The Indian Labour Market:
Institute of Economic Growth
Delhi University Enclave
Economic growth does not seem to be generating employment opportunities for the poor on a large scale. During the nineties the economic growth was not accompanied by rapid growth in employment. The most interesting part is that employment growth in the agriculture sector has revived which has indeed contributed to the rapid employment growth experienced during the first five years of the present century (1999-2000 through 2004-05). The other feature is that some of the dynamic sectors have continued to grow rapidly, generating employment opportunities. However, most of the activities in these sectors are less likely to absorb the poor who are mostly unskilled, and hence the direct effects of growth on poverty are still not spectacular. All this is compatible with the fact that the extent of decline in poverty after 1993-94 has been slower than the extent of decline between 1983 and 1993-94. While economic growth is a necessary condition for poverty reduction it is not sufficient, as brought out by the inter-relationship between value added growth and poverty incidence across states. For the positive effects of growth to be felt on low income households employment at decent wages has to be generated at a rapid pace.
Key word: labour market, casualisation, informal sector
The Indian Labour Market: An Overview
The concept of pro-poor growth envisages acceleration in economic growth with concomitant growth in employment opportunities for the poor. This can be achieved when productivity growth, employment growth and rise in real wages take place simultaneously at a rapid pace.
India's economic growth over the last two decades has been quite robust – expanding at over 5 percent per annum. In recent years, growth rate has reached 7 – 8 percent. Employment, on the other hand has not grown so fast. The employment growth rate decelerated from 2.04 per cent per annum between 1983 and 1993-94 to 0.98 per cent per annum between 1993-94 and 1999-00. Employment in the organized manufacturing sector grew at 1.20 and 0.53 per cent per annum over the eighties and nineties respectively. The decline in the organized sector employment is partly due to the downsizing of the public sector. The unorganized sector employment growth also witnessed a deceleration from 2.19 per cent per annum during the eighties to around 1 per cent over the nineties. There was a missing link between the rise in economic growth and the reduction in poverty that took place during the nineties.
In this backdrop of 'jobless growth' in the Indian economy in the last few years, creating an environment of 'pro poor' growth becomes even greater a challenge. In the recent years (between 1999-2000 and 2004-05) the employment growth rate has picked up. The 61st round survey of the NSSO shows that employment growth rose considerably (to nearly 3 per cent per annum) over the period from 1999-00 to 2004-05 though the extent of decline in poverty has been much slower after 1993 compared to what was experienced over 1983 to 1993-94. This tends to indicate that in the recent years economic growth and employment generation both have been more beneficial to those located at the upper income strata than the poor. In other words, in the present situation of economic growth employment is generated more for the educated labour force than for the poor with lower levels of human capital. All this is likely to have resulted in increasing inequality.
It is in this context that the present paper focuses on economic growth, employment and poverty scenario in last two decades or so. The organization of the paper is as follows. Section 2 deals with the worker-population ratio, section 3 focuses on sectoral shifts and growth in value added and employment, and section 4 examines the trend in unemployment rate. The composition of employment in terms of formal-informal sector is examined in section 5 and employment elasticity and labour productivity are analysed in section 6. Section 7 focuses on work and poverty and main findings are summarized in section 8.
II. Worker–Population Ratio
Worker-population ratio is a broad indicator of availability of job opportunities, though the impact of residual absorption of labour or the phenomenon of working poor is also included in the ratio, and not just the effect of demand side factors. The aggregate work participation rate (usual principal status) for both the sexes in all areas (rural plus urban combined) remained by and large stable if we compare 1983 and 1993-94. However, there was a dip in 1987-88 and thereafter in 1999-2000. The rate reached an unprecedented magnitude of 38 per cent in 2004-05 (Table 1).
The work participation rate among males (usual principal status) show that around half of the male population have been working. The work participation rate increased by one percentage point between 1983 and 1993-94 (excluding 1987-88 as it was a drought year) and subsequently dropped to 52 per cent in 1999-2000 before it could be restored in 2004-05 marginally above the 1993-94 figure. Among the female population on an average only one-fifth have been working. The principal status work participation rate dropped by one percentage point in 1993-94 and 1999-2000 after remaining a little below 22 percent in 1983 and 1987-88. In 2004-05 the pre-ninety figure seems to have been restored back. While the subsidiary status work participation rate among males is miniscule among females it is of a considerable magnitude, which fell perceptibly in 1999-2000 in comparison to 1993-94 and seems to be reviving in 2004-05.
Table 1: Usual Status Work Participation Rate
1983 1987-88 1993-94 1999-00 2004-05
PS SS PS SS PS SS PS SS PS SS
Rural Male 52.8 1.9 51.7 2.2 53.8 1.5 52.2 0.9 53.5 1.1
Rural Female 24.8 9.2 24.5 7.8 23.4 9.4 23.1 6.8 24.2 8.5
Rural Persons 39.1 5.4 38.5 4.9 39.0 5.4 38.0 3.7 39.1 4.8
Urban Male 50.0 1.2 49.6 1.0 51.3 0.8 51.3 0.5 54.1 0.8
Urban Female 12.0 3.1 11.8 3.4 12.1 3.4 11.7 2.2 13.5 3.1
Urban Persons 32.0 2.0 31.5 2.2 32.7 2.0 32.4 1.3 34.6 1.9
All Areas Male 52.1 1.7 51.2 1.9 53.2 1.3 52.0 0.7 53.6 1.1
All Areas Female 21.8 7.8 21.7 6.8 20.6 8.0 20.3 5.6 21.5 7.2
All Areas Persons 37.4 4.6 36.9 4.3 37.5 4.5 36.5 3.2 38.0 4.0
Note: PS and SS stand for usual principal status and subsidiary status respectively. UPSS stands for usual principal-cum-subsidiary status workers. The usual activity status relates to the activity status of a person during the reference period of 365 days preceding the date of survey. The activity status on which a person spent relatively longer time (i.e., major time criterion) during the 365 days preceding the date of survey is considered as the principal activity status of the person. If a person spent his major time as working in an economic activity, he is said to be a worker on the basis of principal status. If he pursued some economic activity spending only minor time during the reference period of 365 days preceding the date of survey, he is said to be a subsidiary status worker.
Source: Employment and Unemployment situation in India 1999-2000, Part-I, National Sample Survey Organisation, Report No.458, Government of India, May 2001. Employment and Unemployment Situation in India, 2004-05, Part-I, September 2006.
Among the rural males the principal status work participation rate showed an increase of around 1 percentage point between 1983 and 1993-94 (ignoring 1987-88) and thereafter a marginal fall of around 0.6 percentage point in 1999-2000 (Table 1). In 2004-5 the rate has improved perceptibly, though. Among the rural females on the other hand, the principal status work participation rate fell by slightly more than one percentage point between 1983 and 1993-94, and remained more or less constant in 1999-2000. However, the rate improved in 2004-05.
In the urban areas, the principal status work participation rate remained more or less unchanged among females all through eighties and nineties (ignoring a marginal fall in 1999-2000) whereas among males it improved in 1993-94 compared to 1987-88, and remained stable till 1999-2000. Thereafter both the male and female specific rates shot up in 2004-05. The subsidiary status work participation rate has been negligible both among the rural and urban males, particularly during the nineties. On the other hand, among the females it dropped in both rural and urban areas in 1999-2000, and seems to be reviving in 2004-05.
The age specific participation rates would provide a more realistic picture of the job market. In the young age groups, any decline in the participation rate, may actually reflect a desirable change as it might have resulted from a rise in school enrolment ratio. Table 2 shows that in the rural areas though males in the working age groups did not report any significant decline in the work participation (principal status) rate between 1993-94 and 1999-00, in 50 plus age groups it did decline.
