Creating good jobs for young Indians: Insights from recent research

Young Indians – who are often more educated and have greater aspiration than previous generations – are seeking ‘good jobs’. Yet, such jobs are not available to the majority. To mark International Workers’ Day, I4I Deputy Managing Editor Nikita Mujumdar summarises some recent research on job creation amidst the structural transformation of the economy, rapid urbanisation, and rise of digital labour market platforms.

Sanjeev Sanyal, Member of the Prime Minister’s Economic Advisory Council (PM-EAC), recently remarked that there is “poverty of aspiration” among youth in India, with many young people investing years in preparing for civil services exams rather than considering alternative career paths. While this has drawn criticism from the bureaucracy as well as other commentators in the media, a study by Mangal (2023) aligns with Sanyal’s view: analysing a partial hiring freeze in the public sector in Tamil Nadu, he finds that the extreme competitiveness and time spent preparing for such exams could indeed have an negative impact on employment rates, earning capacities, and even on elder household members who may delay retirement to compensate for the income shock.

More educated than their parents and with greater aspirations – driven in part by the country’s rapid economic growth – young Indians are seeking ‘good jobs’. Since these do not feature in the choice set of the majority, they perceive public-sector employment as one of the only means of possibly achieving upward mobility and financial security.

The challenge of creating good jobs has been extensively on I4I over the years: in 2017, Ashok Kotwal pointed out that the need of the hour was “to create, not just growth, but growth with jobs, and not just jobs but good jobs.” Similarly, in an I4I e-Symposium that Sen and Singh (2022) hosted on the issue, they highlight the frustration of India’s educated youth with the shortage of good jobs in both the public and private sectors. To mark International Workers’ Day, this post summarises some recent research on the creation of jobs amidst the structural transformation of India’s economy, the trend of rapid urbanisation, and the rise of digital labour market platforms.

Shift from agriculture to services

With increases in agricultural productivity, the surplus workers released from farms have not been effectively absorbed into the organised sector (Kotwal 2017). Fan et al. (2021) highlight how, between 1987 and 2011, the share of agricultural employment declined substantially – but manufacturing employment was entirely stagnant, and instead workers mostly moved into the services sector (and to a lesser extent construction).

The growth of the services sector could certainly have positive spillover effects. For instance, Avdiu et al. (2022) find that growth in tradable services (such as telecommunications and transportation services) not only has a positive impact on employment in non-tradable services, but can also have broader implications for productivity of downstream manufacturing firms.

The expansion of the services sector, such as the IT boom experienced by a few major Indian cities, has had wider welfare effects as well. Ghose (2022) finds that for those born in districts where they had access to good jobs and education, every percentage increase in IT exports, led to welfare gains of 0.51%, as compared to 0.05% in other remote districts.

However, others such as Mitra (2022) argue that, since only a small proportion of the population are qualified for good jobs in the service sector, India must focus on large-scale, labour-intensive manufacturing to address the jobs problem.

Driving job creation in manufacturing

As Kotwal and Sen (2019) point out, the Indian manufacturing sector (especially labour-intensive segments) does not require high-skilled workers. Therefore, surplus labour from agriculture can move into labour-intensive manufacturing with minimum additional training.

Regulation plays a key role in driving (or disincentivising) employment in the manufacturing sector. With the introduction of labour reforms concerning firm-employment size and the consolidation of labour regulations, the effective costs of employing labour in the manufacturing sector can be expected to go down Mitra (2022). Goldar (2023) documents that employment in India’s formal manufacturing sector grew by 5% annually between 2004-05 and 2018-19 – he attributes about 15% of this fast growth to the formalisation of previously informal enterprises.

In Rajasthan, Chaudhary and Sharma (2022) demonstrate that while the the Industrial Disputes (Amendment) Act, 2014¹eased the regulatory costs on firms, it increased the employment of contract workers by about 124%, while resulting in a 19% reduction in the permanent workforce due to the switch to a less-regulated form of workforce. This seemingly counterintuitive finding suggests that the amendment may have eased regulatory constraints on contract labour hiring in firms, at a time which coincided with a nation-wide acceleration in the use of contract labour.

Hasan (2022) highlights the importance of urbanisation to meet India’s jobs challenges – cities are home to larger manufacturing and business sectors than rural areas and present more work opportunities and the possibility of higher wages. Investment in infrastructure, spatial planning and optimal land-use management could further help realise India’s potential for urbanisation and spur economic activity in cities.

Social protection and inclusivity

Growing urbanisation needs to be complemented by policies to ensure that people moving into cities have access to decent work. In 2020, Jean Drèze presented a proposal for DUET (Decentralised Urban Employment and Training), an urban work programme intended to provide social protection for the urban poor, while still holding the possibility of generating valuable assets and/or services (for more of his thinking about the implementation of DUET, see Drèze (2021)). In a subsequent note, Choragudi (2022) investigates the success of such a programme in Himachal Pradesh – the Mukhyamantri Shahri Ajeevika Guarantee Yojana (MMSAGY), which guarantees 120 days of wage employment to every household. Despite challenges in implementation, she argues that such a scheme can act as employment of the last resort in urban areas – especially during crises like the recent pandemic.

