People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 51

December 22, 2013


Employment during the Boom

          Prabhat Patnaik


THERE exists a whole tribe of economists, by no means a small one, which debunks every attempt at income redistribution in the country as “populism”, and which insists that the growth of the Gross Domestic Product must be given absolute priority. This tribe applauds Narendra Modi’s “development” agenda, which entails enticing corporates, both domestic and foreign, to invest in one’s own domain by offering them generous incentives. In short, this tribe welcomes every effort to shift the income distribution in favour of the capitalists, but runs down every effort to shift it in favour of the working people. And, ironically, it does so in the name of poverty removal!




The proposition that in order to remove poverty you must transfer more resources to the rich rather than to the poor themselves, is not argued on any contingent grounds. The argument is not that the Gross Domestic Product is too small now to provide much to everyone through its redistribution, and that therefore it must be allowed to grow to a certain size, through transfers to the capitalists (which are supposed to promote growth), before any such redistribution is attempted. Had that been the argument, the proponents of this view should have specified what that threshold level of the Gross Domestic Product is, at which State policy should switch from transfers to the rich to transfers to the poor. The fact that they do not do so, implies that this argument can always be made, at all times to come, whenever there is any talk of redistribution towards the poor. In short, it is an argument that rules out such redistribution altogether.


The fact that it nonetheless speaks of promoting growth through transfers to the rich as a means of overcoming poverty, suggests therefore that it believes the growth of GDP itself to be sufficient for poverty removal. This could happen if GDP growth was not accompanied by much worsening of income distribution; for in that case even those, who are at the bottom of the population in terms of living standard, would also witness an absolute improvement in their condition.


For this to happen, however, the GDP growth should use up the labour reserves in the country. If it does, then there would be, at some point in the growth process, an increase in real wages; and the continuation of growth would thenceforth keep increasing the real wages of the working population and hence its living standard. But if growth does not use up the labour reserves, i.e. if the increase in labour demand it causes is smaller than the increase in labour supply, consisting of both the natural increase in the workforce through the rise in population, and the increase on account of migration out of a distressed petty production sector, then absolute poverty will keep rising for the working population, no matter how high the growth rate.


The question that naturally arises in this context, therefore, is: what has been our experience? During the period when the Indian economy was supposedly experiencing extraordinarily high rates of GDP growth, how high was the growth-rate of employment?


Between 2004-5 and 2009-10, when the National Sample Survey Organization carried out its large sample surveys on employment (these are usually five years apart), the GDP (at factor cost) in real terms (2004-5 prices) increased by 8.73 percent per annum, which was, by international standards, and by the historical standards of this country itself, a remarkably high figure. But precisely between these two years, according to the NSS, the annual rate of growth of “usual principal status” employment in the age-group above 15 years, which is computed by taking note of what people themselves declare to be their principal activity during the reference period on a usual basis, was a mere 0.88 percent! (This and other employment figures below are taken from two articles by C P Chandrasekhar and Jayati Ghosh in Business Line.)


When the NSS results came out, the Government of India was in a panic because of this abysmally low figure. Government spokesmen declared that because the reference period for the 2009-10 survey fell in a drought year, the level of employment had been particularly low, and taking it as the end-point underestimated the genuine trend of employment growth. To get a “correct” picture, the government actually took the trouble of ordering another large survey. Since such large surveys occur only once in five years and the next one after 2009-10 was due only in 2014-5, this was an extraordinary step to take.


A new survey was duly undertaken in 2011-12. Now, between 2004-5 and 2011-12, the growth rate of GDP (at factor cost) in real terms was 8.45 percent per annum, again a remarkably impressive figure by any standards. But the growth rate of “usual principal status” employment for the age group above 15 years was an abysmal .85 percent per annum! In other words, shifting the end-point and making a fresh survey that would “rectify” the passing effects of the drought had made no difference whatsoever to the rate of growth of employment. If anything it had marginally come down!