Among rural females the principal status work participation actually increased in most of the age groups, except in the age group below 19 years - the fall being attributed to the rise in school enrolment. The subsidiary status work participation rate, which remained high for rural females all through, witnessed a sharp decline between 1993-94 and 1999-00. There seems to be a substitution of women workers for male workers in the full-time jobs in the rural labour market, which possibly caused a decline in their subsidiary status work participation rate and a rise in their principal status work participation rate in some of the working age brackets, and the brunt of this substitution was borne mainly by the elderly male workers, i.e., 50 years and above.
In 2004-05 though most of the young age brackets (up to 19) experienced a major decline in the male principal status work participation rate in the rural areas it reflects a rise in the school enrollment ratio. However, in some of the working age brackets (e.g. 25-29) the increase is perceptible. Also in the relatively higher age brackets (50 and above) the rate improved in comparison to 1999-2000 though not in relation to 1993-94. Among the rural females the decline in the principal status work participation rate in 2004-05 is evident not only in the school going age groups but also in some of the working age brackets like 20 to 24 and 25 to 29. However, the rise is evident in the relatively higher age brackets, particularly 35 onwards. Based on the 1999-2000 results there was a popular view that higher earnings of the spouse led to a decline in the work participation of women and so also for older persons. However, if that were true the revival of the work participation rate in 2004-05 would not have occurred, a similar pattern would have prevailed for the recent years as well. The deterioration in the job market outcomes in the nineties cannot be ruled out.
Table 2: Age Specific Work Participation Rates in Rural Areas (%)
Age Group Year Rural Male Principal Status Rural Male Subsidiary Status Rural Female
Principal Status Rural Female
60 and above 3
All Ages 3
Note: (1) See Table 1.
(2 1 stands for 1993-94; 2, for 1999-00 and 3, for 2004-05
Source: See Table 1.
In the urban areas, male principal status workers in the nineties reported a decline in their work participation rates in some of the working age groups (25-29, 35-39), in addition to age groups above 55 years (Table 3). In 2004-05 the rate improved in some of the relatively younger working age brackets (20 to 24, 25 to 29 and 30 to 34) not only in relation to 1999-2000 but also 1993-94. However, in the relatively higher age brackets the increase is largely in comparison to 1999-2000. Among women as well in a large number of working age groups (25-29, 30-34, 40 and above) there was a decline in principal status work participation rate during the nineties. All this is indicative of shrinking full-time work opportunities in the urban labour market during the nineties. However, in 2004-05 a number of working age brackets (20-24, 25-29, 30-34, 35-39 and 40-44) registered an improvement in the work participation rate even in relation to 1993-94. This again tends to refute that women work participation rate is sensitive to its male counterpart -a view which is valid in economies with very high levels of incomes. That both male and female participation rates improved in several working age brackets in 2004-05 is again suggestive of increasing employment opportunities for the educated work force.
Table 3: Age Specific Work Participation Rate in Urban Areas (%)
Age Group Year Urban Male Principal Status Urban Male Subsidiary Status Urban Female Principal Status Urban Female Subsidiary Status
60 and above 3
All Ages 3
Note and Source: See Table 2.
III. Sectoral Shifts and Growth in Value Added and Employment
In the light of the objective of attaining pro-poor growth, the broad patterns of changes in sectoral composition of value added in India over the last two decades are examined. While the value added composition has changed over the years away from agriculture, the structure of the work force is still dominated by agriculture. The share of agriculture and allied activities in total GDP dropped from 42 per cent to around 26 per cent over the twenty-year period: 1981-2001, and it decelerated further to around 23 per cent in 2004-05. Surprisingly the share of manufacturing, which was only one fourth of the GDP in the nineties declined further to around 24 per cent in 2004-05 (Table 4). On the other hand, the share of trade, hotels and transport storage and communication increased by almost 7 percentage points over the last twenty five years. In terms of growth rate also these activities along with financing, real estate and business services have been increasing very rapidly over the years.
The shift in employment from agriculture over the period has been marginal from 68 percent in 1983 to 60 percent in 1999-2000. It decelerated further in 2004-05 to around 56 per cent (Table 5). The shift away from agriculture has however, not led to significant increases in the manufacturing share of employment. Manufacturing employment share increased only marginally – from 11.24 percent in 1983 to 12.09 per cent in 1999-2000 and 12.20 in 2004-05. Instead, even at low levels of per capita income, the share of services in employment and value addition has increased in India. The share of services (inclusive of electricity gas and construction) increased from 21 percent to around 30 percent over the same period. This pattern of growth, which is not peculiar to India only, has underlined the change in the development process of present day developing countries as compared to the past. But the early developers witnessed a structural change where there was a more or less clear shift from agriculture to industry to services. The shift in India is away from agriculture more towards services than manufacturing.
Percentage Share and Annual Rate of Growth of Sectors in Value Added (1993-94 Prices)
Years Agriculture and Allied Acivities and Mining Manufacturing,
Construction Trade, Transport, Storage and Communication Financing, Insurance, Real Estate etc. Public Administration, Defence and Other Services
1980-81 (%share) 41.8 21.6 18.4 6.5 11.65
1985-86 (%share) 38.6 22.5 18.98 8.0 11.9
1990-91 (%share) 34.9 24.5 18.73 9.67 12.18
1995-96 (%share) 30.6 25.5 20.9 11.4 11.6
2000-01 (%share) 26.55 25.0 22.35 12.57 13.54
(% share) 22.97 23.81 25.49 13.39 14.34
rog p.a. 3.35 5.79 5.57 9.05 5.41
rog p.a. 3.98 7.66 5.71 9.76 6.40
rog p.a. 2.57 6.00 7.43 8.57 4.24
rog p.a. 2.83 5.29 6.98 7.55 8.76
rog p.a. 2.55 6.37 9.73 7.0 5.41
Note: Growth rates are point to point estimates. The first six rows of figures in the table give the percentage shares while the last five rows give the rate of growth per annum for different sectors/activities.
Source: Growth rates are computed from figures based on National Accounts Statistics, Central Statistical Organisation, cited in Economic Survey, 2005-06, Government of India.
Table 5: Percentage Distribution of All Workers (UPSS)
1983 1993-94 1999-00
Agriculture and Allied Activities
68.45 63.45 59.84 56.67
Mining and quarrying 0.58 0.72 0.57 0.57
Manufacturing 11.24 11.35 12.09 12.20
Electricity, Gas etc. 0.28 0.36 0.32 0.27
Construction 2.24 3.12 4.44 5.66
Trade, hotel, etc. 6.35 7.42 9.4 10.79
Transport etc. 2.44 2.76 3.7 4.02
Financial Services 0.56 0.94 1.27 1.68
Community, Social and Personal Services 7.86 9.37 8.36 8.13
Total 302.76 million
(100) 374.45million (100) 397 million
(100) 460.43 million
Source: Planning Commission estimate based on National Sample Survey data, cited in Economic Survey 2001-2002, Government of India and Employment and Unemployment Situation in India, 2004-05 (Part-I), NSS 61st Round, Report No. 515 (61/10/I), Government of India, September 2006.
