Our budget policies should aim for the creation of quality jobs – Mint

Apply this test: Will it help create productive and appealing employment for those in their twenties?
Young adults (aged 20-29 years) form the backbone of a dynamic economy and hence government policies must focus on the creation of good- quality jobs for them. India’s upcoming budget should create a conducive environment for that across both services and manufacturing, without excessively focusing on either, while avoiding the temptation to announce an urban job-guarantee scheme.
For policy formulation, we first need to look beyond the standard unemployment rate, the unemployed-to-labour- force ratio, to understand what’s needed. By definition, the labour force leaves out adults who stop searching for work, women who are not in paid work, and also young people who continue to study either because they can’t find jobs or expect better jobs with higher academic qualifications. As we argued earlier (bit.ly/3G2FnuU), a less widely used measure, the employment-to-population ratio, offers a more accurate understanding of whether the economy is generating jobs fast enough to keep a constant proportion employed.
At an all-India level, from 2004-05 to 2018-19, while young adults in farm work as a proportion of their population fell from 34% to 14%, those in non-farm employment remained largely constant at around 29%. While some states such as West Bengal, Gujarat, Karnataka and Bihar (from a low base) have managed to raise this ratio marginally, it fell in Uttar Pradesh (UP) and also in the better-off states of Maharashtra and Kerala.
Why did the share of young adult employment in industry and services not rise during a largely good period of growth for the economy? A combination of three factors may explain it. First, more young adults are staying in education longer; second, unemployment has risen; and third, more women are either leaving or not taking up paid work.
The share of young adults in higher education in India has more than doubled over the years. However, increased variation is visible among young adults in education across states. Also, Bihar (13%) and UP (15%) are among those with a higher share of young adults in education, compared to Gujarat (10%), Karnataka (11%) and Tamil Nadu (12%). Punjab, Haryana, Maharashtra and Kerala have also seen larger increases of young adults still studying. It is far from clear if the majority of highly-educated young adults are generally employable, given the low average quality of education.
While more are studying for longer, unemployment among young men as a proportion of the population in this age group also rose by 8% from 2004-05 to 12.4% in 2018-19, although UP continues to record a relatively low joblessness rate among young adults. The rise in young adult unemployment has been led by an increase in educated unemployment across Indian states.
With high educated unemployment along with a further expected rise in the supply of educated young people, the following scenario is likely to continue. First, educated adults will continue to look for aspirational jobs and wait for roles that suit them. Second, employers will find most such applicants unsuitable for available jobs, resulting in a much smaller effective pool. Third, as economic growth picks up, the lack of a suitable workforce will hasten a shift towards higher capital intensity and automation, accompanied by higher employee turnover. Fourth, in 2019-20, three-fourths of young women (aged 20-29) were not looking for work. With greater education and changing gender norms, we may expect this proportion to fall with more women entering the country’s job market.
In this context, how do we overcome India’s job problem? While the Centre launched its ‘Make in India’ campaign in 2014 to expand local manufacturing, we now need to spread efforts wider and create a level playing field for the expansion of services such as telemedicine, online education, data centres and other fields where the covid pandemic has opened up an export market. To participate in the world market for services, we need our regulatory framework on issues such as data privacy to match international standards, and the upcoming budget can make a push towards it. We also need an increased focus on vocational, technical and skill-based education. This must become a more socially-acceptable form of education, while popular demand for old-fashioned degrees needs moderation.
Even within manufacturing, we need to expand newer sectors, as youth with degree-level education do not want to settle for jobs in older industries such as textiles. Further, along with production-linked incentives currently in place, we also need to lower import tariffs for our firms to be able to source inputs around the world at the best prices and remain globally competitive.
Every policy tweak in the upcoming budget should apply this test: Will it help create productive and appealing jobs for young adults? That is the only way to raise prosperity for the majority of Indians. An urban job-guarantee scheme, which is almost sure to become permanent once announced, will not achieve this objective. In the meantime, those who need support should be helped with a temporary expansion of direct income transfers.
The article is based on a joint ongoing research project with Sowmya Dhanaraj and Sankalp Sharma
Vidya Mahambare is professor of economics, Great Lakes Institute of Management, Chennai
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