Youth unemployment is the unemployment of young people, defined by the United Nations as 15–24 years old. An unemployed person is defined as someone who does not have a job but is actively seeking work. In order to qualify as unemployed for official and statistical measurement, the individual must be without employment, willing and able to work, of the officially designated 'working age' and actively searching for a position. Youth unemployment rates tend to be higher than the adult rates in every country in the world.
There are 1.2 billion youth in the world aged between 15 and 24, accounting for 17% of the world's population. 87% of them live in developing countries. The age range defined by the United Nations addresses the period when mandatory schooling ends until the age of 24. This definition remains controversial as it not only impacts unemployment statistics but also plays an important role in the targeted solutions designed by policy makers in the world.
Two main debates are ongoing today. First, defining the age range of youth is not as obvious as it seems. Two theoretical perspectives have dominated this debate. Youth can be seen as a stage in life between adolescence and adulthood or as a socially constructed group with its own sub-culture, making it difficult to establish a comparable age range between countries. Second, the definition of unemployment itself leads to the possibility of not accounting for a number of young people left out of work. Those who do not have a job and are not actively seeking work – oftentimes women – are considered inactive and are therefore excluded in unemployment statistics. Their inclusion would substantially increase the unemployment rate.
There are multiple and complex causes behind youth unemployment. Among them, the quality and relevance of education, inflexible labour market and regulations, which in turn create a situation of assistance and dependency, are the main causes discussed today.
From education to employment: the skills crisis
The quality and relevance of education is often considered as the first root cause of youth unemployment. In 2010, in 25 out of 27 developed countries, the highest unemployment rate was among people with primary education or less Yet, high education does not guarantee a decent job. For example, in Tunisia, 40% of university graduates are unemployed against 24% of non-graduates. This affects highly educated young females in particular. "In Turkey, the unemployment rate among university educated women is more than 3 times higher than that of university educated men; in Iran and the United Arab Emirates, it is nearly 3 times; and in Saudi Arabia, it is 8 times".
Beyond the necessity to ensure its access to all, education is not adequately tailored to the needs of the labour market, which in turns leads to two consequences: the inability for young people to find jobs and the inability for employers to hire the skills they need. Combined with the economic crisis and the lack of sufficient job creation in many countries, it has resulted in high unemployment rates around the world and the development of a skills crisis. Surveys suggest that up to half of all businesses have open positions for which they are struggling to find suitably qualified people. One global survey found that more than 55% of employers worldwide believe there is a "skill crisis" as businesses witness a growing mismatch between the skills students learn in the education system and those required in the workplace. For many governments, a key question is how they can bridge this gap and ensure that young people are equipped with the skills employers are looking for.
Labour markets and regulations
First, a high level of employment protection regulations causes employers to be cautious about hiring more than a minimum number of workers, since they cannot easily be laid off during a downturn, or fired if a new employee should turn out to be unmotivated or incompetent. Second, the development of temporary forms of work such as internships, seasonal jobs and short term contracts have left young workers in precarious situations. Because their jobs are temporary contracts, youth are often the first to be laid off when a company downsizes. If they are laid off, youth are typically not eligible for redundancy payments because they only worked with the company for a short period of time. Once this work ends, many find themselves unemployed and disadvantaged in the job search. However, some youth are entering work on a part-time basis during tertiary education. This rate is low in countries like Italy, Spain and France but in the United States almost one-third of students combine education and work.
The legitimacy of internships has begun to be questioned. The purpose of internships is to allow students or recent graduates to acquire work experience and a recommendation letter to add to their curriculum vitae. However, many interns have complained that they are simply performing basic grunt-work, rather than learning important knowledge and skills. Whether or not these internship positions are now violating the federal rules that are in place to govern programs such as internships remains to be seen. The internship however, seems to be the only viable alternative to job placement for the young individual. With little to no job growth occurring, the unemployment rate among those fresh out of college and at the later end of the 15-24 aged youth spectrum is approximately 13.2% as of April 2012.
Assistance and dependency
Many countries around the world provide income assistance to support unemployed youth until labour market and economic conditions improve. Although this support is strictly related to obligations in terms of active job search and training, it has led to an emerging debate on whether or not it creates dependency among the youth and has a detrimental effect on them. In September 2014, David Cameron announced that he would cut housing and employment benefits for 18- to 21-year-olds by £3,000 to £23,000 to reduce dependency on government assistance and redirect funding to targeted programs for increased learning and training opportunities.