The employment growth in terms of usual principal-cum-subsidiary status workers decelerated to 0.98 per cent per annum during 1993-94 through 1999-2000 compared to 2.04 per cent per annum between 1983 and 1993-94 (Table 6) . Activities such as construction, trade and transport registered an increase in the growth rate of employment in the nineties compared to the eighties. In the case of manufacturing, on the other hand, the growth rate fell, marginally though, in the second sub-period compared to the first. Based on the male and female population growth rate experienced during the decade 1991-2001 in the rural and urban areas, all the four categories – rural male, rural female, urban male and urban female populations - have been projected for the year 2004-05. Applying the work participation rate (usual principal and subsidiary status) as given by the NSS 61st round results, to these figures the total employment figures have been worked out for the year 2004-05. The total employment growth picked up to a level of 2.96 per cent per annum between 1999-2000 and 2004-05. It is evident that some of the activities, which grew rapidly during the first five years of the twenty first century, are construction, trade, hotels etc. transport, storage and communication, and financing, real estate and business services etc. The employment growth in agriculture picked up and this seems to have raised the overall growth in employment in the recent years. In fact much of the decline in employment growth rate during the nineties compared to the eighties was also caused by the major decline in employment in agriculture. Now the revival again seems to be induced by this sector. The manufacturing employment growth rate has also increased by around 1 percentage point during the same period compared to the nineties.
Table 6: Rate of Growth of Workers (UPSS): 1983 to 1993-94, 1993-94 to 1999-2000 and 1999-2000 to 2004-05 (per cent per annum)
1993/94 1993/94 to
1999/2000 1999/2000 to2004/05
Agriculture and Allied Activities 1.38 -0.15 1.892
Mining and quarrying 4.16 -2.85 2.857
Manufacturing 2.14 2.05 3.157
Electricity, Gas etc. 4.5 -0.88 -0.544
Construction 5.32 7.09 7.836
Trade, hotel etc. 3.57 5.04 5.734
Transport etc. 3.24 6.04 4.629
Financial Services 7.18 6.20 8.594
Community, Social and Personal Services 2.90 0.55 2.426
Total Workers 2.04 0.98 2.964
Note: First two columns of growth rates are taken from the Economic Survey, 2001-02 citing the Planning Commission estimates. Growth rates for 1999-2000 to 2004-05 are calculated on the basis of projected population from the census data to which the NSS 61st round work participation rates have been applied.
Source: Economic Survey, 2001-02 and Employment and Unemployment Situation in India, 2004-05 (Part-I), NSS 61st Round, Report No. 515 (61/10/I), Government of India, September 2006.
If job opportunities tend to grow at a sluggish rate in the urban areas, they have a dampening effect on rural-urban migration flow notwithstanding the ability of the urban informal sector to residually absorb a large chunk of the work force. And if agriculture is not in a position to generate gainful employment, the only sector that remains as a last resort for the rural job seekers is the rural non-farm sector. It may be, therefore, interesting to examine the employment structure separately in rural and urban areas for male and female workers separately. The percentage distribution of usual status male work force (principal plus subsidiary) across various activities in the rural areas shows only a marginal rise of 0.3 percentage point in the case of manufacturing between 1993-94 and 1999-00 (Table 7). In the case of urban male workers the share actually dropped from 23.5 per cent to 22.4 per cent during the same period. However, a slight improvement is noticed in 2004-05 in comparison with 1999-2000. Among the rural females the share of manufacturing increased by 0.6 percentage point and among urban females it remained unchanged between 1993-94 and 1999-00. A perceptible rise particularly in the case of urban female workers is evident for the year 2004-05 (Table 7).
The share of trade, hotels etc. in total male employment increased from 21.9 to 29.4 per cent (and from 10.0 to 16.9 per cent in the case of females) in the urban areas accompanied by an increase in the growth rate of both male and female workers in this activity in the nineties vis-à-vis eighties. In the rural areas too the relative size of trade, hotels etc. in male work force increased from 5.5 to 6.8 per cent but this is despite a fall in the growth rate of male workers in the second period compared to the first. The share of total tertiary rose from 14.7 in 1993-94 to 18 per cent in 2004-05 in the case of rural male workers. The corresponding rise among the urban males was modest over the same period (from 58 to 59.5), as it was already at a high level in 1993-94. Several new activities within the tertiary sector are growing rapidly. The IT sector and the BPOs are some of the glaring examples of this. However, trade related activities cannot necessarily be treated as indicator of rapid economic growth because they account for a sizeable percentage of low productivity employment (Mitra, 1994). Entry to this sector is relatively easy as skill requirement is nominal. Besides, setting up businesses is much easier as they can operate in the open air across the pavements. The activity specific (enterprise) surveys carried out by the NSS in the nineties reveal a depressing picture of the trade sector workers though some of the information relating to value added are totally unreliable in these surveys (see Acharya and Mitra, 2000). On the whole, whether poor are benefiting from this pattern of growth and employment generation, is still a matter of major concern.
Table 7: Employment Structure of Male and Female Workers (UPSS) in Rural and Urban Areas (%)
Male Male Male Male Male Female Female Female Female Female
Activities (Rural) 1983 1987-88 1993-94 1999-00 2004-05 1983 1987-88 1993-94 1999-00 2004-05
Agri. & Allied Activities 77.5 74.5 74.1 71.4 66.5 87.5 84.7 86.2 85.3 83.3
Mining & Quarrying 0.6 0.7 0.7 0.6 0.6 0.0 0.4 0.4 0.3 0.3
Manufacturing 7.0 7.4 7.0 7.3 7.9 6.4 6.9 7.0 7.6 8.4
Utilities 0.2 0.3 0.3 0.2 0.2 0.0 0.0 0.1 0.0 0.0
Construction 2.2 3.7 3.2 4.5 6.8 0.7 2.7 0.9 1.1 1.5
Trade, Hotels etc. 4.4 5.1 5.5 6.8 8.3 1.9 2.1 2.1 2.0 2.5
Transport etc. 1.7 2.0 2.2 3.2 3.8 0.1 0.1 0.1 0.1 0.2
Services 6.1 6.2 7.0 6.2 5.9 2.8 3.0 3.4 3.6 4.6
Activities (Urban) 1983 1987-88 1993-94 1999-00 2004-05 1983 1987-88 1993-94 1999-00 2004-05
Agri. & Allied Activities 10.6 9.1 9.0 6.5 6.1 31.5 29.4 24.7 17.6 18.1
Mining & Quarrying 1.2 1.3 1.3 0.9 0.9 0.7 0.8 0.6 0.4 0.2
Manufacturing 26.8 25.7 23.5 22.4 23.5 26.7 27.1 24.1 24.0 28.2
Utilities 1.1 1.2 1.2 0.8 0.8 0.2 0.2 0.3 0.2 0.2
Construction 5.1 5.8 6.9 8.7 9.2 3.2 3.7 4.1 4.8 3.8
Trade, Hotels etc. 20.4 21.5 21.9 29.4 28.0 9.5 9.8 10.0 16.9 12.2
Transport etc. 10.0 9.7 9.7 10.4 10.7 0.6 1.2 1.3 1.8 1.4
Services 24.7 25.2 26.4 19.0 20.8 26.7 27.8 35.0 34.2 35.9
Source: Employment and Unemployment Situation in India, 2004-05 (Part –I), NSS 61st Round, Government of India, September 2006.
As we observe from Table 8 employment in casual labour category increased over time, particularly in the rural areas. It was as high as 36.2 per cent in the case of rural males and 39.6 per cent among the rural females in 1999-00. As some of the micro studies tend to show, the casualisation process and contractual employment have started in the organized sector as well. Hence to believe that an eventual attainment of an organized sector employment would provide job seekers high wages could actually be an illusion. Secondly, casualisation viewed in the backdrop of the rise in the share of the tertiary sector, which accounts for a large percentage of low income jobs in the non-agricultural sector, suggests low earnings accruing to workers not only because of the nature of activities but also the nature or status of employment.
Surprisingly the composition of work force as per the status of employment shows a major shift in favour of self-employment in 2004-05 with a decline in casual employment in relative sense. This pattern is evident among all the four categories of rural males, rural females, urban males and urban females. On the other hand, the proportion of work force engaged as regular employees declined somewhat among the urban males while it increased perceptibly among the urban females. Possibly the casualisation process is no more in a position to generate employment opportunities, thus forcing many of the male job seekers to be self-employed. Of course this could also be due to the expansion of IT into several activities allowing employees at the higher rungs to work from home as self-employed individuals.
