India’s suboptimal use of its labour power


The majority of India’s workforce depends on labour for income, particularly in informal employment with little job security or benefits.

  • Shifts in the labour market directly impact GDP growth, living standards, and overall economic health.


GS-02, GS-03 (Employment, Growth & Development, Government Policies & Interventions)

Mains Question:

Critically analyze the recent trends in India’s labour market, focusing on the implications for economic growth and social welfare. Discuss potential policy measures to address challenges related to job quality, income inequality, and demographic dividend. (250 words)

Key Highlights:

  • Recent data shows an increase in Labour Force Participation Rate (LFPR) and a decrease in unemployment rates, especially among women in rural areas.
  • However, deeper analysis reveals concerning trends regarding job quality and earnings across different employment categories.
  • Despite increased LFPR, the rise in self-employment, particularly unpaid family workers, raises questions about job quality and economic growth prospects.

Structure of India’s Labour Market

  • India’s labour market exhibits a layered structure based on skill levels and operational domains, regulated by government mandates.
  • Classification of the Indian labour market ranges from unskilled to highly skilled, with distinctions between managerial personnel and workmen based on operational roles.
  • Categories:
    • The labour force is broadly divided into organized and unorganized sectors, with efforts directed towards protecting workers in the latter.
    • The unorganized sector is categorized based on occupation, nature of employment, distressed categories, and service sectors.
    • Conversely, the organized sector comprises employees in government, state-owned, and private enterprises, functioning within defined regulatory frameworks.
  • Legislative reforms like the Code on Wages, 2019 Bill aim to standardize wage regulations and ensure comprehensive coverage for all employees.
    • Provisions include floor wages, minimum wage standards, and measures to promote gender equality in employment.
  • Challenges:
    • Migrant labour issues, bonded labour, and child labour necessitate ongoing efforts to address labour market dynamics.
  • The pursuit of inclusive growth requires continual adaptation and refinement of labour policies to foster a conducive environment for workers across sectors.

What is LFPR?

  • LFPR, or Labour Force Participation Rate, as defined by the CMIE, encompasses individuals aged 15 years or older falling into two categories: those employed and those actively seeking employment.
  • This metric encapsulates the proportion of the working-age population expressing demand for employment opportunities, reflecting the overall job market demand within an economy.
  • It accounts for both the employed and the unemployed individuals.
  • The Unemployment Rate (UER), often highlighted in news reports, is derived from LFPR, representing the percentage of unemployed individuals (category 2) relative to the total labour force.
  • India’s LFPR not only trails global averages but has been on a downward trajectory over the past decade, declining from 47% in 2016 to just 40% by December 2021.

Dimensions of the Article:

  • Understanding Labour Market Trends:
  • Quality of Employment
  • Earnings and Income Inequality
  • Implications for Economic Growth

Understanding Labour Market Trends:

  • The health of India’s labour market is a crucial determinant of economic prosperity and social well-being.
  • Recent data suggests positive trends in terms of increased LFPR and decreased unemployment rates, signaling potential improvements in job creation.

Quality of Employment:

  • While the overall LFPR has increased, much of this growth is driven by self-employment, particularly in the category of unpaid family workers.
    • This trend raises concerns about the quality of jobs being created, as unpaid family labour is often associated with informal and precarious employment.
  • Despite the rise in employment numbers, there is a notable lack of improvement in the composition of jobs, with the majority of workers engaged in low-quality work.

Earnings and Income Inequality:

  • Analysis of earnings data underscores the challenges facing India’s labour market. While there has been a marginal increase in average daily earnings, this growth is not uniform across different employment categories.
  • Wage and salaried workers continue to earn the highest incomes, while self-employed individuals, particularly unpaid family workers, experience stagnation in earnings.
  • This disparity in earnings reflects broader income inequalities within the labour market, with implications for economic growth and social welfare.

Implications for Economic Growth:

  • The dominance of low-quality work in India’s labour market has significant macroeconomic implications. With a majority of the workforce engaged in low-productivity activities, the economy may fail to fully leverage its demographic dividend and realize its growth potential.
  • Stagnant earnings among poorer sections of society also pose challenges for stimulating consumer expenditure, particularly as investment levels decline.
    • This raises concerns about the sustainability of economic growth and the potential for a downward spiral in economic activity.

Way Forward:

  • Addressing Job Quality and Inequality: To ensure inclusive and sustainable economic growth, government must prioritize measures to improve job quality and reduce income inequality by investing in skills development, promoting formal employment opportunities, and strengthening social protection measures for vulnerable workers.
  • Harnessing Demographic Dividend: By promoting high-quality employment opportunities and fostering an environment conducive to innovation and productivity growth, India can maximize the benefits of its young and growing workforce.