Labor Market of India: Millions of Jobs at High Risk

COVID-19 has disrupted the labor markets as factories and industries remain shut. There is a tsunami of unemployment approaching us. The U.S. is reporting record-high unemployment claims. This could raise the possibility of social unrest. Seeing that, it could turn the labor market crunch into a nightmare. Without a doubt, it affects every nation following lockdown measures. If the economy doesn’t improve from here, this could only be the first phase of retrenchment. India is in lockdown since 25th March 2020. Apart from selective services, all movement has stopped. This has left the workers stranded in cities far away from their families.

In our last post, we discussed the Indian Stimulus package. Today we shall have a look at the impact on the Indian Labor Market.

Overview of the Labor Force

COVID-19 came at a difficult time for India, as it further disrupts the labor market. India needs to create nearly 10 million jobs a year not counting for unemployment. This is to provide jobs for people moving into the working phase of life. In India, the daily wage earners are bearing the brunt so far. The employees on short-term contracts could be next. India has over 5 million people with contracts of less than 1 year.

National Sample Survey (NSS) and Periodic Labour Force Survey (PLFS) data estimates about 136 million non-agriculture workers to be at immediate risk. These include no written contract workers, self-employed workers, and workers in non-registered businesses and registered small companies. Santosh Mehrotra, a human development economist estimates the labor force to be at 495 million. Most of these daily wage laborers earn up to INR450 ($6) a day. Most of them are soon to be unemployed.

Implications of a Labor Market Crunch

The V-shaped recovery as hoped by many experts now seems improbable. We are likely to experience a global deep recession. As a result, it could lead to a breakdown of the labor markets and evaporate consumer spending. Sabina Dewan from Just Jobs Network said, “we will have less fiscal space to make much-needed investments in, for example, education, skills, preventative healthcare, and infrastructure. This will not just prevent us from moving forward but will set us back. Our large and growing youth population will be disenfranchised.”

There is a growing consensus of economic inequality in the labor market. The fruits of economic growth are not distributed evenly. This inequality poses a threat to social cohesion. Extensive data collection and modeling by the International Labor Organization (ILO) provide a comprehensive image of the labor markets. The report show major gaps in access to work and deficiencies in the quality of work, including high rates of informality, and poverty. These seem unlikely to recede due to insufficient or unequal growth. Finally, the report emphasizes the prevailing inequalities in the labor market. This includes the size of the labor income share, and its uneven distribution among workers.