The individual experiences of youth unemployment vary from country to country. Definitions of youth can also vary from country to country so examination of particular countries gives a greater insight into the causes and consequences of youth unemployment.
African countries define youth as someone from as young as 15 to someone well into their mid thirties, which varies from the standardized definition of the United Nations. Africa has the youngest population of any continent which means that the problem of youth unemployment there is particularly relevant. Approximately 200 million people in Africa are between the ages of 15 and 24. This number is expected to double in size in the next 30 years. Between 2001 and 2010, countries in Africa reported some of the world's fasted growing economies. In Africa, the message the youth are receiving from schools and adults is to become job creators rather than job-seekers, which encourages them to become entrepreneurs.
Canada's economy has braved the global recession better than many others. But last year, 14.3 percent of Canadian youth were unemployed, up from 11.2 percent in 2007 and double the current national jobless rate of 7.2 percent, according to Statistics Canada. That amounts to the biggest gap between youth and adult unemployment rates since 1977. The average post-secondary graduate carries $28,000 in student debt. The unemployment rate for Canadian young people is about double that of the rest of the population. In Canada's largest province, Ontario, joblessness rates are the highest. The rate of unemployment for Ontarians between the ages of 15–24 is hovering between 16 and 17 per cent, double that of the normal provincial rate and higher than the national youth unemployment rate of 13.5–14.5 per cent. The percentage of youth in Ontario who actually have a job hasn't climbed above 52 per cent this year. Toronto's youth unemployment rate is at 18 per cent, but only 43 per cent of the area's youth are employed, the lowest rate in the province.
The growth of youth unemployment, which reached new heights of 22.5% across the European Union, as well as the precarisation of labor market conditions reveals that the gap between labor market 'outsiders' and 'insiders' is widening. One of the most dramatic possible consequences of this growing divergence could arguably be the disenfranchisement of labour market outsiders, especially young people, from social and political participation (Ferragina et al. 2016 ). If the objective of policymakers is to revive social and political participation in a period of great disenchantment and declining legitimacy for our democracies, there is definitely scope for further enquiry and action into the effects of youth outsiderness on social and political participation.
Due to the great recession in Europe, in 2009, only 15 per cent of males and 10 per cent of females between ages 16–19 in were employed full-time. The youth employment rate in the European Union reached an all-time low of 32.9 percent in the first half of 2011. Of the countries in the European Union Germany sticks outs with its low rate of 7.9%. Some critics argue that the decrease of the youth unemployment began even before the economic downturn, countries such as Greece and Spain.
Main article: Youth unemployment in the United Kingdom
The United Kingdom has experienced increased youth unemployment in the past few years, with rates reaching over 20 percent in 2009. The term NEET originated here, meaning youth that are not in education, employment or training.
The youth unemployment rate was around 10 percent in 2005, but they haven't reliably reported statistics to the United Nations over the years. However, there has been an increase in young adults remaining in school and getting additional degrees simply because there aren't opportunities for employment. These youth are typically of a lower class, but it can represent a wide variety of individuals across races and classes. They call the phenomenon timepass because the youth are simply passing time in college while waiting for a paid employment opportunity. In India, the employment system is reliant on connections or government opportunities.
Main article: Youth unemployment in Italy
Within the Eurozone, only Greece and Spain display higher rates of youth unemployment than Italy. Similarly to Spain, the percentage of people aged 15–24 excluded from the labour market saw a dramatic rise in the aftermath of the financial crisis of 2007–2008. Between 2008 and 2014, youth unemployment rose by 21.5%. By that year, almost 43% of the young were excluded from the labour market in Italy. Furthermore, youth unemployment is unequally distributed throughout the country. In the third quarter of 2014, only 29.7% of the young were unemployed in the North. This number increases to an alarming 51.5% when looking at the South of Italy.
There are 15 million unemployed young men in Arab communities. The youth unemployment rate in Jordan has traditionally been much higher than other countries. In the past ten years, the rate has stayed around 23 percent. There has been a recent increase in the popular belief that unemployment is the fault of the individual and not a societal problem. However, youth unemployment has also been attributed to increased pressure on service sectors that typically employ more youth in Jordan. Youth unemployment has led to later and later ages of marriage in Jordan, which some view as one of the most important consequences of the phenomenon. Another consequence experienced in Jordan is increased mental health problems.
