Organised by Centre for Work and Welfare (CWW), Impact and Policy Research Institute (IMPRI), New Delhi, and Counterview
It is an excerpt from a special lecture delivered by Dr. Arup Mitra (Professor, Institute of Economic Growth - IEG, Delhi) at the Centre for Work and Welfare (CWW), Impact and Policy Research Institute (IMPRI), New Delhi on Sep 28, 2020.
Employment problems in a developing country context cannot be gauged merely in terms of the open unemployment rate. The phenomenon of working poor engaged in low productivity activities with meager earnings is a vast manifestation of the employment problem in a country like India. The periodic labor force survey (PLFS:2017-18) witnessed a rise in the unemployment rate which was also accompanied by improvements in educational attainment. Besides, the positive association between the rate of urbanization and unemployment was evident.
These patterns perhaps can be taken as a sign of maturing of the economy, indicating that people could afford to remain unemployed till they found a job of their desirable status. Interestingly, the relative size of the informal sector slithered which could further substantiate that people were not under compulsion to get residually absorbed in petty activities. With such positivity as the economy was aspiring for rapid economic growth the pandemic struck the world and hit the Indian economy with utmost adversity in terms of widely prevalent livelihood loss at various levels.
There has been a close link between rural-urban migration and informal sector employment, indicating the transfer of rural poverty to the urban space. Though parts of the informal sector have been growing in response to demand, the vast stretches of low productivity activities cannot be ignored and they do unravel significant overlaps with urban poverty and slum-dwelling. However, several of the workers have been residing in the urban space for more than a decade and it would be highly erroneous to interpret urban poverty purely in terms of the spill-over effect of rural poverty.
The elasticity of urban poverty concerning rural poverty is highly nominal despite being statistically significant. Hence, the importance of public provisioning of work opportunities in the urban context must be felt at the policy circles. Though some of the jobs in the informal sector help reduce poverty, the recent pandemic has affected those processes miserably. While certain segments of the informal sector bear strong linkages with the formal sector through the processes of ancillarisation, business subcontracting, and a lot of complementary activities, possibilities of exploitation, particularly with the operation of the intermediaries and contractors, have been there on a large scale to reduce the pace of upward mobility.
Further, informalisation processes adopted in the formal sector to experience efficient utilization of labor have been introducing vulnerability from a different angle. In what way these issues can be tackled is an important policy question: while the flexibility angle is important, the exploitation side cannot be overlooked.
Poverty in the rural areas persists both in the agricultural (farm) sector and the non-farm sector. Mechanization, water shortage, and climate change effects have rendered agricultural labor redundant, and disguised unemployment has been significant. The lack of demand induced activities in the rural non-farm sector has led to the supply-push phenomenon. Marginal activities may raise the share of the non-agricultural sector, and the process of urbanization may have been underway, but that does not result in sustainable development and livelihood.
The massive growth of the ‘census towns’(2532 in number) between 2001-2011 is a witness to this fact (during 2001-2011 the number of statutory towns increased by 242; in 2011: statutory towns- 4041, census towns- 3894). The rural transformation was not accompanied by the growth of demand induced activities and the emergence of the new towns (not recognized by the government as statutory towns) is rather a misleading process if urbanization has to be taken as an indicator of development. The expansion in the city limit and the rural hinterland being considered as a part of the city agglomeration is interesting but whether it can create employment opportunities for the rural population is an important question. A continuous change in the land utilization pattern has rendered many farm households redundant and jobless. The policy interventions will have to reflect on these rapid changes that have been occurring in the recent past.
The agglomeration economies or external economies are important which results in higher productivity growth in large cities. Both the producers and the workers try to locate in such spaces as concentration raises the efficient utilization of resources and reduces the job search cost simultaneously. Part of the productivity gains are transferred to the workers in terms of higher real wages which is known to the potential rural migrants. Hence, the population movement process from rural space gets directed to large cities. The caste-kinship bonds and other informal networks that facilitate the job market information flow and help the potential migrants shift to the urban space involve a strong inclination in favor of the large cities despite land and housing scarcity.
The policy initiatives will have to recognize this fact that though the rural to all-urban migration rates are moderate, the rural to large city migration is rapid and rationale for the migrants. Hence, an exclusionary urban policy is not the right method of reducing the city burden; rather creating amenities and empowering the poor to take advantage of the agglomeration economies should be a cost-reducing way of generating growth with creating employment. Several of the low-income households in cities create a great deal of value addition and in return earn much less than the contribution they make. Infrastructure and services support and other income support measures are indeed justified.
The periodic labor force survey (2017-18) which has information on the same households over different sub-rounds within a year shows that some workers do not remain within the same activity throughout. They keep depending on different activities in different seasons or keep shifting from one activity to another as sustainable livelihood sources are shrinking. Besides, at a given point in time, some workers have to depend on multiple sources of livelihood as one source is not sufficient to provide a subsistence level of income. Some of the workers engage themselves in two or more subsidiary status activities simultaneously while some augment their income by working in a principal and a subsidiary status activity.
