11 December 2024 : Indian Express Editorial Analysis

1. Making her work count

(Source: Indian Express; Section: The Editorial Page; Page: 12)

Topic: GS3 – Indian Economy – Issues relating to employment

Context

The article examines the structural challenges and constraints of India’s labor force, particularly the dominance of low-quality self-employment, and explores ways to enhance productivity and transition to formal employment.

Characteristics of India’s Labour Force

Low Workforce Participation and Stagnation

• India’s labour force is marked by two significant characteristics: low participation rates of the working-age population and a near-stagnant structure of labour force participation.
• A striking feature is the high proportion of self-employed workers compared to wage or salaried employees, a structure that has persisted for decades.
• This imbalance reflects a reliance on traditional employment forms, particularly self-employment, which hampers the evolution of the labour market and impacts overall economic productivity.

Sectoral Shifts and Their Impact

• India’s employment trends are influenced by the predominance of agriculture and a bypassing of manufacturing in favor of the services sector.
• This shift has contributed to sustained high levels of self-employment, particularly in rural areas.
• While agriculture remains a fallback sector for many, the absence of robust manufacturing growth limits the creation of formal jobs, perpetuating informal and less productive forms of employment.

Dynamics of Self-Employment

Gender and Regional Disparities

• Self-employment comprises a majority of India’s workforce, with over half of the population categorized as self-employed.
• The rural-urban disparity is notable, with 60% of rural workers self-employed compared to 40% in urban areas. Gender differences are also stark: while men predominantly operate as own-account workers, women are largely confined to roles as “helpers in household enterprises.”
• The rise in female self-employment as helpers, especially between 2017-18 and 2023-24, points to increasing informality and lower earnings potential for women.

Challenges of Informality and Earnings Gap

• The self-employed often lack benefits associated with formal jobs, such as social security, paid leave, or written contracts. Earnings remain low, barely surpassing those of casual laborers.
• Moreover, a widening gender earnings gap between 2017-18 and 2023-24 is concerning, with rural women experiencing the brunt of this disparity.
• Underemployment is also significant, particularly among rural and urban self-employed women, whose working hours often fall below 40 hours per week.

Constraints to Enhancing Self-Employment Quality

Education and Skills Deficit

• Educational attainment among the self-employed is alarmingly low. As of 2023-24, only 20.6% had completed grade XII or higher, with the figure even lower for women at 11.4%.
• Vocational training remains negligible, with just 3% of the self-employed having undergone formal or vocational training.
• Bridging this gap is crucial for improving the quality and productivity of self-employment.
• Vocational training tied to entrepreneurship and access to start-up funds, as highlighted by the NITI Aayog, could transform this segment.

Limited Access to Formal Credit

• A lack of access to formal credit markets severely restricts the growth potential of self-employment. Most unincorporated enterprises in India operate on a small scale, often within household premises.
• Own Account Establishments (OAEs), which lack hired workers, dominate this landscape, resulting in lower productivity compared to Hired Worker Establishments (HWEs).
• Without formal credit, entrepreneurs face higher borrowing costs, limited loan sizes, and constrained business expansion.

Administrative and Legal Hurdles

• The administrative and legal framework poses additional barriers. While ease of doing business has improved, starting and scaling formal enterprises remains challenging.
• The complexity of legal and administrative processes inhibits growth, particularly for minority and disadvantaged entrepreneurs.
• Inadequate access to legal recourse exacerbates these issues, hindering contract enforcement and reducing overall productivity.
• Studies indicate that inefficiencies in the legal system disproportionately affect marginalized groups, further constraining their entrepreneurial potential.

Pathways to Improve Self-Employment Quality

Addressing the challenges faced by India’s self-employed workforce requires a multifaceted approach:

• Enhanced Education and Vocational Training: Expanding access to education and linking vocational training with entrepreneurship can improve productivity and open pathways to formal employment.
• Access to Credit: Streamlining access to formal credit through initiatives like the PM Mudra Yojana and linking financing institutions with vocational training programs can bolster entrepreneurship.
• Simplified Legal and Administrative Processes: Simplifying the regulatory landscape and improving the efficiency of courts can reduce friction for entrepreneurs, enabling business expansion and job creation.

By addressing these constraints, India can transition from low-productivity self-employment to higher-quality and more sustainable employment opportunities.

What are Different Types of Unemployment in India

Disguised Unemployment: It is a phenomenon wherein more people are employed than actually needed. It is primarily traced in the agricultural and the unorganized sectors of India. Seasonal Unemployment: It is unemployment that occurs during certain seasons of the year. Agricultural laborers in India rarely have work throughout the year. Structural Unemployment: It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market. Many people in India do not get jobs due to lack of requisite skills and due to poor education level, it becomes difficult to train them. Cyclical Unemployment: It is a result of the business cycle, where unemployment rises during recessions and declines with economic growth. Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies. Technological Unemployment: It is the loss of jobs due to changes in technology. In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year-on-year. Frictional Unemployment: Frictional Unemployment, also called Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between jobs. Vulnerable Employment: This means people working informally, without proper job contracts and thus lacking any legal protection. These people are deemed ‘unemployed’ since records of their work are never maintained. It is one of the main types of unemployment in India.

PYQ: Disguised unemployment generally means (2013)   (a) large number of people remain unemployed (b) alternative employment is not available (c) marginal productivity of labour is zero (d) productivity of workers is low   Ans: (c)

Practice Question: Discuss the structural challenges faced by India’s labor force, with a focus on the predominance of self-employment. Suggest measures to enhance the quality of self-employment and facilitate a transition towards formal employment. (250 words/15 m)