Youth unemployment in Russia was over 18 percent in 2010. However, there was a wide variance in levels of unemployment in Russia just a few years earlier, that continued through the 2008 economic crisis. In 2005, the area around Moscow had an unemployment rate of just 1 percent while the Dagestan region had a rate over 22 percent. This may be partially attributed to the differences in levels of development in the region. It has been found that the higher the level of development in a region, the lower the level of both overall and youth-specific unemployment. In Russia, the main cause of youth unemployment has been attributed to lower levels of human capital.
Starting in the 1970s, youth unemployment has been rising at a steady rate in South Africa. Today, South Africa is ranked as the fourth country with the highest percentage of unemployed youth in the world. As of 2014, 52.6 percent of the people aged 15–24 actively looking for a job were unemployed. Furthermore, youth unemployment is unequally distributed throughout different segments of the population. While unemployment between young whites amounts to 12%, this number skyrockets to a troubling 70% between young blacks. It may be that remnant effects of the apartheid era has led to jobs centres being located farther away from typical homes of black communities compared to white communities. This, lingering discrimination, and unequal backgrounds are among the many reasons for the lopsided distribution of unemployment among young white and black South Africans.
Many of the unemployed youth have never worked before. A proposed reason for this is that South Africa's social pension program is relatively generous compared to other middle-income countries. Some senior South Africans (mostly applicable to the white population) are paid almost twice the per capita income. This has led to many of the unemployed youth surviving off of their elders' support, thereby reducing incentives to look for employment. In addition, the reservation wages of many young Africans are prohibitively high. Around 60% of males and 40% of females have reservation wages that are higher than they could expect from smaller sized firms. Some overestimate their ability to obtain jobs from competitive, high-paying, larger sized firms and thus remain unemployed. The higher pay of larger firms, in addition to the costs of employment (such as transport or housing costs), make it almost unfeasible for some youth to accept lower paying jobs from smaller firms. Thus, many of the youth in South Africa choose to remain unemployed until they are able to find a job at a larger firm. South African youth also face problems of education. Many exit the schooling system early. Others face a lack of skill recognition from employers, "even if they have qualifications in the fields that are considered to be in high demand."
In recent decades, the issue of youth unemployment has assumed alarming proportions in Spain. The country was dramatically hit by the Financial crisis of 2007–2008 and the number of young unemployed skyrocketed during this period. Within OECD countries, Spain displayed the most significant increases in terms of job losses within those aged 15–24. By 2014, 57.9 percent of the youth in Spain was unemployed. The failed implementation of effective employment policies and the increased segmentation of the labour marked during the economic recession are thought to be the main causes behind such an alarming situation.
Main article: Youth unemployment in the United Kingdom
Youth unemployment in the United Kingdom is the level of unemployment among young people, typically defined as those aged 18–25. A related concept is graduate unemployment which is the level of unemployment among university graduates. Statistics for June 2010 show that there are 926,000 young people under the age of 25 who are unemployed which equates to an unemployment rate of 19.6% among young people. This is the highest youth unemployment rate in 17 years. In November 2011 youth unemployment hit 1.02 million, but had fallen to 767,000 by August 2014. The high levels of youth unemployment in the United Kingdom have led some politicians and media commentators to talk of a "lost generation".
The general unemployment rate in the United States has increased in the last 5 years, but the youth unemployment rate has jumped almost 10 percentage points. In 2007, before the most recent recession began, youth unemployment was already at 13 percent. By 2008, this rate had jumped to 18 percent and in 2010 it had climbed to just under 21 percent. The length of time the youth are unemployed has expanded as well, with many youth in the United States remaining unemployed after more than a year of searching for a job. This has caused the creation of a scarred generation, as discussed below. An estimated 9.4 million young people ages 16 to 24 in the United States (12.3 percent) are neither working nor in school.
Youth unemployment levels in Greece remain one of the highest in the world. According to one source, between 2000 and 2008, youth inactivity increased from 63 percent to 72 percent. A different source using the harmonized definition of unemployment lists the unemployment rate of youth up to 24 years of age as 24.2% in Greece during 2009. To put this into perspective, the EU-27 average at the time was 18.3%. Youth unemployment rose to 40.1% in May 2011 and then again to about 55% in November 2012.
In addition to youth unemployment (namely those up to 25 years of age), Greece also faced severe graduate unemployment of those 25–29 years of age. In 1998, Greece had the highest level of unemployment of higher education graduates in the 25-29 year old age group. This was due to a lack of demand for highly educated personnel at the time. This trend of low employment among those with higher educational qualifications continues on today. As recently as 2009, "one in three higher education graduates, two in three secondary graduates, and one in three compulsory education graduates have not found some form of stable employment." This lack of employment is thought to have contributed to the feelings of frustration among youth that eventually led to the 2008 Greek riots.
