Understanding Jobless Growth in India
*K.Sachdeva & *A.Mehta
*Department of Economics, University of Delhi
Abstract
This review explores the phenomenon of jobless growth in India, drawing insights from several
seminal studies. The analysis traces the paradox of high economic growth with low employment
elasticity, especially post-liberalization. It emphasizes sectoral disparities, particularly the decline in
labor absorption in manufacturing and the limited employment capacity of the booming services
sector. The paper also investigates distress-driven rural employment, the persistence of informal
labor, and the demographic burden of a growing young workforce. By synthesizing diverse
frameworks—from Kaldorian analysis to demographic transition theory—the paper offers a
comprehensive view of India’s employment challenges. The concluding section proposes integrated
reforms in education, industrial policy, and labor regulation to ensure that growth becomes more
inclusive and employment-intensive.
Keywords - Jobless Growth, Employment, Economic Growth, Labor Market, India
Literature Review agriculture and manufacturing, noting that
employment in manufacturing responds to
Several studies converge on the idea that
demand generated by a thriving agricultural
India's manufacturing growth has not led to
sector. The shift towards services, while
sufficient job creation. Bhalotra (1998) and
boosting GDP, has not absorbed surplus labor
Kannan & Raveendran (2009) argue that
effectively.
despite significant growth in output,
employment either stagnated or declined. Abraham (2009) and Thomas (2014) focus on
Thomas (2013) challenges the common the rural dimension, revealing that much of the
attribution of this trend to rigid labor laws, employment growth seen post-2000 was
pointing instead to deeper structural issues distress-driven, with many entering low-
within the manufacturing ecosystem. Tejani paying, insecure jobs in construction due to
(2015) supports this by showing that India agrarian distress. Their findings align with the
entered a high-productivity growth phase broader concern of informalization and
without passing through a labor-intensive underemployment, rather than productive or
industrialization period, unlike the East Asian secure work.
economies. On the demographic front, Thomas (2012,
Dasgupta and Singh (2005) question whether 2014) highlights that India's expanding
the services sector, despite its rapid growth, working-age population has not been matched
can act as a true engine of employment by job creation. A significant decline in female
generation. Alessandrini (2009) adds to this by labor force participation points to deeper
highlighting the crucial link between issues in labor market access and quality of
employment. These demographic pressures, This paper dives into the anatomy of India’s
without adequate employment strategies, jobless growth, unpacking the structural,
could turn into liabilities. sectoral, and policy dimensions that have
contributed to this phenomenon. Drawing
Finally, Jha and Mohapatra (2019) offer a
from a rich pool of empirical studies and data,
policy-oriented critique of existing programs
it analyzes the evolution of employment
like Skill India and Make in India, arguing that
patterns across agriculture, manufacturing, and
while well-intentioned, they have fallen short
services, and critiques the institutional choices
of creating meaningful employment. Their
that shaped these trajectories. By the end, it
recommendations for labor reforms, MSME
aims not only to diagnose the malaise but to
support, and education-industry linkages echo
propose a way forward—toward a model of
the themes found across the literature,
growth that is not just fast, but fair and
underscoring the need for structural
inclusive.
transformation.
Understanding Jobless Growth in India
Introduction: The Growth Illusion
Despite achieving robust GDP growth over the
India’s economic narrative in the 21st century
past three decades, India has experienced what
reads like a tale of triumph. With annual GDP
many scholars term "jobless growth,"
growth rates often exceeding 7%, glittering
especially in the organized manufacturing and
headlines celebrate its ascent as a global
formal sectors. As Bhalotra (1998)
economic powerhouse. From IT hubs buzzing
documented, factory employment in the 1980s
in Bengaluru to gleaming towers in Mumbai’s
actually declined despite significant increases
financial district, the country appears to be
in output. Between 1979–1987, value added in
scripting an extraordinary success story. Yet,
the factory sector grew at 6.3% per annum,
behind this glowing façade lies a troubling
while employment decreased by 0.3%
paradox: growth without jobs.
annually.
As millions of youth pour into the labor
Tejani (2015) further explains that India's
market each year, searching for opportunities
employment elasticity of output—a measure
promised by a booming economy, many are
of how employment responds to economic
met not with employment but with uncertainty
growth—has plummeted. For example, from
—or worse, complete exclusion. The term
1978–2010, the elasticity for formal
"jobless growth" has increasingly dominated
employment fell sharply, indicating a shift
policy debates, hinting at a structural
toward high-productivity, capital-intensive
imbalance where economic expansion is
sectors without corresponding labor absorption
decoupled from employment generation.
.