On the whole, the relative size of self-employment is quite large and this has increased further as per the 61st round at the cost of the relative size of casual employment. This is quite unusual because in the process of growth a shift away from self-employment towards wage employment is expected to take place. Secondly, with the exception of 2004-05, the long term trend shows that casualisation comprising the vulnerable category of workers within the category of wage employment, is on the rise in the case of rural males, rural females and urban males. And this has been by and large accompanied by a declining trend in regular wage employment among rural and urban males.
Though it does not seem to be justified to conclude that reforms initiated casualisation on a large scale, the phenomenon of long term contractual employment is unlikely to get captured in the category of casual employment. Moreover, as some of our surveys reveal, contract workers hired through intermediaries often identify themselves as regular employees due to the lack of any written contract, though the hiring organization has a written contract with the intermediary or the contracting firm (Mitra, 2006). Needless to add that the contractual employees are deprived from several benefits relating to health, leave and retirement, even in the organized sector. In fact a large component of the salary of the contract labour is expropriated by the new intermediary class of contractors, which has been created in the recent years and which tends to suppress the share of labour in the growth process.
Table 8: Employment Status: Composition of Workers (UPSS) by Sex and Rural-Urban Residence: NSS Data 1972-73/2004-05: All India (per cent)
Year Self-Employed Regular employee Casual Labor
Rural Male 1972-73 65.9 12.1 22
1977-78 62.8 10.6 26.6
1983 60.5 10.3 29.2
1987-88 58.6 10 31.4
1993-94 57.9 8.3 33.8
1999-00 55 8.8 36.2
2004-05 58.1 9.0 32.9
Rural Female 1972-73 64.5 4.1 31.4
1977-78 62.1 2.8 35.1
1983 61.9 2.8 35.3
1987-88 60.8 3.7 35.5
1993-94 58.5 2.8 38.7
1999-00 57.3 3.1 39.6
2004-05 63.7 3.7 32.6
Urban Male 1972-73 39.2 50.7 10.1
1977-78 40.4 46.4 13.2
1983 40.9 43.7 15.4
1987-88 41.7 43.7 14.6
1993-94 41.7 42.1 16.2
1999-00 41.5 41.7 16.8
2004-05 44.8 40.6 14.6
Urban Female 1972-73 48.4 27.9 23.7
1977-78 49.5 24.9 25.6
1983 45.8 25.8 28.4
1987-88 47.1 27.5 25.4
1993-94 45.4 28.6 26
1999-00 45.3 33.3 21.4
2004-05 47.7 35.6 16.7
Note: The combined figures for both the sexes and all areas are taken from Sundaram (2004) till 1999-2000. For 2004-05, we have used our projected population to assign the appropriate weights.
Self-employed Regular Wage Casual
1983 57.28 13.85 28.87
1993-94 54.54 13.66 31.80
1999-00 52.20 14.70 33.10
2004-05 56.44 15.12 28.34
Source: Employment and Unemployment Situation in India, 2004-05, see Table 1.
IV. Unemployment Trends in India
With respect to unemployment there have been some changes in the 1990s. The open unemployment rate (defined as those not working but seeking or available for work on UPSS basis, as a percentage of labour force) has neither been generally high on an average for all sections of the population nor has it increased considerably over the years; rather in the nineties it shows a declining tendency both in the rural and urban areas corresponding to both the sexes (Table 9). Those usually unemployed in terms of the principal status constitute only 2 and 1.5 per cent of the male and female labour force respectively in the rural areas in 1999-00. And in the urban areas the corresponding rates were 4.8 and 7.1 per cent, indicating a high incidence of unemployment among the urban females. However, unemployment has been much higher among the urban-based educated youth as they can afford to remain unemployed for long spending time on job search. The proportion of educated among the unemployed was 59 and 74 per cent among males and females respectively in the urban areas (63 per cent for both the sexes) in 1999-2000. Even in the rural areas educated accounted for 55.2 and 62.7 per cent of the male and female unemployment respectively (57 per cent for both the sexes) . Among the unskilled and semi-skilled labor force it is the category of "working poor" which is dominant, and hence ways and means of improving productivity and earnings corresponding to activities they are engaged in, need to be an important policy focus. The current daily status unemployment rate, which in addition to open unemployment also captures underutilization of labour time of those who are already employed, was around 7 per cent among the rural and urban males and rural females too in 1999-00 (Table 9. Among the urban females it was even higher: slightly above 9 per cent in 1999-00. As per the recent survey (2004-05) the open unemployment rate among both rural and urban females went up to 3.1 and 9.1 per cent respectively though among the males it remained by and large constant in comparison to 1999-2000. On the other hand, the current daily status unemployment rate, which captures underemployment increased among the rural males and females both and among the urban females as well. All this is indicative of the lack of productive employment opportunities for the poor in the process of growth.
Table 9: Unemployment Rates during 1977-78 to 2004-05 in Different NSS Rounds
Round/Year Male US Male CWS Male CDS Female US Female CWS Female CDS
Rural 61/2004-05 2.1 3.8 8.0 3.1 4.2 8.7
Rural 55(1999/00) 2.1 3.9 7.2 1.5 3.7 7.0
Rural 50(1993/94) 2.0 3.1 5.6 1.3 2.9 5.6
Rural 43(1987/88) 2.8 4.2 4.6 3.5 4.4 6.7
Rural 38(1983) 2.1 3.7 7.5 1.4 4.3 9.0
Rural 32(1977/78) 2.2 3.6 7.1 5.5 4.1 9.2
Urban 61/2004-05 4.4 5.2 7.5 9.1 9.0 11.6
Urban 55(1999/00) 4.8 5.6 7.3 7.1 7.3 9.4
Urban 50(1993/94) 5.4 5.2 6.7 8.3 7.9 10.4
Urban 43(1987/88) 6.1 6.6 8.8 8.5 9.2 12.0
Urban 38(1983) 5.9 6.7 9.2 6.9 7.5 11.0
Urban 32(1977/78) 6.5 7.1 9.4 17.8 10.9 14.5
Note: US stands for usual status; CWS for current weekly status and CDS for current daily status. Usual status uses the reference period of 365 days preceding the date of survey, current weekly status uses the reference period of 7 days preceding the date of survey and current daily status takes into account the day to day labour time disposition of the reference week.
The usual status unemployment rate among all persons of all areas (rural and urban combined) was 2.8 per cent for the year 1999-00. (Ghose, 2004).
Source: NSS Report No. 455: Employment and Unemployment in India, 1999-2000, Key Results and Employment and Unemployment Situation in India, Sept. 2006.
Notwithstanding the decline in the open unemployment rates in the nineties the employment scenario on the whole does not seem to be bright, provoking some to term it as "jobless growth" as the data show a sharp slow down in the average annual increments to work force during this period compared to the eighties. However, Sundaram (2004) points out that the entire decline originated from the decline in women workers and those who are self-employed. Further, as he points out, half of the slow-down in the average annual increments to the female workers in the nineties can be explained in terms of age-structure shift, rise in school enrolment ratio and the reduction in the proportion of women in poor households. Since the regular wage/salaried jobs grew during the nineties, he reiterates that this is a period of acceleration.
