Tuesday, July 5, 2011

Jobless growth in India? NSSO data shocks all, but only Swaminathan Aiyer shows its not true!

Very rarely do I get absolutely thrilled by reading a story in the papers. I love Aakar Patel’s writings in Mint Lounge on Indian society, I love Tavleen Singh’s write-ups in Indian Express on politics and I love Swaminathan S Anklesaria Aiyar’s articles in TOI on economics. I used to love Vir Sanghvi’s political stories in HT, but he no longer writes there. This post of mine is a straight lift from Aiyar’s article in TOI last Sunday (July 3rd – Where are all the women workers?). But I have tried to add the political dynamics to his piece on economics!

The basic story came out in the Mint a few days back. The newspaper showcased the story on its front page. It quoted NSSO (National Sample Survey Organization) data which showed that though GDP had grown rapidly between 2005 and 2010; jobs had only grown by 2 million over these five years. Since the population increased far more, unemployment increased during these last five years. The newspaper failed to analyze the data, preferring instead only to put out the raw data. It was a scary piece of data.....because the political repercussions could be that India could be forced to go back to the socialist era. If indeed, India reports jobless growth, then clearly capitalism was the wrong model for it to follow. There are already enough complaints of crony capitalism. Crony capitalism means that only a handful of business families have benefited from the economic boom. There is also the other glaring and scary worry – that the economic disparity between the haves and the have-nots has been widening. If this continued, then India was sure to revert back to its pre-reform pre-1991 days.

Fortunately, Aiyar digs deeper and unveils some new data. His analysis shows that in reality, it is not as if jobs have not increased. Jobs have been created in large numbers. However, there are not enough workers left to take up the jobs. So he calls it “workerless” growth rather than jobless growth. His analysis shows that while male participation in the work force has remained steady at 55% (remaining 45% don’t work....they are either too young, or they are studying or whatever), female participation in the work force has declined from some 30% to some 23%, a decline of 7% over these last five years. Translated into numbers, this means that 35 million women have withdrawn from the work force.....or in other words, are not available to take up jobs.

As a result of this drop in female workers, there is a shortage of work force. And as a result of this, wages have been rising. This is where Aiyar adds so much value. He presents wage data that shows that agriculture worker wages have doubled in just three years from 2008-2010 in AP. Even in the other states, the wage increase in these three years has been between 60-100%. So there is a huge sharing of economic prosperity that is happening across the country. The fruits of economic growth are reaching the poorest of the poor. Even after taking inflation out (30% in three years), workers have gained a significant amount of economic growth. I have argued in my previous post (Feb 27th.....food inflation not hurting the poor) exactly this point. In this post of mine, I specifically mentioned that the rural poor were doing fine.....only the urban poor were facing the brunt of the inflation. This huge growth in salaries amongst the poorest is also a good thing for India because it shows that distribution of wealth is taking place. Higher wages have temporarily caused higher food inflation as well.

So the truth is that wages have increased because workers have not been available. Also, mechanization has increased in farms. Wow. So it’s not the mechanization that has caused “jobless” growth; rather it’s the “workerless” growth that has led to mechanization. I feel very good about this, because this means that India is progressing. With more machines, farm productivity is bound to increase in the long run. This will reduce food inflation in the future. With more salaries, people are bound to put more away for education. And that is what is happening. Education levels are rising. One of the theories that Aiyar propounds to explain the withdrawal of females from the work force is that with higher education, females want better quality of work. I have seen this in my own house. My house maid’s daughter has studied till the 10th standard. But she doesn’t want to do her mother’s work. She was lucky to get a job as a sales girl in a showroom. Such jobs are not available for all women....and hence women have withdrawn from the work force. The other theory he has is that with higher male salaries, wives are pulling out of the work force. His explanation is that in the Indian mindset, a household in which females don’t work has higher status than one in which females work. Poor females work because they have no choice. But as their incomes rise, the women give up work. In many ways though, this is a bit of bad news.....the “demographic dividend” (surplus of young people available for employment) would get nullified with this tendency of women to opt out.

Now the politics! The Left jumped onto this data and said that they had always opposed these reforms! If only they had waited to read Aiyar’s analysis.....now they will have to eat their words. If only they read the report better and changed their economic theories, they would have any hopes to coming back to power anywhere in the country. The BJP jumped into the fray because the NSSO data said that the NDA regime between 1998 and 2004 had generated more jobs. The BJP gloated about their highway program which led to a lot of jobs being created. Wrong! Now they have backed off from commenting on the report! The fact is that the BJP also supports capitalism....except that in their present zeal to show the UPA in poor light, they often tend to lose their moorings!

The real truth is that India should continue to focus on strong economic growth.....and that’s what the poor in this country are looking for. Nothing should stop our economic progress. Certainly not the misguided battle of civil society against corruption as if that was the only malaise that India faced. Sure, corruption needs to be removed, but in the process, economic progress cannot be stopped. That’s what is happening now. With the government in a tizzy, decision making has stopped. Policy initiatives abandoned. This will harm the country. Instead, Anna should do what I have said before. Declare Jan 1st, 2015 as the date from which we will move towards zero corruption. In the interim, the factors which lead to corruption – archaic laws, electoral weaknesses, poor salaries of MPs and civil servants, too much discretion in the hands of civil servants etc – will be cleaned up. There is no point in cribbing about something that has been part of our DNA for the last so many centuries. The better solution would be to focus on the future and make sure that that is better than the past.....


  1. Hi Prashanth,
    As much as I appreciate your and Aiyar's logic, the proposition is very difficult to digest.
    To begin with 35 million women, don't just randomly stop working. And if they do, there is something bigger we need to be worried about.
    Women quitting jobs because their husbands earn more is a completely absurd proposition. Does this mean that today's salaries are justified and sufficient? Does it mean that inflation is not a worry at all? That property prices and loan rates are comfortable for a single-earning middle class family?
    And if women are quitting jobs because their husbands earn better, we are dealing with a huge social problem where our high economic growth is doing nothing towards gender equality.
    As incomes increase, people's mindsets improve, and families become double-earners. There are more working wives today than there were 10 years back and there is enough anecdotal evidence to support it.

    Labour wages have increased because there are less labourers, I agree. Because labourers moves to cities, to urban areas, where there is more assurity of income. Because our economic growth, our GDP of 8% has been centered around our cities, and nobody wants to look for work in villages. Because labourer's children watch commercials on TV and see billboards that makes them want to live in cities for whatever income they have and imitate the 'high life', they dont want to live in the slow life of the villages because its too "gawar".

    Maybe if you go to villages, which I assume you haven't in recent times, you'll see that labourers are doing well. The rural poor now consists of farmers. Because they are the ones paying these high wages. For all the talk of high economic growth, our farmers are committing suicide after being unable to pay debt (caused by a different, but connected, failed agricultural administration of our country). And the new trend of labour wage increase is going to lead to more suicides.

    So, no. I don't think Aiyar or you make sense.

  2. Hey thanks Nihar for your invaluable feedback. Truly appreciate it. I do think there is compelling logic in your argument that women don't give up work when they or their husbands start earning more. But I think there is a class of people who bother too much of society's approval. This class is not the poorest, nor the richest, but the ones in-between. That's the class that may have contributed to this decline. Of course, the other thing is that there is probably more enrollment in schools of girl students.

    What else would explain the growth in salaries if it weren't for excess demand for people? The farmers suicides clearly show that things are still bad in the rural areas. Surely needs more investigation!

    But you do agree that job growth has been pretty rapid?