This is hardly surprising. In absolute numbers, 17 million jobs were created in this category, “usual principal status” above the age of 15 years, over the five year period 2004-5 to 2009-10; but, even over the seven-year period 2004-5 to 2011-12, the number of jobs created was only 23 million! By contrast, between 1999-2000 and 2004-5, when the GDP growth rate of the economy was much lower than what it became after 2003-4, 50 million jobs had been created. The dramatic acceleration in GDP growth rate in other words had been accompanied by a dramatic deceleration in the growth rate of employment.


The proximate factor behind such abysmal overall employment growth of course is the sharp fall in the number of employed rural female workers. There has been much discussion on this, and some have claimed that this is because more women are now receiving education and have therefore dropped out of the work-force. But this cannot explain such a sharp decline, as much as 18.4 million between 2004-5 and 2011-12 (and 9.2 million between 2004-5 and 2009-10). Besides, such a decline is also noticeable if we take the age-groups above 24 years, by which time the stint in educational institutions is over for most people.


The conclusion is inescapable that the primary reason for the decline in female employment is the lack of growth in employment opportunities, which particularly affects women, because the activities where they normally find employment have been even slower to grow than the others. In other words the drop in female employment is a particularly sharp manifestation of the general trend of insufficient increase in overall employment opportunities.


The magnitude of the problem will become clear through a simple calculation. Let us assume that female employment showed no drop whatsoever, i.e. that the magnitude of female employment in 2011-2 was exactly the same as in 2004-5. In that case the growth in overall employment between the two dates would have been 1.48 percent per annum which is still below the rate of population growth. At these employment and population growth rates, even without taking into account the migration from the distressed petty production sector, i.e. even assuming no displacement from this sector owing to its incapacity to maintain simple reproduction in the face of the encroachment by corporate capital, the labour reserves in the country would never get used up.




Growth under these conditions is necessarily inequality-engendering and poverty-enhancing. The reason for its being inequality-engendering is obvious. If a sector grows rapidly in terms of output but not employment, then its labour productivity rises relative to the rest of the economy. If the real earnings of those employed in this sector do not grow at the same rate, then the share of surplus increases over time which is inequality-engendering. Even if the real earnings of the workers in this sector increase at the same rate as labour productivity, that still means (if the share of surplus in this sector was higher than the average for the economy as a whole to start with), an increase in the overall share of the surplus; but it also means, in addition, that a tiny segment of the work-force improves its living standard compared to the rest. If this tiny segment was better off than the rest to start with, then we have an additional reason for an increase in inequality.


In India, as a consequence of the recent boom, the rapidly growing sectors such as finance, insurance, real estate, telecommunications, and IT-related services have come to account for about 20 percent of the GDP, even though they provide less than 2 percent of the total employment. These sectors are characterized by higher shares of surplus in output, as well as higher earnings per capita of the employees, compared to the rest of the economy. Their growth therefore is clearly inequality-enhancing.


But such growth also increases the relative magnitude of absolute poverty. The fact that the rate of growth of employment is lower than the increase in the work-force, implies that a larger and larger proportion of the work-force is forced to join the reserve army of labour and hence experience absolute poverty. In addition, for this very reason, the active army of labour too does not experience any increase in its real wage rate, so that the increase in the relative numbers of the absolutely impoverished is not even mitigated by an increase in real wage elsewhere.


Of course, in today’s context no physical distinction can be drawn between the active and the reserve armies of labour, since “informalisation” of work basically means that a given amount of work gets shared among all. Almost every worker in other words belongs both to the reserve army and to the active army. But the conclusion about a relative increase in the extent of absolute poverty remains unaffected by this fact.


Those who oppose redistribution and put their faith on growth therefore are wrong in their argument. But those who advocate redistribution, other than as a transitional demand (in Lenin’s sense), i.e. who believe that significant redistribution, of the sort that can overcome absolute poverty, is possible within the existing framework of capitalism, are chasing a chimera.