Only 4.75 Million Join India’s Workforce Annually, Not 12 Million As Claimed

On average, 4.75 million people are added to the labour force in India per year, an analysis of labour bureau data over a period of four years from 2012 shows.

This is less than half the 12 million that people think enter the labour force on an annual basis.

Source: Author’s calculation based on Labour Bureau of India estimates; Figures in million
* Refer to Sections 3.15 and 3.16 of Labour Bureau Report on Employment & Unemployment Survey, 2013-14 (pg: 24, 25), citing increase in female LFPR

Entering the labour force means that you are either employed or unemployed but actively looking for work. India’s labour force was just under 466 million people in 2015.

The labour force participation rate is the total number of employed persons and unemployed persons that are looking for work divided by the total population over 15 years of age.

Source: Labour Bureau Report on Employment & Unemployment Surveys 2011-12 (Table 4.1), 2012-13 (Table 4.1), 2013-14 (Table 3.1), 2015-16 (Table 3.1); Figures in percentage
* Refer to Sections 3.15 and 3.16 of Labour Bureau Report on Employment & Unemployment Survey, 2013-14 (pg: 24, 25), citing increase in female LFPR

The total labour force participation rate was 50.3% in 2015, according to the Labour Bureau’s Employment –Unemployment Survey, 2015, down from 52.5% in 2014.

That is, only one out of every two Indians above the age of 15 is either employed or looking for work. At 23.7% in 2015, female labour force participation is even lower, and has been falling for the last decade. (Read here, here and here)

12 million? 5 million?

So, where does the 12 million figure come from? It is true that between 2001 and 2005, on average, roughly 12 million entered the labour force every year. But never since then.

During this period, there was an increase in the share of self-employed in rural and urban areas, as a result of additional employment opportunities that came with a period of economic growth – prompting people to take up contractual employment in sectors such as real estate, construction and in small enterprises.

The subsequent period, 2005 to 2010, saw a drastic decline in the number of people entering the labour force as the female labour force participation declined and a drop in the incidence of casual labour.

The 12 million figure frequently cited is the difference in the average annual change in the size of the total working age population, 15 to 59 year olds, according to UN Population Division estimates between 2011 and 2016.

Source: UN Population Division estimates

On average, between 2005 and 2015, just under half a million 15 to 17 year olds joined the working age group annually.

Source: Author’s calculation based on UN Population Division estimates

And not all of these people of working age choose to enter the labour market. Some may decide to stay in education while others may decide, or be compelled, to neither enter education nor employment (NEET).

The number of NEET youth, aged 15 to 29, was 30.8% in 2015, according to this 2017 India report by OECD Economic Surveys.

Jobs data a big concern

“The lack of reliable estimates on employment in recent years has impeded its measurement and thereby the Government faces challenges in adopting appropriate policy interventions,” chief economic advisor Arvind Subramanian wrote in the 2016-2017 Economic Survey.

The survey acknowledged many limitations of India’s labour market data including “partial coverage, inadequate sample size, low frequency, long time lags, double counting, conceptual differences and definitional issues”.

While efforts are underway to gather more data regularly, a year after Subramanian noted the limitations of existing labour market data, it will be some time before there are enough time-series data to properly assess labour market trends.

Answering this basic question correctly – how many people enter India’s labour force every year – is fundamental to addressing the nation’s employment challenge.

That so many answer it incorrectly is symptomatic of another problem – the lack of regular, reliable, and recent labour market data on which to base policy.

The international (International Labour Organization model) estimates of the labour force, however, present a slightly different picture. As per World Development Indicators of the World Bank, India had a total workforce of 503.8 million in 2015. Between 2011-2016, on average, India added 6.6 million to the labour force per year.

Thus, using the Labour Bureau’s estimate of the average number of people being added to the workforce every year (just under five million between 2012 and 2015) and the World Bank’s estimate of the average number of people being added to the workforce every year (just under seven million between 2011 and 2016), one can estimate that roughly 5-7 million people are entering the Indian workforce on an annual basis.

The variation in national and international estimates can be attributed to differences in survey and computation methodology, and varying time periods of estimation that leads to inclusion or exclusion of seasonally employed persons in certain estimates.

Even at 4.75 million, India’s formal economy is not creating enough jobs to absorb those entering the labour market. The economy generated only 7 million jobs during this entire period, whereas 4.75 million were entering the labour force every year, according to this 2017 report by McKinsey Global Institute, a global private sector think-tank set up as the business and economics research arm of McKinsey & Company.

Getting data right is an imperative to diagnose the scope and scale of India’s jobs challenge and to ultimately and effectively address it.