Interview: India is making a mistake by increasing contract labour instead of quality jobs

India needs to create good quality jobs, with greater private investment, said Mahesh Vyas, chief executive officer of the Centre for Monitoring Indian Economy in an interview with IndiaSpend. We are making a mistake by increasing contract labour, Vyas said, adding that in order to help families create savings for the future, large companies should be the biggest job providers.

Unemployment in India has hit a six-month high of 8.1% in February. In May 2021, at the peak of the second wave, unemployment hit 11.84%, as per the Centre for Monitoring Indian Economy data.

Vyas described the common picture painted by journalists and “taxi-driver-schooled psephologists” of the unemployed as hanging around in small groups at street kerbs, around tea stalls or cigarette shops, as an accurate but incomplete description.

What conclusions can we draw from these kinds of observations? Another interesting point that Vyas has made is that most such streetside kerbs do not see women standing there. How do we account for the missing women in India’s workforce? More interesting is the larger question: who is really employed and who is really unemployed? We speak to Vyas about these questions and more.

Edited excerpts from the interview:

In India, as we stand here today, what does the concept of employment or the concept of unemployment mean?
A person is considered to be employed if they are engaged in any activity for wages or for profit. So, if you are employed in a company and it pays you wages, then you are employed. If you are an entrepreneur, then you are working for profits, and you are employed even then.

You could also be producing goods and services for your own consumption – related to agriculture, specifically, which is the production of agricultural output for your own consumption, in your backyard or in your farms.

You are still considered to be employed. But principally, you need to be engaged in an activity that either pays you wages or profits, or you are producing those goods for your own consumption. Then you are employed.

You are unemployed if you are not engaged in such an activity for wages or profits, and you are actively looking for work. Only then, you are called unemployed. If you are just sitting at home, and you decide that you do not want to work – you say, “I am a retired person, I do not want to work anymore, I have hung my boots.” – then, you are not unemployed. You are just out of the labour force. So only those people are considered to be unemployed, who are not engaged in any economic activity, which is for wages or profits, and who are actively looking to get such jobs and are not finding them.

To use your anecdote of people standing at street corners or kerbs, or in villages maybe sitting on charpoys and chatting, where do they fit?
Well, the people sitting on charpoys in villages may be employed. I mean, they can take a break and be sitting on the charpoys, but they could otherwise be working on the fields. It depends on what these people are doing when they are not standing at the kerb. And whether, when they are not standing at kerbs, they are actively looking for jobs or not.

There could be a person who says, “I am the son of a very rich person, I can hang around on the street kerb, do nothing over here, or be in clubs and do nothing, unoccupied and unwilling to work.” That is possible.

The people who are there at the street kerbs often do reflect unemployment in the country. So when there are lots of people who actually have nothing to do – they are keen to work, but they cannot find work. They just hang out there, they do not even look for jobs because they know that none are available. So the small crowds around the stalls are a reflection of unemployment. But the unemployed are not [just] the ones who are standing at the kerbs. Unemployment is a lot more than that. But, the spillover happens into these kerbs.

When we say there is 8% unemployment today, what would that number be versus the number of people who belong to this category of seeking employment but not finding it at this point?
The working-age population includes all those people who are 15 years and above. Let us say that number is 100. Of that, about 40 are in the labour force, and 60 are out of the labour force.

This means 60% of these people are neither working nor are they willing to work. And they are not looking for any work as well. They are sitting at home and they have decided they do not want to be engaged in any economic activity.

Of the 40 in the labour force, about 37 or so are employed and the remaining three are not. The unemployment rate is this three as a per cent of 40. That is what gives you that number of around 8% unemployment.

How does India compare to other countries on the figure of 60% people out of the labour force?
It is very high in India. In most countries, this number is something like 40%. The labour force participation rate in India is close to 40%. And in most countries, it is around 57%-60%. So, our labour participation rate is very low.

And what explains this difference, or what are the factors that are driving this?
The biggest difference between other countries and India is our women do not do [paid] work as much as in other countries. The female labour force participation rate in Bangladesh is around 53%. In India, according to the Centre for Monitoring Indian Economy statistics, it is pretty low – around 11%-12%. According to official statistics, it is a little higher, but even that is only around 24%. So why is Bangladesh at 53% and why are we at 24% or 12% (according to what the Centre for Monitoring Indian Economy says)?

It is this extremely low female labour force participation rate that is at the root of the low overall labour force participation. Mind you, women account for around 50% of India’s population. If a large chunk of them do not enter the labour markets, our labour force participation rate is going to be low.

To go back to your anecdotal observations, we do not typically report of women who are not standing at kerbs because we don’t see them. And this problem is obviously more invisible, in perception.
That is right. You do not see women as unemployed as much. But women do not even enter the labour markets. They do not even look for jobs as much as men do. A recent Pew Research report said that women believe, in India, that men have a greater claim over jobs than they have. So that is also reflecting what is going on over here, that women participate less in the labour markets than men in a big way, and much less compared to what they do in other parts of the world as well.

