India's Employment: ILO Insights

  Apr 02, 2024

India's Employment Challenges: ILO Analysis

India’s Labour Force Participation Rate (LFPR) and Employment Challenges

The International Labour Organization’s (ILO) India Employment Report 2024, co-authored with the Institute of Human Development, shines a light on the nuanced and complex employment landscape in India. Despite India’s potential to harness its demographic dividend, the report underscores the stark reality of a large working-age population engaged in low-productivity agricultural work and facing underemployment. This detailed exploration seeks to unpack the findings and implications of the ILO report, offering a comprehensive understanding of India’s employment challenges.

Overview of India’s Labour Force Participation Rate (LFPR)

The LFPR, representing the proportion of the working-age population either employed or actively seeking employment, stands at 55.2% in 2022, slightly below the global average of 59.8%. A concerning aspect highlighted by the report is the decline from 55.9% in 2012 to 55.2% in 2022, indicating a shrinking active workforce amidst high economic growth. This decline is particularly significant, given it suggests that economic advancements have not translated into equivalent employment opportunities.

Underemployment: A Hidden Dimension of Unemployment

The ILO report introduces the concept of underemployment to capture the essence of the employment quality challenge in India. Underemployment, defined as the condition where individuals are employed but not to their full capacity or skill level, stands as a testament to the inefficient utilization of the labor force. With rates fluctuating around 8.1% in 2012 to 7.5% in 2022, underemployment suggests that a substantial portion of the employed workforce remains willing and able to engage in more productive work.

Economic Growth vs. Employment Generation

India’s economy has witnessed substantial growth over the past decades. However, this growth has been predominantly services-led, contrary to the manufacturing-led growth experienced by developed countries during their economic ascent. The ILO report critiques this growth model for its limited capacity to generate employment, especially for a populous country like India where the workforce is expanding. The report highlights a “falling employment intensity in the growth process,” indicating that economic expansions have not been accompanied by proportional increases in job creation.

The Demographic Dividend Dilemma

India’s demographic structure, with a large share of its population in the working-age bracket, presents a potential demographic dividend. Yet, the report articulates concerns over the squandered opportunities, evidenced by the declining youth labor force participation rate from 54% in 2000 to 42% by 2021. This trend underscores the urgency for policy interventions to harness the demographic dividend effectively, through education, skill development, and employment generation initiatives.

Sectoral Shifts and the Predominance of Agriculture

The persistence of agriculture as the dominant employment sector in India, engaging 45% of the labor force, reflects the slow pace of structural transformation. Despite agriculture’s marginal contribution to GDP (16%), a significant portion of the workforce remains employed in this sector, indicating a mismatch between labor allocation and economic output. The report’s findings emphasize the necessity for a strategic redirection towards manufacturing and services, sectors capable of absorbing the labor surplus from agriculture and enhancing productivity.

The Challenge of Capital Intensity and Skill Mismatch

India’s shift towards more capital-intensive modes of production exacerbates the employment challenge, especially for low-skilled workers. The report highlights a notable increase in the skill intensity of employment in industry and services, diverging from the labor market needs of a significant segment of the Indian workforce. This trend calls for focused efforts on skill development and vocational training to bridge the skill gap and enable the workforce to meet the demands of a changing economy.

Policy Recommendations and the Way Forward

To address the multifaceted employment challenges outlined in the ILO report, a comprehensive policy approach is essential. Recommendations include:

• Promoting Sectoral Diversification: Encouraging growth in manufacturing and services to create employment opportunities and reduce dependency on agriculture.
• Enhancing Skill Development: Investing in education and vocational training to equip the workforce with the skills required in a modern economy.
• Fostering Entrepreneurship and MSMEs: Supporting small and medium-sized enterprises and startups as engines of job creation and innovation.
• Improving Labour Market Flexibility: Reforming labor laws to increase market flexibility while ensuring worker protections.
• Expanding Social Security: Broadening social security coverage to include the self-employed and casual laborers, ensuring a safety net for all workers.

The ILO’s India Employment Report 2024 serves as a critical call to action for policymakers, highlighting the urgent need for targeted interventions to unlock India’s employment potential and secure a prosperous future for its workforce.



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