While the concept of 'jobless' growth could be an exaggeration of the differential between the realized and expected outcomes of the reform process on the employment front, casting it as a bright reality is equally erroneous. The rise in the average annual increment in the number of regular wage/salaried jobs between 1993-94 and 1999-00 compared to that between 1983 and 1993-94 did not compensate for the decline in the average annual increment in the number of self-employed and casual workers in the nineties compared to the eighties. Before making any assertion on acceleration it is important to assess whether women's employment declined because of the lack of employment opportunities or whether self-employment dropped because they could not survive the competition or carry on the operation due to major constraints posed by credit and accessibility to market etc. Further, the increase in the average annual increment in the number of self-employed workers during the nineties compared to the eighties in the above poverty line households, which is taken by Sundaram (2004) as a positive change does not seem to be convincing. Though a part of this rise can be attributed to the urbanization process spilling over to the nearby rural areas, urbanization in general is expected to bring in a shift away from household based activities towards commercialization. Besides, though Sundaram (2001, 2004) argues that a fall in the average number of days worked by the casual labourers has been accompanied by a significant rise in real wage rates, it is important to know if the rise in total earnings of a casual labourer due to the rise in the wage rate has been larger than the loss in total earnings due to the number of days lost. Narain (2006) based on the unit level data brings out clearly that while a part of the decline in women work participation rate during the nineties could be due to the rise in enrolment ratio and the rise in incomes the discouraged drop-out effect cannot be ruled out. In other words, women workers due to large spells of unemployment might have withdrawn from the labour market. Rising educational levels and income levels in the top quintile had a role in reducing the participation rates though, as Narain (2006), observed the effect was much smaller than the worsening unemployment rate in the case of rural females. Further it may be added that if the withdrawal from the labour market were initiated by a positive change, the revival should not have happened again in 2004-05, as noted above. In 2004-05 the relative size of self-employment has increased among males and females in both rural and urban areas, which is accompanied by a rise in the current daily status unemployment rate among the females in both rural and urban areas and among the males in rural areas. In the face of these changes it is difficult to conclude that the employment scenario for the poor is actually improving over the years.
Youth Unemployment rate is quite high among both the males and females in rural and urban areas (Table 10). Among the rural and urban females the rate went up in 2004-05 relative to 1999-2000 while among the males it shows a decline over the same period. At the entry level to the youth age cohort (15-19) both rural males and females experienced a rise in the unemployment rate since 1993-94. However, in the urban areas there has been a decline in the unemployment rate in 2004-05 after it increased in 1999-2000 relative to 1993-94.
Table 10 : Unemployment Rate (Usual Status)
Age Groups Rural Male Rural Female Urban Male Urban Female
15-19 (1) 3.3
(3) 5.9 (1) 1.9
(3) 3.6 (1) 11.9
(3) 12.1 (1) 12.8
20-24 (1) 4.9
(3) 4.7 (1) 2.8
(3) 5.7 (1) 12.6
(3) 11.1 (1) 21.7
25-29 (1) 2.3
(3) 1.6 (1) 0.9
(3) 3.2 (1) 5.7
(3) 4.9 (1) 9.7
15-29 (1) 3.5
(3) 3.9 (1) 1.9
(3) 4.2 (1) 9.6
(3) 8.8 (1) 15.0
Note: 1 stands for 1993-94, 2 for 1999-2000 and 3 for 2004-5.
Source: Employment and Unemployment Situation in India (2004-05), Part-I, See Table 1.
V. Formal and Informal Employment
The employment scenario cannot be understood merely in terms of the unemployment rates or the status of employment. In order to draw further insights into the quality of employment we may examine the relative size of the informal or unorganized sector. Three different estimates are provided below as regards the size of the informal sector. The NSS 55th round collected information on the informal sector non-agricultural enterprises for the first time as a part of the employment-unemployment survey. Information on workers including those working in the proprietary and partnership non-agricultural enterprises was also collected for each member of the household during the employment-unemployment survey. In this survey the informal sector has been defined as follows: all unincorporated proprietary and partnership enterprises were defined as informal sector enterprises (NSSO, 2001).
The estimated number of workers in the informal non-agricultural enterprises are given based on the enterprise survey (Schedule 2.0) and the household survey (Schedule 10) in both rural and urban areas. Interestingly, both the schedules differ substantially from each other in terms of the number of workers. By and large the household schedule enumerated a larger number of workers than the enterprises schedule. Only in the rural areas of Bihar, Karnataka and Orissa and in the urban areas of Gujarat the number of workers in informal enterprises obtained from enterprise approach exceeded the number of workers obtained from the household survey (Table 12). On an average at the all India level, as seen from Table 11, around 55 and 47 per cent of the workers are found in the informal sector in the rural and urban areas respectively (obtained from the enterprise survey). On the basis of the household survey the estimates are 65 and 55 per cent for rural and urban areas respectively. Both the estimates, however, are indicative of a very large percentage of workers being engaged in the informal sector. Both in the rural and urban areas workers from own account enterprises comprise a very significant percentage of the total informal sector workers. Though own account enterprises comprise the bulk (85 per cent) of the informal sector workers in the rural areas, urban areas show an almost equal distribution of workers across own account enterprises and establishments (Table 11). The incidence of informal sector defined as the proportion of informal sector workers to total workers is highest in trade etc. followed by manufacturing, transport and real estate, business services etc. Though community, social and personal services are also expected to show a high incidence of informal sector employment, the exclusion of domestic services from the informal sector survey reduces the share (Table 11). In terms of composition it may be noted from Table 11 that manufacturing and trade account for 70 to 75 per cent of the total informal sector employment. In the urban areas the share of trade etc. (41 per cent) exceeds that of manufacturing (30 per cent). Hence, the dominance of the tertiary activities in the informal sector, which was observed three decades back (see Udall, 1976 and Mitra, 1990), does not seem to have undergone any major change.
It is of great analytical interest to examine if the share of the informal sector varies in response to industrialization and rise in per capita income. Since time series information is not available we may like to analyse the inter-state variations in the relative size of the informal sector. Across states as observed from Table 12, the urban areas of Andhra Pradesh, Gujarat, Haryana, Punjab and Uttar Pradesh reported a somewhat higher estimate of informal sector employment in relative terms compared to the national average (from the enterprise approach). Even as per the household approach Andhra Pradesh, Haryana, Orissa, Punjab and Uttar Pradesh registered a higher figure than the urban India. By and large the highly industrialised states tend to show a relatively lower share of informal sector employment in the urban areas. As far as the rural areas are concerned states like Karnataka, Orissa, Uttar Pradesh and West Bengal reported a very large share of informal sector employment, lying much above the national average, as per the enterprise approach. However, based on the household approach Tamil Nadu, Uttar Pradesh and West Bengal turn out to be the outliers. On the whole, states with both high and low levels of industrialization and/or per capita income reveal a very large share (more than half) of informal sector in total employment across both rural and urban areas, which tends to support Papola's (1981) view, though the processes and causes of growth of the informal sector in both the situations are quite different .
Another estimate is obtained by following the residual approach, i.e. the number of organized sector workers for the year 2000, as estimated by DGE&T of the Ministry of Labour, has been deducted from the total number of workers for 1999-00 (Table 13). As per this estimate unorganised sector comprises around 90 per cent of the workers in the non-agriculture sector in all areas (rural and urban combined). But the organized sector employment, as it has been documented quite extensively, is a gross underestimate.