These high levels of unemployment are exacerbated by the failure of unions to attract young workers. GSEE's Young Workers Committee revealed in a 2008 presentation that almost two-thirds of young workers did not joined their workplace unions. Although unions like GSEE and ADEDY actively promote wage increases through collective bargaining efforts and have contributed to obtaining higher wages for young workers, the wages of young workers remained much lower than almost all other countries in EU-15.
A lost generation
Unemployed youth has been called "a lost generation": not only because of productivity loss but also because of the long-term direct and indirect impact unemployment has on young people and their families. Unemployment has been said to affect earnings for about 20 years. Because they aren't able to build up skills or experience during their first years in the workforce, unemployed youth see a decrease in lifetime earnings when compared to those who had steady work or those who were unemployed as an adult. A lower salary can persist for 20 years following the unemployed period before the individual begins earning competitively to their peers. Widespread youth unemployment also leads to a socially excluded generation at great risk for poverty. For example, Spain saw an 18% increase in income inequality.
The lost generation effect impacts also their families. Youth in many countries now live with their parents into their late twenties. This contributes to what is called the "full-nest syndrome". In 2008, 46% of 18- to 34-year-olds in the European Union lived with at least one parent; in most countries the stay-at-homes were more likely to be unemployed than those who had moved out. In families, it is common that when one person becomes unemployed, other members of the family begin looking for or securing employment. This is called the added worker effect. This can sometimes take the form of employment in the informal sector when necessary. Alongside the shift in youth living situations, the impact of returning to live with parents as well as difficulty finding a fulfilling job lead to mental health risks. Being unemployed for a long period of time in youth has been correlated to decreased happiness, job satisfaction and other mental health issues. Unemployed youth also report more isolation from their community. Youth who are neither working nor studying do not have the opportunity to learn and improve their skills. They are progressively marginalised from the labour market and in turn can develop an anti-social behaviour.
Political unrest and increased public spending
The rise of political unrest and anti-social behaviour in the world has been recently attributed to youth unemployment. During the course of 2011 it became a key factor in fuelling protests around the globe. Within twelve months, four regimes (Tunisia, Egypt, Libya, Yemen) in the Arab World fell in the wake of the protests led by young people. Riots and protests similarly engulfed a number of European and North American cities (Spain, France, United Kingdom between 2008 and 2011 for example). The lack of productive engagement of young people in wider society, underlined by high levels of unemployment and under-employment, only serves to add to this feeling of disenfranchisement.
Youth unemployment also dramatically increases public spending at times when economies are struggling to remain competitive and social benefits increase along with an aging population. Youth unemployment has direct costs such as increased benefit payments, lost income-tax revenues and wasted capacity. "In Britain a report by the London School of Economics (LSE), the Royal Bank of Scotland and the Prince's Trust puts the cost of the country's 744,000 unemployed youngsters at £155m ($247m) a week in benefits and lost productivity". Similarly, the economic loss from youth unemployment in Europe is estimated at €153 billion or 1.2% of GDP in 2011.
Youth unemployment has indirect costs too, including emigration. Young people leave their countries in hope to find employment elsewhere. This brain drain has contributed to deteriorating countries' competitiveness, especially in Europe.
A lack of innovation
The economic crisis has led to a global decrease in competitiveness. "There is a risk of loss of talent and skills since a great amount of university graduates are unable to find a job and to put their knowledge and capabilities into producing innovation and contributing to economic growth". Excluding young people from the labour market means lacking the divergent thinking, creativity and innovation that they naturally offer. This fresh thinking is necessary for employers to foster new designs and innovative ideas. Fighting youth unemployment is therefore key to maintaining the economic performance of a country.
Incarceration and mortality
A 2015 study showed that New York City's 'Summer Youth Employment Program' decreased the participants' probability of incarceration and probability of mortality.