The livelihood diversification strategy is beneficial for the households as it helps smoothen the consumption expenditure. Else, fluctuations in consumption can push some of the households, particularly those marginally above the poverty line, into the domain of poverty and such fluctuations affect the productivity of the workers severely. However, on several occasions, households remain below the poverty line despite pursuing multiple sources of livelihood. Due to the lack of gainful employment, they strive hard to engage in several petty activities.
The recent pandemic and the subsequent lockdown wiped away the sources of livelihood, particularly in the urban space, and more so in large cities, which kept attracting the migrants on a significant scale. The return migration occurred, raising the vulnerability of the workers. The regions which had witnessed lower unemployment rates before the pandemic experienced a hike. Regions with higher levels of urbanization and large cities and with higher rates of rural-urban migration are the ones that encountered a massive increase in the unemployment rate.
The complete closedown of the informal sector forced millions of workers to become openly unemployed and could bring in considerable overlaps between unemployment and poverty, a situation quite opposite to what prevailed during normalcy as unemployed were usually those who could afford it. There has been severe stress in the rural sector: those who have returned to the rural areas cannot get absorbed in gainful activities as the rural non-farm sector hardly comprises demand induced activities. On the other hand, the agricultural sector has already been in a state of excess-supplies of labor. The return migration only meant the same activity and income being shared by many, which again adds to the pathos of the working poor.
From these nightmares, certain lessons can be drawn for the future. It is high time that the strategy of rural industrialization must be pursued which can contribute to the overall industrial growth of the nation and generate employment opportunities for the rural population and the migrants who have returned to the rural areas. The rural infrastructure building programs along with major irrigation projects can offer livelihood to many, and on completion of the construction activities, new opportunities will emerge for inclusive growth to take place. The entire rural economy needs massive investment for which the government will have to take a great initiative. This should also be the occasion to revive the handicrafts and cottage industries so that high-value products can be manufactured through labor-intensive methods and these products can be sold both in the domestic and international markets.
As the economy emerges gradually from the prolonged lockdown it is time to have a new vision for the urban informal sector. What safety-nets can be provided to the workers to create sustainable sources of livelihood is an important question. In activities where people take self-initiative credit assistance can be provided. More informative support for product innovation and marketing can be extended through online services. The lack of legal security of space for the operation of the informal sector enterprises is a major problem that has resulted in poor marketing of goods and profitability. The rent-seeking behavior of the government and the local government employees can be discouraged if the land tenure issue is considered effective.
The introduction of training for the informal sector workers will contribute to skill formation and facilitate upward mobility. Recognition of the skill acquired through informal channels may expand the scope of gainful employment. The linkages between the formal and the informal enterprises will have to be strengthened and the roles of the intermediaries need to change drastically. Though the recent reforms of labor codes say goodbye to the inspection raj in the organized sector, how the exploitative roles of the business and labor contractors can be changed is a critical question. Workers in retail trade and services within the informal sector are not the same as the production workers. Their requirements in terms of assistance and support will have to be considered separately for a society to emerge with the initiation of shared prosperity.
On the whole, both the rural non-farm and urban informal sectors will require special attention of the policymakers and for the post-pandemic and lockdown period, sincere efforts will have to be pursued to develop these sectors with the great potentiality for the creation of sustainable livelihood.
The novel corona-virus disease (COVID-19) pandemic has destroyed the livelihood and employment of millions of people across the World. As per the International Labour Organization (ILO) report, nearly 400 million full-time jobs were lost in the year’s second quarter (April-June 2020) due to COVID-19. This has aggravated the employment situation into worst and more in developing regions such as South Asia, which also accounted for 110 million of the total 235 million full-time jobs lost in this quarter. It is estimated that job losses increased by over 400 percent in South Asia and Africa each since the first quarter of 2020.
Some various reports and surveys estimate huge job losses in the informal sector and the temporary nature of work in services and industrial sectors, particularly in South Asian countries. However, these reports also highlighted some silver lines of the present crisis in the form of an increase in agriculture and gig economy jobs, which are least affected and also showing future job potential. The job losses during lockdown were huge in the informal sector or those engaged in casual labor/temporary work. However, the survey findings also highlighted that once the lockdown would be over most of them said that they will get back to their casual and informal work.
This is also true in the case of India, whereas per Centre for Monitoring Indian Economy (CMIE) report around 6.8 million daily wage earners lost their jobs since April 2020, and around 14.9 million people took to farming during this period. But about 18.9 million salaried people lost their jobs during the same period may not get back to employment shortly as salaried jobs are not lost easily, once lost, they are also far more difficult to retrieve These ballooning numbers of jobs losses particularly full time salaried is worrying the policymakers and other stakeholders in India and other South Asian countries today.
Organised by Centre for Work and Welfare (CWW), Impact and Policy Research Institute (IMPRI), New Delhi, and Counterview
DISCLAIMER: The views expressed in this insight piece are those of the author and do not necessarily reflect the official policy or position of the IndraStra Global.
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