Table 11 : Relative Size and Composition of Informal Sector: All India (1999-2000)
--------- Rural--------- -------Urban--------
Category (Industry) OAE Workers in Informal Sector (%) Informal Enterprise Workers as a %of Total Workers % Dist of Informal Enterprise Workers across Categories OAE Workers in Informal Sector(%) Informal Enterprise Workers as a %of Total Workers % Dist of Informal Enterprise Workers across Categories
Manufacturing 84.06 78.56 44.4 46.53 56.35 29.9
Construction 78.29 15.14 3.8 60.00 15.36 2.9
Trading and Repair Services 92.66 87.96* 30.1 63.13 75.63* 41.1
Hotels and Restaurants 77.11 4.2 41.83 6.6
Transport, Storage and Communications 80.24 39.59 6.4 71.11 33.16 6.8
Financial Intermediation 57.14 0.2 44.44 0.7
Real Estate, Renting and Business Activities 74.19 34.72** 0.8 46.28 38.57** 3.0
Education 35.59 1.5 26.09 2.9
Health and social work 83.33 1.4 35.82 1.7
Other community, Social and Personal Services (excluding domestic services) 93.81 27.09*** 7.3 68.68 19.95*** 4.6
ALL 85.76 55.20 100.0 55.32 46.83 100.00
Note: 1. OAE stands for own account enterprises.
2. *Trading etc. includes Hotels etc., ** Real Estate etc. includes Finance and ***Community Services include Education and Health. Though informal sector corresponding to Community etc. does not include domestic services, total workers in this category include them, resulting in underestimation of the relative size of informal sector in this category.
3. The percentage of informal sector workers has been calculated by applying the NSS work participation (UPSS) rate to the 2001 census-adjusted population figures for 1999-00. For various industry divisions or categories the absolute figures are obtained by applying the NSS figures of per thousand distribution of workers.
Source: Absolute number of informal sector workers are taken from Informal Sector in India, 1999-2000, Salient Features, NSS 55th round, Report No. 459(55/2.0/2).
Table 12: Employment Size of Informal Sector across States (1999-2000)
State Inf. Enterprise
as a % of
Total Workers Inf. HH
as a % of
Total Workers Inf. Enterprise Workers
as a % of Inf HH Workers Inf. Enterprise
as a % of
Total Workers Inf. HH
as a % of
Total Workers Inf. Enterprise Workers
as a % of Inf HH Workers
Andhra Pradesh 59.81 68.15 87.76 53.96 71.36 75.62
Assam 34.64 51.19 67.66 35.20 40.32 87.28
Bihar 57.21 53.12 107.71 44.37 48.30 91.87
Gujarat 40.14 61.40 65.38 53.03 52.25 101.50
Haryana 30.85 54.47 56.64 48.59 56.82 85.52
Karnatka 69.60 68.56 101.51 45.15 48.84 92.45
Kerala 37.96 64.42 58.93 41.88 54.03 77.51
Madhya Pradesh 58.37 59.46 98.18 39.37 53.91 73.04
Maharashtra 51.71 56.05 92.25 44.43 54.46 81.58
Orissa 87.58 67.41 129.91 41.18 62.22 66.18
Punjan 37.64 61.44 61.27 54.28 59.87 90.66
Rajasthan 36.89 58.28 63.29 39.02 52.97 73.67
Tamilnadu 51.69 74.94 68.97 44.12 55.64 79.30
Uttar Pradesh 68.91 70.64 97.55 57.23 69.30 82.58
West Bengal 69.49 82.05 84.69 40.12 44.58 89.99
All India 55.20 64.74 85.26 46.84 55.27 84.75
Note: Figures on Informal sector workers have been given by NSS, following both enterprise survey approach (Schedule 2.0) and household survey approach (Schedule 10).
Source: See Table 3.1.
Table 13 : Unorganised Sector Employment From Residual Approach: All India
Industry Division Total Org Emp.in 2000 Unorg. Emp. as a % of Total Workers in 1999-00
Agriculture 1418000 99.41
Mining 1005000 55.73
Manufacturing 6616000 84.88
Utilities 987000 21.89
Construction 1149000 93.45
Trade 493000 98.79
Transport 3147000 78.34
Finance 1654000 65.18
Services 11494000 65.34
Total 27960000 92.98
Source: Figures on organized sector (public and organized private) are taken from Economic Survey, 2003-04, quoting figures reported by DGE&T, Ministry of Labour.
IV. Employment elasticity and labour productivity
Growth in labour productivity in the face of sluggish employment growth can result from rise in capital intensity without any improvement in the level of technology or rise in organizational/managerial efficiency. On the other hand, productivity growth without a rise in real wages is indicative of the absence of productivity gains being transferred to labour.
The employment elasticity defined as the annual rate of growth of employment (UPSS) relative to the annual rate of growth of gross value added (at factor cost) turns out to be extremely low at the aggregate level, (Table 14). In fact it declined from 0.40 in the first period to 0.15 in the second period. Agriculture and allied activities recorded negative employment elasticity in the nineties because employment fell in absolute terms in these activities. Similarly in mining and utilities too the negative figure is evident. Manufacturing registered an elasticity of barely 0.29 in the second period declining from 0.37 in the first period. Construction, trade, transport and financial services experienced relatively higher employment elasticity, and among them except trade all other activities either registered a constant or increasing employment elasticity in the second period relative to the first. Interestingly, despite the decline the employment elasticity in trade, hotels etc. still turns out to be relatively high (0.57) in 1999-2000.
In the third period (1999-2000 through 2004-05) considerable improvements in the employment elasticity are evident across several activities. Despite a decline in the value added growth in agriculture in comparison to the earlier periods, employment growth picked up and this raised the employment elasticity to unity in this sector. Trade hotels etc. and financing and business services registered an increase in the employment elasticity. However, transport, storage and communication experienced a marked decline in the employment elasticity, implying that the perceptible increase in the value added growth rate in this activity did not generate employment proportionately. Does this tends to suggest that the IT sector boom seen in terms of value added and employment in the initial stages has now reached a saturation point in employment terms though it continues to generate value added growth with the help of manpower already existing in this sector?
Table 14: Rate of Growth of Gross Domestic Product (% p.a.) and Employment Elasticity
--------Rate of Growth of GDP (% p.a.)----- ------------Employment Elasticity-----------
Activity 1983 to
1993-94 1993-94 to
1999-2000 1999-2000 to 2004-05 1983 to
1993-94 1993-94 to
1999-2000 1999-2000 to 2004-05
Agriculture and Allied Activities
1.82 0.49 -0.05
Mining and Quarrying
4.69 0.69 -0.56
Manufacturing 5.79 7.08 6.24 0.37 0.29 0.51
Electricity, Gas etc.
3.43 0.56 -0.13
7.88 1.12 1.15
Trade, hotel, etc. 5.43 8.77 7.59 0.66 0.57 0.76
Transport etc. 5.91 8.97 11.89 0.55 0.67 0.39
6.40 0.75 0.77
Community, Social and Personal Services
5.25 0.56 0.07
5.79 0.40 0.15
Note: Sectoral and aggregate GDP and employment growth rates are point to point estimate (exponential) at 1993-94 prices for 1983 to 1993-94 and 1993-94 to 1999-2000 and at 1999-2000 prices for 1999-2000 to 2004-05. Employment elasticity is defined as the ratio of the rate of growth of employment to the rate of growth of GDP.
Source: Based on the CSO estimates of GDP and NSS figures on employment.
Since employment growth decelerated in agriculture, mining and utilities in the nineties compared to the eighties, the rapid productivity growth in these activities in the second period is obvious (Table 15). Similar is the case with community, social and personal services. What is interesting to note is that activities like trade, transport and financial services, which experienced a rise in the employment growth rate, also reported a rise in productivity growth in the nineties relative to the eighties. Even in manufacturing, where the employment growth rate declined marginally in the second period compared to the first, productivity growth accelerated from 3.40 to 5.05 per cent per annum. It is only in the construction activity that productivity growth has been negative in both the periods despite positive growth rates both in terms of value added and employment (Table 15). Labour productivity in the third period (1999-2000 through 2004-05) decelerated considerably across several activities. At the aggregate level it almost halved. Only transport, storage and communication registered a significant increase.
Table 15: Labour Productivity (Rs) and Growth Rate (% p.a.)