The role of labour market policy and institutions
The role of labour market policy and institutions varies a lot from countries to countries. Here is a brief account of key propositions recently elaborated to facilitate access to employment for youth. First, a more balanced employment protection for permanent and temporary workers is needed. It will ensure that young people who lack work experience can prove their abilities and skills to then progressively transition to regular employment. It will also encourage a more equal treatment between permanent and temporary workers and help combat informal employment. This proposition has led to multiple discussions on flexible contracts to be designed and offered to youth. Second, discussions are focused on the level and spread of income support provided to unemployed youth. While some countries consider shifting their support from direct financial assistance to funding apprenticeship, others are increasing their support tying it back to stricter obligations of active search and training. Third, Governments are progressively involving employers and trainers to create a holistic approach to youth unemployment and provide intensive programmes with focus on remedial education, work experience and adult mentoring. Some economists argue that high values of minimum wage can be a factor that increases youth unemployment. One Active Labor Market Policy (ALMP) that many governments have put emphasis on in an attempt to tackle unemployment is to directly help unemployed individuals transition to self-employment. Various pan-European studies have shown great success of these programs with regards to job creation and overall well-being.
TVET and vocational education
Main article: TVET (Technical and Vocational Education and Training)
The case has been made the past few years on the need to provide technical training to youth to prepare them specifically for a job. TVET and Vocational education would help address the skills crisis. Some countries – among them Switzerland, The Netherlands, Singapore, Austria, Norway and Germany – have been remarkably successful in developing vocational education – and have reduced youth unemployment to as little as half the OECD average.
Three main reasons are usually presented for why vocational education should be a part of political programmes to combat youth unemployment:
- First, case studies show that strong vocational training programmes reduce unemployment and increase wages. A range of country studies has consistently demonstrated a link between completion of vocational education and a reduced probability of unemployment and higher earnings. In countries where enrolment in in-company vocational education is less than 15%, the likelihood that young people will be unemployed is double that of countries where enrolment is over 15%.
- Second, vocational education increases employers' productivity. A range of studies across countries has found that higher investment in vocational training is associated with increases in productivity.
- Third, vocational education has significant social benefits: vocational education has been linked in studies to improved income equality, greater social inclusion, lower crime rates, and improved health and well being. To the extent that vocational education reduces unemployment, it also brings the broader social benefits associated with high employment.
Foundational skills have also been identified as key to a successful transition to work. "Across OECD countries, PISA results indicate that almost one in five students do not reach a basic minimum level of skills to function in today's societies". On average, 20% of young adults drop out before completing upper secondary education level. Vocational education aims at teaching foundational skills, as well as providing another option to general education pathways with practical job training.
Many countries around the world offer programmes to improve youth skills and employability. Once of them is Turkey, which focused training students with skills that would help them in running one’s own business, as well as entrepreneurship. The United Kingdom and Australia have tried to modernize apprenticeships. Indeed these are used to provide training for youths in non-traditional occupations. Measures for youth and employment have focused on easing transitions from school or training to work and jobs, as for instance careers information, advice and guidance services.
Teaching 21st-century skills
The education system plays a central role in the debate about the youth labor market crisis. What has become evident is that there need to be major changes in what we teach and in the way we teach. One prominent approach taken by various educators is to shift teaching from knowledge-centered teaching to skills-centered teaching. "In order to materialize the shift from exclusively content-based to a balanced content-and-skill-based curricula, education providers should make it their goal to establish a guiding skills framework which allows teachers and professors to see the types of skills and applied content they should be transmitting to their students. All educational institutions should work towards adopting or creating a suitable skills framework that aligns with the labor market, which is flexible enough for educators to adapt their subject or grade level. Moreover, this framework should act as a living document that schools and universities can modify to fit their communities or to accommodate changes in the market."
When taking into consideration the need to foster competitiveness through innovation and creativity, recent studies have advocated for entrepreneurship as a viable a solution to youth unemployment. With the right structure and facilitated administrative processes, young people could create enterprises as means to find and create new jobs. According to the OECD, Small and Medium Enterprises are today's main employers with 33% of jobs created over the last ten years. It shows that big companies no longer represent the main sources of employment and that there is a necessity to prepare young people for an entrepreneurship culture. This alternative is often regarded as a way to empower young people to take their future into their hands: it means investing in teaching them the leadership and management skills they need to become innovators and entrepreneurs. These skills also include: communication, teamwork, decision-making, organisational skills and self-confidence.
This solution ties back with labour market and regulations as many reforms are yet to be implemented to ensure that the market is flexible enough to incentivize young people to create enterprises. Target tax and business incentives are key to support young entrepreneurs in creating and scaling their businesses.
Assistance to youth in the transition to the world of work
A number of studies have shown that young people are not sufficiently advised on work related opportunities, necessary skills and career pathways. Before they leave education, it appears critical that they have access to this information to be better prepared for what to expect and what is expected of them. Good quality career guidance along with labour market prospects should help young people make better career choices. Too many young people choose to study a field that leads to little if no jobs. Governments, employers and trainers should work together to provide clearer pathways to youth. Similarly, programmes should be developed to better transition young people to the world of work. Here, vocational education and apprenticeship systems have shown that practice and on-the-job training had a positive effect.
