The simple and direct theoretical relationship between output growth and employment growth notwithstanding, empirical evidence had at best been mixed. India had witnessed periods of jobless growth-economic growth with even declining employment. In more recent periods, India has also witnessed employment growth stagnation accompanied by output growth stagnation. The complexity in this relation between output and employment is conditioned by the nature and composition of employment; nature and composition of output; and nature and composition of substitutes for labour including capital, technology and high skilled labour.
One of the fundamental macro-economic relations between output growth and employment growth lies in the nature of economic growth. Whether economic growth is employment generating or not? Demand led-growth, especially Wage-led growth arguably, has the potential to create higher output growth through higher aggregate demand, enhanced employment growth, technological change and productivity growth. This route of output growth has the potential to be pro-poor and inclusive. The employment impact of Profit-led growth or Supply-led growth, in the long run may be more subdued and has the potential to exacerbate income disparities. These macro-economic questions that received much attention in the 1990s have been relegated to the background with the big policy shift in India. There is need to relook at the macro-economic nature of output growth, the emerging institutional environment such as state policies, regulatory structures and market interventions, especially labour market interventions and interventions in substitute factors such as capital that may impact employment growth.
Apart from the economic dimensions, the changes in measurement of output and employment too have contributed to the lack of clarity in the direction of their relation. Changes in measurement of GDP in terms of value added in the revised national accounts, the shift in sectoral contributions due to changes in measurement of sectoral value addition, the shift from employment-unemployment surveys to the periodic labour force surveys confound the direction and magnitude of the employment-output relation.
Intersectoral variations in output growth influence employment growth substantially. Such inter-sectoral variations mainly occur on account of nature of domestic demand, structural transformation, factor abundance-based international trade and foreign investment. The relatively higher shares of disposable income spend on agriculture and agro-based products may increase the growth of labour-intensive agricultural products. The employment lag in structural transformation, along with withdrawal of female labour can adversely affect employment elasticity. While rising exports of labour-intensive goods can drive employment growth in labour intensive sectors – foreign direct investments may crowd out domestic firms and introduce production systems that are relatively more capital intensive to suit global product standards. The inter-sectoral variations could affect not only the economic structure but also the employment structure. Employment demand in terms of skills, gender, age, sector and location may get affected on account of inter-sectoral growth variations. Structural transformation would alter the demand for skills, gender, location and sector. Exports and foreign investment could bring in labour demand specificities in skill and gender. These inter-sectoral effects, as stated above can be countervailing forces, the net effect of which would be an empirical question. There is however, need to bring out the various dimensions of intersectoral variations in output growth and its implications for employment growth.
In the typical labour demand analysis, apart from the output market, the single most important factor that affects employment are the factor substitutes for labour. Rising demand for goods and services can be met by increased use of all factors. Alternatively, the relative cost and relative productivity differentials of factors of production could favour one set of factors over the other in the production process. Analysis of India’s growth performance has often identified deepening capital intensity as a causal factor for jobless growth. Studies have shown that capital deepening technology is penetrating across all sectors impacting their ability to absorb labour. Further it is possible that both capital cost and capital productivity have increased due to technological change. The cost of computing, storing and communicating information had been dropping continuously for the last two decades. Moreover, capital is becoming more efficient, due to its increasing divisibility and its enhanced ability per unit. These aspects of capital imply that the declining capital cost and versatility of capital may be driving capital deepening technology in the economy. In the process the demand for labour, both in the quantum and composition may be affected. The composition may be affected due to the skill biased nature of technological change. Further, technological change may not be limited to conventional sectors. The declining transaction costs in the various input and output markets may lead to the rise of new sectors, such as the gig economy, or reconfiguration of conventional sectors such as the health, education or finance sectors into e-health, ed-tech or fintech sectors. While the production costs consideration may allow labour displacement, the transaction costs considerations may encourage scale effect on employment.
Just as economic growth that affects sectors has the potential to affect the composition of employment, capital and technology intensive growth can have wide ranging effects on the composition of employment. Skill based technological change create complementarities between skilled labour and capital. However, the distribution of skills in the economy is predicated on the informal institutions prevalent in the economy. Class, gender, age, caste, religion, ethnicity and other historical institutions of identity critically influences access to education, skills and in turn their ability to access emerging jobs.
Dualistic nature of developing economies, consisting of the informal and formal sectors, makes the output growth-employment growth nexus further complex. The co-existence of a regulated sector with entry-exit restrictions on labour and a competitive unregulated sector may generate very different employment outcomes with economic growth. Often output growth is propelled by the growth impulse in the formal regulated sector but its employment effect may appear in the informal unregulated sector. Thus, the regulated sector may experience jobless growth while the unregulated sector may experience job growth without commensurate output growth with implications on wages and standard of living in the unregulated sector.
Finally, apart from efficient economic growth, sustainable economic growth is acquiring prime significance. Sustainable economic growth is a premise for employment growth. Sustainable growth encourages labour intensive local products and technologies. The prospects for a shared common global future through sustainable growth require a turnaround in valuation of goods and services. The valuation of goods and services that either penalises or incentivises their contribution to sustainability may alter the metrics of economic growth, and in turn the returns to labour as well. The employment prospects of green jobs are high and a promises potential. This potential needs to be appreciated.
Guidelines on Conference Themes for Prospective Contributors
The guidelines on the conference themes are suggestive only. The prospective paper writers may contribute on other relevant sub-themes as well. Apart from contributions on India, papers relating to other regions and countries are also welcome. Papers can be from different theoretical perspectives, as can be the use of different empirical methodologies (e.g. quantitative, qualitative, case-oriented or mixed). Submission of original work that contributes to the advancement of existing knowledge and debates on the topic are encouraged.