(in 1993-94 prices) Product
(in 1993-94 prices) Product1999-00
(in 1993-94 prices) Product
(in 1999-2000 prices) Growth Rate
1983 to1993-94 Growth Rate
1993-94 to 1999-00 Growth Rate
1999-00 to 2004-05
Agriculture and Allied Activities 8806.15 10104.69 12080.44 19113.53
1.31 2.98 -0.07
Mining and Quarrying 62699.03 74414.81 120127.8 183233.48 1.63 7.98 1.84
Manufacturing 20659.87 29527.76 39976.25 55012.08 3.40 5.05 3.08
Electricity, Gas etc. 99914.12 140622.2 221882.8 349468.75 3.25 7.60 3.97
Construction 37181.74 34754.28 33337.12 59675.94 -0.64 -0.69 0.04
Trade, hotel, etc. 30015.72 35769.98 45069.4 68098.34 1.67 3.85 1.85
Transport etc. 38318.24 49497.58 59637.85 89689.58 2.44 3.11 7.26
Financial Services 202842.2 255920.5 288837.6 460895.05 2.21 2.02 -2.19
Community, Social and Personal Services 22623.92 26653 46198.49 79516.26 1.56 9.17 2.82
Total 155881.38 20866.47 28926.15 45145.89 2.78 5.44 2.82
Note: While calculating the growth rate of productivity for the period 1999-2000 to 2004-05 the productivity figures for both years have been estimated in 1999-2000 prices).
Source: Based on CSO's estimate of value added and NSSO's estimate of employment.
VII. Work and Poverty
The concept of pro-poor growth in a developing country context with large supplies of labour is indeed important, as it would ensure rapid growth and employment generation (for the poor) with decent wages simultaneously. Though economic growth picked up during the nineties, employment grew only sluggishly during this period. In fact, the employment growth decelerated during 1993 through 1999/00 compared to what was experienced between 1983 and 1993-94. There was a missing link between the rise in economic growth and the reduction in poverty that took place during this period. The recent survey (61st round) of the NSS shows that employment growth has picked up considerably (to nearly 3 per cent per annum) over the period from 1999-00 to 2004-05 but the extent of decline in poverty has been much slower after 1993 compared to what was experienced over 1983 to 1993-94. In fact as per the Economic Survey (2006-07) the incidence of poverty is estimated at 27.8 per cent for the year 2004-05, which is comparable with the estimate for 1993-94. This tends to indicate that in the recent years economic growth and employment generation both have been more beneficial to those located at the upper income strata than the poor. In other words, in the present situation of economic growth employment is generated more for the educated labour force than for the poor with lower levels of human capital. All this is likely to have resulted in increasing inequality.
Incidence of poverty (headcount measure) was as high as 56.4 per cent and 49 per cent in 1973-74, which declined to 37.27 percent and 32.36 percent in 1993-94 in rural and urban areas respectively. Over the period 1993-94 through 1999-00, the consumer expenditure survey results show a massive decline in the head count measure of poverty - 24 and 23.3 percent as per the 7-day recall period and 27.09 and 26.1 per cent as per the 30-day recall period in rural and urban areas respectively in 1999-00. As the results of the consumer expenditure survey for 1999-00 might have possible contamination of results with a 30-day reference period by the simultaneous canvassing of expenditure details on a 7-day reference period, it may be useful to estimate poverty from the employment-unemployment surveys.
As reported in Sundaram (2001), the incidence of poverty from employment-unemployment surveys turned out to be 39.36 and 30.37 per cent in 1993-94, which declined sluggishly to 36.35 per cent and 28.76 per cent in 1999-00 in the rural and urban areas respectively. Quite clearly the extent of decline overtime as per the employment –unemployment surveys is much less than what is reported from the consumer expenditure surveys. Secondly, the discrepancy between the estimates from the two different sources was much less in 1993-94 than in 1999-00, particularly for the rural areas. Hence, there is reason to doubt the validity of the consumer expenditure based estimate for 1999-00, which seems to have been biased due to the mixing up of recall periods. Therefore, going by the estimate of poverty from the employment-unemployment survey, poverty does not seem to have declined considerably during the nineties. Himanshu's (2007) estimate of rural poverty for 1999-2000 is slightly different from that of Sundaram (2001). The former estimated poverty at 34.0 and 28.9 per cent for rural and urban areas respectively in 1999-2000, which declined to 24.9 and 25.0 per cent in 2004-05 as per the employment-unemployment survey. If these estimates are comparable over time, it is quite evident that the extent of decline is sharper between 1999-2000 and 2004-05 compared to that over 1993-94 through 1999-2000.
Estimates of the incidence of poverty for 2004-05 from the consumption expenditure survey, which are comparable with 1993-94 estimates, suggest that the extent of decline in poverty in the post reform period (1993-2005) has not been higher than in the pre-reform period (1983-1993), as already mentioned above (Mahendra Dev and Ravi, 2007). Further, based on the mixed reference period the extent of decline over 1999 to 2005 seems to be higher than that during 1993 to 2000, though the latter sub-period is characterised by slower growth in agriculture. Himanshu (2007) argues that some of the traditional high poverty incidence states in the eastern part of the country performed better in terms of non-income as well as income and employment indicators over this sub-period, 1999-2005, which possibly contributed to reduction in poverty. It may be recalled that at the national level employment growth has been reasonably high during 1999-2000 through 2004-05 and also the poverty decline has been sharp. On the other hand, employment growth was sluggish over the nineties (1993-94 through 1999-2000) and thus poverty decline was marginal too. All this tends to suggest that employment behaviour and poverty decline are intimately related. As regards the relationship between the average annual value added growth rate (1999-2000 through 2003-04 in 1993-94 prices) and the incidence of poverty (2004-05) across states, the correlation turns out to be –0.22, -0.39 and –0.28 corresponding to rural, urban and all areas poverty respectively. Hence, economic growth is indeed a necessary condition for reduction in poverty. But the positive effects of growth on the low income households can be felt only when employment is generated simultaneously.
In the rural context the importance of the rural non-farm sector for employment generation and rural diversification has been emphasized extensively (Acharya and Mitra, 2000). It may be useful from this point of view to assess the poverty scenario across activities. The percentage of households below the poverty line and calculated across activities from the NSS 50th round survey on employment and unemployment, shows that it was highest in agriculture in 1993-94 (Table 16). However, in some of the non-farm sector activities like construction it was as high as 37 per cent, only marginally less than the percentage of households below the poverty line in agriculture. This is quite surprising because rural construction is expected to include major rural irrigation projects. Even in manufacturing and mining and quarrying the incidence was 31 and 34 per cent respectively. It is indeed interesting to note that some of the activities like rural trade and financial services and transport, which grew at a quite fast rate during the period 1983 through 1993-94, reported a substantially lower incidence of poverty in 1993-94. From policy point of view it may be suggested that infrastructure plays an important role in reducing poverty.
For the year 1999-2000, as Table 16 shows, the incidence of poverty was highest among the agricultural labour (around 47 per cent). Other labour, which would include wage employment in non-agricultural activities, reported only an incidence of 29 per cent. It may be noted that those who were self-employed in the agriculture sector were slightly better off compared to their counterparts in the non-agriculture sector in terms of the incidence of poverty.
Table 16: Percentage of Households below Poverty Line in Rural Areas
Activities % of HH below Pov. Line 1993-94 HH Type % of HH below Pov. Line 1999-00
Agriculture 38.6 Slef-Emp. in Agr. 25.2
Mining 34.0 Self-Emp. in Non-Agr. 27.0
Manufacturing 30.8 Agricultural Lab. 46.9
Electricity 11.8 Non-Agr. Lab. 29.2
All 35.2 All 31.5
Note: Poverty line is taken at Rs.211.3 for 1993-94 and Rs.335.46 for 1999-00; see
Source: Survey Results on Employment and Unemployment Situation in India, NSS 50thRound (1993-94), Sarvekshana, Vol.20, No.1, 68th Issue, July-Sept.1996. Employment and Unemployment Situation in India, NSS 55th Round (1999-2000), Report No.458.