Awareness has been raised around youth unemployment and it appears clearly that cross-sector collaboration is needed to tackle this issue. Policy makers but also entrepreneurs are trying to address the causes listed below. Best practices and key success factors are now identified and discussed on many forums, such as Decent Work 4 youth, an initiative by the International Labour Organization. Social entrepreneurs have also invested the field with the creation of new online platforms and applications.
Internet has been seen as a new world of opportunities for youth unemployment. With the use of social networks such as Facebook, Aboutme, LinkedIn, Twitter, young people are actively building their informal networks. New web applications are being designed today to use these networks to better match job seekers with employers, training volunteers and other forms of placement or mentoring. The Internet has contributed to redefining traditional forms of communication and young social entrepreneurs are now thinking about designing a job application that fits more with today's online presence and use of new technology. For example, the introduction of 1-minute videos to send to potential employers is being tested. Serious games to mimic the world of work or provide an online "smart" coach are also being developed.
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At 8 pm every day, 200 young technicians at pathology giant Thyrocare Technologies begin work at its automated clinical chemistry laboratory at Turbhe in Navi Mumbai. For the next 12 hours, they operate a range of state-of-the-art diagnostic equipment, which can process up to 200,000 investigatio
At 8 pm every day, 200 young technicians at pathology giant Thyrocare Technologies begin work at its automated clinical chemistry laboratory at Turbhe in Navi Mumbai. For the next 12 hours, they operate a range of state-of-the-art diagnostic equipment, which can process up to 200,000 investigations a night for thyroid, kidney and liver diseases, testing nearly 45,000 samples flown in from 1,300 collection centres in India. What would have taken several days of investigation by at least 1,000 technicians a decade ago is now being done by a workforce a fifth the size in less than a day. "Many job-seekers are qualified for the job, but not skilled," says A. Velumani, the company's CEO, who ensures freshers are given specialised training. The new challenges are exciting and even lighten the manual load, but that's for a lucky few. For the majority of jobseekers in the healthcare segment, the prospects are grim, with little job security and salaries roughly half what large diagnostic chains may offer.
Every month, a million Indians become age-eligible to join the workforce, but the growth in jobs has not kept pace with the rising number of aspirants. The result: unemployment has been on the rise, despite India supposedly being one of the brighter spots in a slowing global economy. Thirty-three-year-old Ratna Shankar Choubey, a father of two, in Bihar recently lost his job for resisting a change from being a permanent to temporary in the company. "Employment creation will be one of our greatest challenges for the next decade," says Jayant Sinha, minister of state for finance. India's unemployment rate grew from 6.8 per cent in 2001 to 9.6 per cent in 2011, according to Census 2011 data.
The big picture
The situation has only worsened since, thanks to weak industrial growth, a struggling agriculture sector with widespread drought, cost rationalisations in several sectors and the knock-on effect of a global slowdown. Also, traditionally labour-intensive industries are beginning to increasingly mechanise their operations. While it makes them more productive and profitable, it also shrinks job opportunities.
According to the labour ministry's 27th Quarterly Employment Survey of eight employment-intensive industries- textiles, leather, metals, automobiles, gems & jewellery, transport, IT/BPO and handloom/powerloom)- there were 43,000 job losses in the first quarter of FY 2015-2016. The second quarter was better, with 134,000 new jobs, but even then the 91,000 net new jobs created in the first half of FY 2015-16 look desultory.
At their peak, these sectors had added 1.1 million jobs in 2010. In the following five years, however, 1.5 million jobs were lost. FY 2014-15 saw a spurt, with 500,000 new jobs added as compared to 300,000 the year before, but it was still half the peak figure. There have been no signs of recovery in FY 2016; in fact, there is a decline.
One reason for the decline in jobs could be a reduction in contract workers (nearly 70,000 of them were retrenched in the first half of FY 2016, compared to 161,000 additions in the first half of FY 2015). Says labour and employment secretary Shankar Aggarwal: "Contractualisation is a universal phenomenon. The system of production of goods and services is different. Value addition is happening across the world and, depending on the circumstances, people decide where to go. We are witnessing a decline in growth across the world. To get jobs, we need flexibility in hiring."
