Are Enough Formal Jobs Being Created?

What’s in today’s article?

• Why in the News?
• Current State of Employment in India
• Employment Schemes Announced in the Budget
• Challenges in Implementation of Such Schemes
• Effectiveness of the Schemes
• Conclusion

Why in the News?

• The Union Budget for 2024-25 showed that creating jobs is a top priority for the government, as the finance minister mentioned it 23 times in the budget speech.
• With many people unhappy about rising unemployment in the recent election, Prime Minister Narendra Modi has supported a package of schemes focused on employment.

Current State of Employment in India

• According to the Economic Survey, India's workforce in 2022-23 was approximately 56.5 crore:
  • 45% employed in agriculture,
  • 11.4% in manufacturing,
  • 28.9% in services, and
  • 13% in construction.
• Although the official unemployment rate was 3.2%, these statistics often mask the reality of underemployment and informal work.
• Many job seekers are either engaged in farming, casual labor, or unorganized retail, and nearly one in five workers, primarily women, are unpaid in household enterprises.
• Urban unemployment for the quarter ending March 2024 stood at 6.7%, with youth unemployment at 10% in 2022-23.
• Despite policy efforts to formalize the workforce, the percentage of regular salaried workers dropped from 22.8% in 2017-18 to 20.9% five years later.
• Many salaried workers lack contracts or social security benefits, which are essential characteristics of formal employment.

Employment Schemes Announced in the Budget

• First-time Employee Subsidy: A wage subsidy of up to ₹15,000 for hiring first-time employees, expected to cover one crore individuals.
• Manufacturing Sector Subsidy: Wage subsidies for first-time employees in manufacturing, with incentives up to 24% of a ₹25,000 monthly wage for four years.
• New Worker Incentive: Reimbursement of up to ₹3,000 of the employer's monthly EPFO contribution for hiring new workers.
• Industrial Training Institutes (ITI) Upgrade: Enhancing ITI facilities to boost skills, benefiting 20 lakh students.
• Internship Program: On-the-job skilling for one crore youth with internships in top companies, offering a monthly allowance of ₹5,000 for one year.

Challenges in Implementation of Such Schemes

• Economists and small industrialists highlight potential obstacles in these schemes.
• For instance, the first-time employee subsidy, paid in three installments, requires the employee to complete an online financial literacy course for the second installment, which may be impractical across different sectors.
• Additionally, employers must refund the subsidy if the employee leaves within 12 months, deterring small employers from participating due to the financial risk involved.
• The manufacturing job creation scheme requires hiring at least 50 people or 25% of the existing workforce, which is a significant burden for small firms seeking marginal benefits.

Effectiveness of the Schemes

• These schemes aim to reduce the cost of hiring new employees.
• However, economists argue that wage costs are not the primary constraint.
• The real issues lie in insufficient demand, low consumption, and lack of private investment. Skilling, while important, is not the central barrier to hiring.
• Additional Measures Needed:
  • To create meaningful employment, efforts should focus on the MSME sector and labour-intensive industries, particularly in small towns.
  • Increasing wages in these areas and infusing capital into MSMEs can have a multiplier effect on the economy.
  • Another recommendation is to enhance the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wages and create a similar scheme for urban workers to stimulate consumption and demand directly.

Conclusion

• While the government's employment schemes are a step in the right direction, addressing deeper structural issues such as low demand, underinvestment, and the need for formal job creation in labor-intensive sectors is crucial for sustainable employment growth in India.

Q1. Who releases the Economic Survey Report?

The Economic Survey of India is an annual document of the Ministry of Finance, Government of India. The Department of Economic Affairs, Ministry of Finance presents the Survey in the Parliament every year, just before the Union Budget.

Q2. What is the objective of PLFS?

The Periodic Labour Force Survey (PLFS) gives estimates of Key employment and unemployment Indicators like, the Labour Force Participation Rates (LFPR), Worker Population Ratio (WPR), Unemployment Rate (UR), etc.

Source: Are enough formal jobs being created?