India needs comprehensive labor market revival measures to improve pandemic-hit economy

Labor economists and various surveys have said the pandemic and consequent job and income losses have pushed tens of millions of Indians into poverty in the last few months, writes Vaibhavi Pingale for South Asia Monitor

Vaibhavi Pingale Jul 14, 2021
India's labor market

The Covid-19 pandemic that started in 2019 has spared virtually no one and has had varied repercussions on people across the globe. Livelihood or employment is one area where the effects of the pandemic can be witnessed at various levels.

The Indian economy too has been heavily hit. Experts have forecast the Indian economy could begin to recover only by August 2021, on the back of a U-shaped turnaround from the slump caused by the second wave. But without employment, the demand would not surge to the extent it is needed. For economic recovery, normalcy has to be restored to the job market through short-term, medium-term and long-term policies.

The unemployment rate in India in May 2020 was 23.5 percent. This year, in May 2021, it was 11.9 percent. In urban centers it was as high as 14.73 percent and in rural areas 10.63 percent, marking a loss of 10 million jobs.

To tackle voluntary unemployment, universal vaccination is going to be a big step. Jabs will help improve consumer confidence and lead to an increase in demand and availability of labor which in turn will have a positive impact on production and business sentiment.

Improved business confidence will result in increased job opportunities, thereby setting the cycle of demand and supply in motion. Further, sectors such as construction and public sector infrastructure need to be revamped to absorb the unemployed labor, in both rural as well as urban areas.

The pandemic has adversely affected the Micro, Small and Medium Enterprises (MSMEs), which offer a large number of jobs in India. To revive the sector, the Indian government with the help of the Reserve Bank of India (RBI) announced some fiscal stimulus which is, however, majorly related to taking a loan from the bank – a time-consuming process.

Registered MSMEs should be offered something akin to the Direct Benefit Transfer of a certain amount that the farmers received. It will help in restarting businesses in both the manufacturing as well as service sectors and increase the level of employment in the country in both rural as well as urban areas. Such short-term measures would improve the labor market situation.

Social security benefits

Additionally, Indians lack social security benefits. Hence, few people can afford to stay unemployed. The pandemic is likely to have lasting consequences for the labor market. So for its recovery and also to set it on the right path, the government has announced a Code on Social Security, 2020 that allows extension of social security benefits to the unorganized, platform, and gig workers.

According to a study, out of the 15.2 million vulnerable rural workers, only 0.55 million receive any social security benefit. In the urban area, 0.77 million of the 15.9 million vulnerable workers get such benefits. The number of beneficiaries in both rural and urban areas is less than five percent. The rest 95 plus percent of vulnerable workers do not have any security cover during situations like lockdown or slowdown and recession. Their households are most vulnerable to labor market shocks.

Data from the Employees' Provident Fund Organization (EPFO) which manages social security funds of workers in the organized and semi-organized sectors in India showed that those aged 25 years or below were among the most affected, with many who lost their jobs during the worst months of the pandemic unable to find employment.

Payroll data represent details of employees registered by the firms and include data of both entry and exits of new employees. Net payroll data is calculated by adding members who are newly enrolled and those who have re-joined after exiting, and after deducting the people who have exited the EPFO.

Data for the fiscal year (FY) 2020-21 showed that there was a fall in the net payrolls for three age categories — under-18,18-21 and 22-25, on a year-on-year basis as compared to the relatively older age groups. These three younger age groups saw a contraction in payroll additions by 19 percent, 15.6 percent and 4.2 percent, respectively.

“The pandemic has affected both workers and potential workers. Young and female workers are likely to be far more vulnerable than others. The pandemic has resulted in inequitable labor force outcomes,” said K.R. Shyam Sundar, professor in human resource management, XLRI Jamshedpur.

Therefore, understanding the dire requirement of having some sort of safety net, the medium-term way majorly needs to stress on expanding the social security system to all kinds of workers.  

Expanding, increasing exports

The demand for labor is a derived demand. Therefore, unless production and further exports increase, the firms will find it difficult to sustain, grow and employ more workers.

India's exports are mainly capital-intensive goods such as chemicals and fabricated metals, meaning the direct benefits in terms of employment have been limited. Moreover, the growth of India’s exports from labor-intensive sectors has been slowing at a faster pace in recent years than overall outbound shipments. Exports from job-sensitive sectors such as textiles & garments, farm, plantation, marine, gems & jewelry, leather, stone, cement, ceramic and some other allied segments slid by 8.4 percent to USD 114.2 billion.

Consequently, the long-term goals of stabilizing the labor market should emphasize increasing the quantity and expanding the variety of goods and services for exports, via participating in global supply chains and connecting with new markets or countries through active foreign policy engagements.

Labor economists and various surveys have said the pandemic and consequent job and income losses have pushed tens of millions of Indians into poverty in the last few months. RBI, however, is hopeful that some of the policy reforms like production-linked incentive schemes, self-reliance initiatives, and the labor codes passed by the parliament will help in employment generation.

To witness the cascading effects of various policy initiatives, laws would require time. However, if the government now starts taking action on job creation and expansion of the social security system for all kinds of workers in India, it would revive demand and mitigate the long-lasting adverse effects the second wave would have on the economy.

(The writer is an Assistant Professor of Economics, Savitribai Phule Pune University, India.  The views expressed are personal. She can be contacted at 

Post a Comment

The content of this field is kept private and will not be shown publicly.