Employment in export units, reeling under shrunken global demand, also saw a sharp decline. There were only 5,000 job additions in the first half of FY 2016 compared with 271,000 in the corresponding period of FY 2015. In the automobile sector, for instance, there were 23,000 job losses in export units compared to the 26,000 job additions in the other seven labour-intensive sectors in the second quarter of FY 2016.
Large manufacturers are trimming operations, throwing many jobs into jeopardy. Nokia, locked in a tax dispute with Indian authorities, shut down its handset-making factory in Chennai in November 2014, rendering 8,000 workers jobless. For Microsoft, the new owner of the Nokia handset brand, making smartphones in China and Vietnam was cheaper. Meanwhile, some MNCs in the financial sector have also recently exited India, after finding the domestic competition tougher than they had bargained for. Following on the heels of Goldman Sachs and Nomura, JP Morgan Asset Management of the US exited its onshore India-based mutual funds business, selling out to Edelweiss Asset Management, the seventh foreign-sponsored fund house to exit the Indian MF business in the past three years. Cement major Lafarge is also planning an exit, after selling its 11 mt business here. Hardly a surprise as the global cement industry is beset by overcapacity and weak demand.
"We've only been downsizing in the last few years, especially in infrastructure," says Sunil Kanoria, president, Assocham, and also vice-chairman, SREI Infrastructure Finance Ltd. "The financial situation is so bad, companies are struggling to get more resources."
Even some celebrated start-ups, touted as the next big thing, have found themselves in a tight corner. TinyOwl, a two-year-old Mumbai-based food ordering software start-up, is still in dire straits, even after it fired hundreds. Zomato, yet another food tech company, laid off 300 employees, or 10 per cent of its workforce, last year as the business went through a squeeze.
Growth without jobs
Many wonder why an economy supposedly growing at a rate of over 7 per cent is not creating enough jobs. Economists say this is because more work is now being done with fewer employees. "The economy is generating less jobs per unit of GDP," says D.K. Joshi, chief economist at ratings and research firm Crisil. Illustratively, in manufacturing, if 11 people were needed to execute a piece of work that generated Rs 1 million worth of industrial GDP a decade ago, today only six are needed. Joshi's verdict: "The economy has become less labour-absorbent."
Other corporate analysts offer similarly sobering opinions. "India's 7.5 per cent growth is based on the gross value added methodology, which is being debated, and the growth could be closer to 5 per cent," says Ajit Ranade, chief economic advisor with the $40 billion Aditya Birla Group. "Moreover, this growth is capital-intensive, not labour-intensive." D.K. Shrivastava, policy advisor at consulting firm EY, explains, "Whatever growth there is does not seem to be translating into jobs. Either the growth is in sectors that are not employment-intensive, or overall growth is overstated."
This year's Budget had specific provisions to expand productive employment, while also giving a push to certain sectors of the rural economy and infrastructure that would create jobs. The move to encourage small and medium enterprises to hire more workers while the state pitches in with provident fund contributions, and the emphasis on roads and other infrastructure are all good measures. However, it will take a lot-particularly significantly increased investments by both private business and the state-before real benefits appear. As things stand, private investments have been static, and with the government firm on its fiscal consolidation targets, public spending too is somewhat constrained.
Ajit Gulabchand, chairman of the $650 million Hindustan Construction Company in Mumbai, laments: "New job creation is poor because the investment cycle has not kickstarted. We are in a slow economy and the global slowdown is not helping." The government could incentivise job creation by giving infrastructure a push, finding a way to lower interest rates and improve ease of doing business, he says. In his assessment, "the economy will take 2-3 years to get into the fast mode of growth."
Others blame higher levels of automation for the job squeeze. "The growth rate in jobs has distinctly slowed down with significant improvements in automation and productivity," says Rajeev Dubey, group president, HR & Corporate Services, of the $17 billion Mahindra & Mahindra. CII president Naushad Forbes attributes the job squeeze to the slow pace of labour reforms. "It has dissuaded companies from creating formal employment, and incentivised investments in automation."
The government's Make in India jamboree held in Mumbai this February saw investment commitments of Rs 15 lakh crore from Indian and overseas investors, but those projects are still largely on paper. The programme aims to increase the share of manufacturing in GDP from the current 16 per cent to 25 per cent by 2022, and create 100 million additional jobs by then. But experts say this may not be an opportune time for a manufacturing-led model of the sort that created 64 million jobs in China between 2011 and 2016. "Creating manufacturing jobs will be tough with the advent of robotics," says Ranade.