It is important to know why people join the labour market in the subsidiary status. Is it because they are engaged in household activities – as is the case among women generally – and hence do not find adequate time to take up jobs as principal workers or they join the labour market as subsidiary status workers because they are in look out of better jobs? We analyze this aspect particularly for the rural areas since the subsidiary status activity is more prevalent in the rural areas than the urban areas.
The following table (Table 17) suggests that around 8 per cent of rural males working as self-employed workers in agriculture (in subsidiary status) also have a second subsidiary activity either in agriculture or non-agriculture, though the nature of the second activity could be self-employment or casual employment. Similarly among those in the non-agriculture sector working as self-employed subsidiary status workers around 10 per cent have a second subsidiary activity as well (either in agriculture or non-agriculture sector). Again, this pattern is evident among the males working as subsidiary status casual labour either in agriculture or non-agriculture sector.
Among the rural females a sizeable number is found to follow this pattern as well. In addition, among those who have been working as regular employees (in subsidiary status) in the non-agriculture sector, more than 22 per cent have been engaged in the agriculture sector as self-employed subsidiary status workers. As income from one activity is not sufficient to meet the requirements, they seem to diversify their activities across both the agriculture and the non-agriculture sectors. It may be noted that the possibility of both the subsidiary status activities being located in the non-agriculture sector is quite rare.
Among the principal status workers also some are found to be having subsidiary status activity, and this pattern is not sector specific (Table 18). Principal status workers in non –agriculture are also found in the agriculture sector with subsidiary activity, though the vice-versa, that is, the principal status worker in agriculture with subsidiary activity in non-agriculture, is only marginally present. Again the possibility of both the activities (one in principal and another in subsidiary status) being located in the non-agriculture sector is negligible. The fact that some of the rural principal status workers engaged either in the agriculture or the non-agriculture sector also have subsidiary activities in the agriculture sector, is indicative of two important points. First, considerable overlaps exist between these two sectors, that is, agriculture and non-agriculture in the rural context cannot be viewed as two separate segments as in the case of the urban areas. Second, the work pursued on the basis of principal status does not necessarily yield a high income, and that could be the reason why some of the principal status workers either in agriculture or in non-agriculture decide to augment their earnings by working in the capacity of subsidiary status in the agriculture sector as such possibilities exist to a larger extent in this sector than the non-agriculture sector. On the other hand, the subsidiary status work in the agriculture sector could be related to self-cultivation, which, if not able to generate reasonable earnings, prompts some of the workers to look for opportunities in the labour market as a principal status worker. On the whole, rural diversification is indeed important for reduction in poverty and secondly, there is the need for productive employment generation as the majority of the poor may be pursuing activities on full time basis yet for meager earnings.
Table 17: Percentage of Rural Males and Females by Usual Subsidiary
Economic Activity I and II: 1999- 2000
Subsidiary Economic Activity (II)
Subsidiary Economic Activity (I) Self-Employment Regular Employment Casual Labour
Agr. Non-Agr. Agr. Non-Agr. Agr. Non-Agr.
Self-Employed Agr. 4.0
Regular Emp. Agr. 5.2
Casual Labour Agr. 4.2
Note: Figures in parentheses are for rural females.
Source: NSS 55th Round (1999-00), Report No.458, Part-II.
Table 18: Percentage of Rural Males and Females by Usual Subsidiary
Economic Activity II for Each Usual Principal Activity: 1999-2000
Subsidiary Economic Activity (II)
Self-Employment Regular Employment Casual Labour
Usual Principal Activity Agr. Non-Agr. Agr. Non-Agr. Agr. Non-Agr.
Self-Employed Agr. 0.8
Regular Emp. Agr. 0.3
Casual Labour Agr. 2.1
Note: See Table 17.
The phenomenon of 'working poor' is quite prevalent even in the urban areas. The overlaps among the informal sector employment, poverty and growth of slums are evident (Mitra, 1994). Some of the studies based on micro-surveys bring out distinctly that a large percentage of the slum households is engaged in low productivity activities in the informal sector and leads a below poverty line of living (Mitra, 2006). As we have seen from Table 19 the relative size of the urban informal sector is quite large across states. Even in the highly industrialized states a large proportion of the work force is engaged in the informal sector. The cross-classification of states in terms of the incidence of urban poverty and the relative size of the urban informal sector shows that Orissa and Uttar Pradesh correspond to relatively high size classes in terms of the share of urban informal sector employment as well as urban poverty while Assam and West Bengal are on the other extreme. Gujarat, Karnataka, Kerala, Rajasthan and Tamil Nadu belong to somewhat moderate size classes both in terms of poverty and informal sector employment.
Table 19: States Distributed across Size Classes Formed by the Relative Size of Informal Sector and Incidence of Urban Poverty
Urban Poverty %
2000 Informal sector %
Below 46.5 46.5-52.7 52.7-58.9 59.8-65.1 Above 65.1
Below 13.1 AS HAR PUN
13.1-20.6 WB GUJ KER, RAJ
20.6-28 KAR TN MAH AP
28.0-35.4 BH UP
Above 35.4 MP OR
Another issue that is relevant in the urban context is the phenomenon of 'spill-over' effect of rural poverty. Since urban poverty is seen as a transformation of rural poverty, for a long time much of the policy focus lied on the implementation of the rural development programmes. However, the elasticity of urban poverty with respect to rural poverty is found to be highly negligible, implying that many of the urban poor are not the fresh migrants from the rural areas though rural poverty might have been adding to urban poverty on the margin (Mitra, 1994). All this justifies the relevance of anti-poverty programmes in the urban context instead of confining to urban basic services programme only. Productivity enhancement for the urban poor located in the informal sector is essential which can be achieved through training and skill up-gradation, credit and marketing assistance and social security network. Else the concept of pro-poor growth cannot be achieved in the Indian context.
On the whole, economic growth does not seem to have been generating employment opportunities for the poor on a large scale. During the nineties the economic growth was not accompanied by rapid growth in employment. Though some researchers believed that it was an outcome of rising income and other positive changes taking place in the economy, empirical evidence has not been convincing. Withdrawal of women from the labour force which caused a major decline in employment growth during the nineties was also prompted by the phenomenon of discouraged dropouts. Moreover, if withdrawal from the labour market was due to the income effect the revival should not have occurred in 2004-05. The most interesting part is that employment growth in the agriculture sector has revived which has indeed contributed to the rapid employment growth experienced during the first five years of the present century (1999-2000 through 2004-05). The other feature is that some of the dynamic sectors have continued to grow rapidly, generating employment opportunities. However, most of the activities in these sectors are less likely to absorb the poor who are mostly unskilled, and hence the direct effects of growth on poverty are still not spectacular. All this is compatible with the fact that the extent of decline in poverty after 1993-94 has been slower than the extent of decline between 1983 and 1993-94. However, dividing the post 1993 period into two sub-periods it is observed that the extent of decline in poverty is sharper during 1999-2000 through 2004-05 compared to that over 1993-94 through 1999-2000. Incidentally employment growth was sluggish during the first sub-period though it picked up during the second, suggesting strong inter-connections between employment growth and poverty reduction. While economic growth is a necessary condition for poverty reduction it is not sufficient, as brought out by the inter-relationship between value added growth and poverty incidence across states. For the positive effects of growth to be felt on low income households employment at decent wages has to be generated at a rapid pace.
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