What could move the needle there – the difference between India and the rest of the world in those who could be working but do not?
I think we require more jobs. We require more good quality jobs. I believe that, when push comes to shove, a man can go to the next town to find a job and come back. He will trudge all the way, difficult transportation, difficult working conditions, he will bear all that because it is absolutely necessary for the household to have some income coming home.

It is not considered to be equally safe for a woman to make that same journey to the next town and work under conditions that are not entirely safe and come back home safe.

So oftentimes, it is a lack of good quality jobs. If good quality jobs are available, if good transport is available, I see no reason why women should not be willing to go to work. I think it is a supply-side problem, that we do not produce sufficient quantities of good quality jobs.

Why are there so many graduates yearning to join government jobs in Uttar Pradesh and Bihar, as we saw recently? That is because there are no good quality jobs anywhere else. If you join the private sector, it is very likely you will get fired very soon. So it is the failure of the country to produce good quality jobs, good infrastructure, to enthuse women to come out to participate in the labour markets.

Both in the case of unemployment broadly and more specifically in the case of women in the workforce, how do we improve our understanding? Because the women’s unemployment factor is more invisible or at least is not sufficiently visible to necessitate the right policy responses.
It is not visible because women do not participate. They do not come out to the streets. But mind you, the official data do tell us – and therefore, it is visible – that women are not participating in the labour markets. Official data have been telling us for a long time, right from the beginning, that the labour force participation rate in India is low – and falling.

Centre for Monitoring Indian Economy is just saying that the situation is much worse than what the government is telling us – because the government statistics seems to consider any person to be employed if the person is working even for just half a day in a seven-day period. Centre for Monitoring Indian Economy says that you need to be more meaningfully employed to be considered to be employed. And by that measure, the female labour force participation rate collapses. So it is there everywhere that we can see that women are not participating in the labour markets. They are not seeking employment, and that is a big loss to the country.

If you were to look at it perceptually, as journalists and “taxi-driver-schooled psephologists”, how would you do it – suppose you were in one of those taxis passing through a village in central India?
I would be aware of the fact that women do not hang out on kerbs. And what my data show is that a large part of them are actually homemakers. They sit at home, and they are taking care of the rest of the family. And they are simultaneously applying for jobs. They do not hang out.

The number of people hanging out is really very small. It’s just 7% of the total unemployed. [And] 77% of the unemployed are actually studying. So what are those people who are looking for government jobs doing?

They are studying – for competitive examinations, to clear those various hoops to get into a railway job, for example, or any similar examination. So 77% of the unemployed are students. Even the men are not hanging out as much. And 15% of them are women who are homemakers, Only 7% are hanging out.

If I were to now spin forward a little bit, we have gone through two plus years of Covid-19, we have seen dramatic shifts in the economy. We have seen the collapse and the resilience and recovery to some extent. What are the data showing us today in terms of what we have been through, and what are the data not showing or are unable to show?
Well, the data show us that the lockdown, not Covid, caused the severe shock to people employed in the unorganised sectors. So people who are employed as daily wage workers who get their income by standing at the kerb – but these are labour market kerbs, where a plumber or a carpenter or a painter stands waiting for a contractor to pick him up and take him to a job site – those people lost employment instantaneously. And when the lockdown was lifted, they got their jobs back again.

But the data also tell us that they have lost income, and the jobs have come back at lower wage rates. So the hit on employment was recovered fairly quickly. But the hit on wages is taking much longer. Even today, we see that only around 12% of the households are telling us that their income today is higher than a year ago.

Mind you, a year ago, they were pretty bad. We were in the middle of the pandemic. So their perceptions are badly hit. I am sure the incomes are also hit. Even the data tell us the income in nominal terms has not risen. So the hit is really quite bad because of the lockdowns.

The larger point that you are making is that the “delinking of activities from employment status allows us a better understanding of what the unemployed do”. You have talked about how we have to create jobs, and that in itself will solve the problem. But as we strive towards that, is there anything else that you are thinking about, which could help us address the larger problem of jobs?
Well, I think what is most important, let us first start with the very basics that we require to recognise at the government leve, that there is a challenge India has been facing, for a long time, of employment. And I do not call it the unemployment problem. It is the employment problem, which is that we do not produce good quality jobs.

What is critically important is that we are required to produce good quality jobs. How is that going to come? By investments by the private sector – whether it is manufacturing industries, which gave us jobs in the ‘60s and ‘70s, in a big way, even to the ‘80s, or the services sector in the 1990s and in the years thereafter.

But till it is not Tata Motors and Infosys kind of companies, till it is going to be cart-pushers, we are in trouble. We require the large companies to be the biggest providers of jobs. We cannot say and we should not say that jobs will be provided by contract – contractors supplying contract labour to manufacturing – that is a disaster, because that does not supply good quality jobs, it does not create households that can create savings for their future.

So I think we are making a mistake by increasing contract labour. We are making a mistake by not recognising that the private sector is still not investing aggressively enough to create the good quality jobs that we need. And therefore people are increasingly going into calling themselves as farmers or becoming daily wage workers.

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.