In their research, Cassan et al. (2021) establish that workers’ social identity affects their occupation choices – a large share of workers take up their caste’s traditional occupation, which can lower productivity by keeping high-ability individuals in low-return occupations, instead of allowing them to choose the occupation in which they are most productive. Could affirmative action solve this? Evaluating the effectiveness of quotas in public sector employment, Prakash (2021) finds that an increase in the employment quota for Scheduled Castes (SC) in rural areas increases the likelihood of obtaining a salaried job. This impact is most pronounced in less economically developed states and among the least-educated SC workers.

In a field experiment conducted among Rohingya refugees of Myanmar, Hussam et al. (2022) find that employment has psychological benefits that go beyond income generation: employed individuals were less likely to be depressed and to report feeling physically ill, and performed better on memory and math tests.

Investing in workers and work environments

Looking into volatility in employment of temporary workers during three periods of economic uncertainty – the Global Financial Crisis, demonetisation, and the Covid-19 pandemic – Bhandari et al. (2021) show that firms use temporary workers to adjust to the changes in demand for their goods and services, increasing worker vulnerability. This is likely to have an adverse impact on their mental health and stress levels regarding their financial situation.

Research has proven that content workers are better workers. In the context of the garment industry, Adhvaryu et al. (2021) find that worker attrition is especially high after wage increases, which may be due to their dissatisfaction with the post-increment earnings. However, they find that allowing workers to participate in an anonymous employee satisfaction survey created an opportunity for respondents to voice their grievances – thereby helping mitigate disappointment and reducing quit rates.

In a subsequent study (Adhvaryu et al. 2023) uncover that in addition to worker voice, investing in workers’ soft skills and training to improve managerial quality increased manufacturing productivity. Further, investing in improving the physical environment and working conditions in factories – for instance, through the adoption of environmental-friendly LED lighting – positively impacts productivity in hot climates.

Additionally, Kaur et al. (2021) find that providing workers with an interim payment a few days before the end of their contract reduces financial constraints and alleviates their mental burden – consequently leading to improvements in workers’ focus and increases in productivity.

Connecting workers with good jobs

Even if an adequate number of good jobs were created, how could job seekers be efficiently connected to the opportunities most suitable for them?

Arulampalam et al. (2021) evaluate the Deen Dayal Upadhyaya Garmeen Kaushalya Yojana (the Ministry of Rural Development’s national skills-based training programme to promote formal salaried employment) – what makes this programme unique is that every trainee is guaranteed to be offered a job placement. The researchers find that providing trainees with information sessions about the programme and prospective jobs did not increase programme completion rates, but ensured that trainees were more likely to stay in the jobs in which they were later placed for at least five months.

However, in a field experiment in Uganda, Bandiera et al. (2024) notice that job seekers who are matched with firms in addition to receiving vocational training have worse labour-market outcomes than those who just receive the training. They attribute this to the discouragement effects of having a higher expectation of receiving a call-back, which doesn’t align with the actual call-back rate. This highlights the need to design labour market policies in a way that that takes into account demand and supply conditions, and workers’ responses to information.

Even in the unorganised sector, the ways in which people seek out employment have changed over the past decade. Digital platforms enable efficient job search by lowering search costs and increasing the ease with which workers can match with job providers.

A 2021 ILO report reveals that the number of digital labour platforms across the world have increased by five times over the last decade, with India contributing to this statistic. Around 8% of all labour market platforms are concentrated in India, with a 2022 NITI Aayog report estimating that 1.5% of the workforce were engaged in gig or platform work in FY2021-22 – this figure is expected to rise to 4.1% by 2029-30.

Although an overwhelming majority of the workers on these platforms are men, this technology also holds the promise of employment for women – particularly low-skilled women, or those who prefer home-based work – by providing flexible and hyperlocal work options. However, access to digital labour platforms needs to be augmented by providing women with skill training, and investing in public infrastructure such as street lighting and safe transport to alleviate their mobility concerns (see Afridi (2023), Arya (2023) and Ganguly (2023) for more perspectives on the gig economy).

Future of work

Yet, the employment landscape may transform even further in the coming years. Bloom and Singh (2022) have spoken about how the ‘work from home’ model that was established during the Covid-19 pandemic is likely here to stay, in some form or the other. This will allow people who have previously had to drop out of the workforce – including mothers with young children and older employees looking to transition away from their roles – to continue to engage in productive employment. Copestake et al. (2022) also point out that demand for talent with artificial intelligence (AI) skills has taken off around the world, with the increase in AI adoption having a negative effect on the growth of non-AI roles.

As India’s relatively young population continues to seek good jobs, these challenges will rear their head, necessitating well-framed policy measures, smart investments in social and physical infrastructure, and access to job-relevant upskilling and re-skilling, to prepare for this new future of work.

Note:

A few states, including Andhra Pradesh, Haryana, Madhya Pradesh, Maharashtra, Rajasthan, and Uttarakhand have raised the threshold for the applicability of the Industrial Disputes Act from 100 to 300 workers.