How did we get here? Why is a country with
Organized manufacturing, which should
one of the youngest populations in the world
ideally serve as the engine of structural
struggling to create enough jobs? And more
transformation, has consistently
importantly, what kind of growth is India
underperformed in terms of job creation.
really experiencing—one that uplifts its people
Kannan and Raveendran (2009) found that
or one that leaves them behind?
from 1981–82 to 2004–05, gross value added
grew at an annual rate of 8.66%, while
employment increased by only 0.53%, formal manufacturing sector, where contract
resulting in an employment elasticity of just workers now account for a large share of
0.06. Moreover, the composition of growth employment. This undercuts the argument that
became increasingly capital-intensive, rigid labor laws are the primary bottleneck.
displacing labor instead of creating new jobs. Moreover, despite liberalization and labor
Dasgupta and Singh (2005) argue that India flexibility, job creation has remained weak.
has witnessed a premature shift toward This indicates structural constraints beyond
services-led growth, which often requires labor laws, including inadequate industrial
skilled labor and generates fewer jobs for the policy, underdeveloped infrastructure, and
masses. While IT and financial services have insufficient credit access for small enterprises.
flourished, their employment capacity remains India faces a mounting demographic
limited. The informal service sector has grown challenge. The working-age population is
rapidly, absorbing surplus labor but often rising rapidly, projected to grow from 757
under precarious and low-paying conditions. million in 2010 to 972 million in 2030
The construction sector emerged as the largest (Thomas, 2014). However, the formal
contributor to non-agricultural job growth in economy is ill-equipped to absorb this labor,
the 2000s. Between 2004–05 and 2011–12, especially as educational attainment improves
nearly 50% of all new non-agricultural jobs and jobseekers aspire to better-quality
were in construction, which employed largely employment.
unskilled rural laborers (Thomas, 2014).
While beneficial for short-term employment, This mismatch between rising aspirations and
construction jobs are unstable and do not actual job creation has led to increasing youth
support long-term structural development. unemployment and large-scale withdrawal of
women from the labor force. Female labor
force participation has dropped from 29.9% in
Vinoj Abraham (2009) describes the post- 2004–05 to 26.1% in 2009–10.
2000s uptick in rural employment as "distress- Several papers adopt a Kaldorian approach to
driven." Between 1999–2000 and 2004–05,
analyze jobless growth. Alessandrini (2009)
rural employment grew by 2.34% annually and Tejani (2015) argue that structural change
even though agriculture stagnated with a has bypassed labor absorption in India. Unlike
2.02% growth in output. This paradox East Asian economies, India transitioned
indicates that many rural households were toward high-productivity sectors without
forced into labor markets out of economic investing in labor-intensive industries or
necessity rather than opportunity. These upgrading informal employment to formal
patterns suggest that what appeared to be status.
rising employment masked deeper
vulnerabilities in the rural economy, including Alessandrini further shows that states with
agrarian distress, indebtedness, and falling real stronger linkages between agriculture and
incomes. manufacturing had better employment growth.
This suggests the need for policies that
Multiple scholars have critiqued labor market encourage local demand-led growth and
rigidities as a barrier to employment growth. integrate sectors horizontally.
However, empirical evidence disputes this.
Thomas (2013) and Kannan (2009) highlight
the rise of informalization even within the
Conclusion: The Way Forward 6. Strengthen Institutional Capacity: Reframe
labor laws not just for flexibility but for
India's growth story, while impressive in GDP
protection and promotion of employment
terms, remains incomplete without
rights.
employment inclusivity. Jobless growth is not
merely a statistical anomaly but a structural In sum, tackling jobless growth requires more
condition rooted in policy choices, sectoral than GDP acceleration—it demands a
imbalances, and weak linkages between output fundamental restructuring of the economy to
and labor absorption. ensure that growth is not only faster but fairer
and more inclusive.
To reverse this trend, a multi-pronged strategy
is needed:
1. Revive Labor-Intensive Manufacturing: Invest
in sectors like textiles, garments, food
processing, and MSMEs, which can absorb
low and semi-skilled labor at scale.
2. Formalize the Informal: Ensure that informal
sector workers gain access to social security,
legal protections, and upskilling opportunities.
3. Rural Industrialization: Expand non-farm
employment through rural clusters, agro-based
industries, and decentralized manufacturing.
4. Recalibrate Education-Employment Linkages:
Align vocational training and higher education
with real labor market demands, especially in
technology and services.
5. Integrate Sectors: Promote synergies between
agriculture, industry, and services to generate
broad-based employment, particularly through
local supply chains and rural demand
stimulation.
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