mainland China

30 6

25 5

20 4

15 3

10 2

5 1

0 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Volume-based market share Unit value

 China - Employment in manufacturing

11000

10000

9000

8000

7000

6000

5000

4000
78

80

85

89

90

91

92

93

94

95

96

97

98

99

00

01

02
19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20
 China: Urban employment
Share of urban employment by type of employer

90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1978

1980

1985

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
State owned units Collectives & coops Other private units Self-employed
 China: Rural non-agricultural employment
Share of rural employment

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0
1978

1980

1985

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
TVEs Private enterprises Self-employed
China: Annual change in real wages
Units of
Average State- Urban
other
of all owned collective
ownership
units units units
type
1978 6.0 6.2 5.1
1980 6.1 6.0 6.9
1985 5.3 4.8 6.6 22.5
1989 -4.8 -4.6 -6.1 -2.3
1990 9.2 9.7 6.6 8.9
1991 4.0 3.2 5.6 10.5
1992 6.7 7.0 4.1 5.3
1993 7.1 5.7 5.9 7.9
1994 7.7 8.7 0.2 1.5
1995 3.8 0.4 3.7 1.4
1996 3.8 2.6 0.6 1.7
1997 1.1 4.2 1.7 3.2
1998 7.2 6.7 3.1 -1.7
1999 13.1 12.9 9.7 11.0
2000 11.4 10.9 7.6 10.9
2001 15.2 16.2 8.9 9.7
2002 15.5 16.3 12.7 9.9
2003 12.0 12.3 12.2 9.3
2004 10.5 11.1 9.5 8.0
2005 12.8 13.6 13.2 10.4
 Unorganised and migrant workers in China

• These real wage data leave out the increasing proportion

of unorganised workers, most particularly the rural
migrants.

• Rural-urban migrants currently estimated by CASS to be

around 150 -180 million (half the urban work force).

• Recent CASS survey shows that in 2005 a majority of

migrant workers were in informal activities and typically
faced long hours of work for all days of the week, for less
than minimum wages and with poor residential
conditions.
 China - Investment and consumption rates

44.0 68.0

66.0
42.0
64.0
40.0
62.0

38.0 60.0

36.0 58.0

56.0
34.0
54.0
32.0
52.0

30.0 50.0
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Investment rate Consumption rate
 Current issues similar
Most important problems in both economies
are currently the same:
• Agrarian crisis
• Inadequate generation of employment in
terms of “decent work”
• Public neglect of social sectors
• Growing inequalities.
 Lessons
• For more inclusive growth, the generation of good quality
productive employment is the most critical variable.

• Need growth strategy that allows and encourages labour

productivity increases overall while significantly
expanding expenditure – and therefore income and
employment opportunities – in social sectors.

• Major role for state intervention, through direct public

investment and through fiscal, monetary and market-
based measures that alter the structure of incentives for
private agents.