Currently, the manufacturing sector has an overall employment share of 12-13 per cent. While this share has been growing, even if gradually, in the past decade, the number of workers per factory has been dropping in the past 3-4 decades due to increased outsourcing. Moreover, the growth has not been consistent across the country and is primarily in mid-sized factories and through informal employment.
In the infrastructure and manufacturing sector, getting good talent at the leadership level, especially to handle profit and loss responsibilities with requisite commercial skills, is not an easy task, says Yogi Sriram, vice-president, corporate HR, L&T. What the country requires, he says, is youth oriented to working on the shop floor. The 'dignity of labour' remains an exotic concept in India. "Shuffling papers is seen as more dignified as compared to holding a torque wrench," he observes. The manufacturing sector has been losing people to the services sector, which is seen as more glamorous, and betterpaid. It's also much easier to switch jobs and gain international exposure here.
The services story
Yet, there are some areas that still stand out when it comes to job creation, notably the financial services and the financial technology sectors. For example, ever since the RBI granted licences to 10 new small banks and 11 payment banks in 2015, employment opportunities have been growing. The traditional banks have been opening new branches and hiring personnel to augment their services in the face of intense competition from the new players. Similarly, in financial technologies, the entry of outfits such as PayTM that combine technology with financial services is also giving a new impetus to job creation.
Jobs below the radar?
Some skilling and data experts such as Mohandas Pai, chairman, Manipal Global Education Services, and Dilip Chenoy, former CEO, National Skill Development Corporation, argue that the data does not fully capture the movement in the economy. "When you talk of highest coal production or power generation or maximum roads built... these have not been achieved without creating jobs," says Chenoy.
Also, in India, the informal sector accounts for the larger chunk of jobs created. India has only about 30 million jobs in the organised sector and nearly 440 million in the unorganised sector. The Economic Survey 2015-16 highlights this conundrum: of the 10.5 million new manufacturing jobs created in India between 1989 and 2010, only 3.7 million, or about 35 per cent, were in the formal sector, where proper job contracts are signed between employers and staff, salaries are fixed and contributions to Employees' Provident Fund guaranteed under government labour laws.
Industry leaders agree with this hypothesis. "Economists and policymakers seem to underestimate the contributions of the informal sector in creating employment," says R.C. Bhargava, chairman, Maruti Suzuki, India's largest carmaker. The company has not been making any substantial additions to its workforce, of late. However, when it rolls out 1.5 million cars a year, it also creates anywhere between 800,000 and a million jobs, Bhargava estimates. These jobs are in driver training, repairs, spare parts shops, insurance, dealerships etc. "This applies to a whole lot of other industries as well, where informal jobs are created in the thousands in the downstream sector," he adds.
Government data too does not capture this trend in informal jobs. "Organised sector employment captures only one side of it," says Jayant Sinha. "The entrepreneurial sector is very poorly tracked. Many of the jobs in the economy are created by the Flipkarts, Myntras and Snapdeals of the world, and these jobs are not picked up by the numbers. We are also focusing on traditional economy jobs like fisheries, embroidery etc."
The labour department is cognisant of the limitation of its data and is working towards expanding the scope of the survey. From July this year, it will include 10,000 establishments, up from the current 2,000-2,500 and expand to 18 sectors from the current eight.
Start-ups, the increased focus on medium and small enterprises and greater self-employment too do not get accounted for in the data. According to IT industry body Nasscom, 3-4 IT start-ups are born every day in India. In calendar 2015, 1,200 start-ups were launched in the tech space alone, a 40 per cent rise from 2014. India has the third highest number of start-ups in the world at 4,200, behind the US and Britain, but ahead of China and Israel. Nasscom estimates software start-ups will create 800,000 jobs by 2017.
Changing it winds
Meanwhile, the traditional IT sector is experiencing big change that will impact job profiles and opportunities. Automation, self-service portals, costsharing are all dampeners on job creation in the ITeS segment.
Customers are seeking more productivity and value addition. While this will require a higher level of skill, it will not result in more new job opportunities. The model of companies going to engineering colleges to recruit staff is changing. Disruptive technologies, such as social, mobility, analytics and cloud are offering new avenues of growth across verticals for IT companies. Artificial Intelligence (AI) is another upcoming area. Positions likely to be demand in the coming years include data scientists, retail planners, product managers and digital marketers. In certain instances, the advent of new technology will require more specialised skill sets. For example, interactive voice response (IVR) can easily manage a BPO unit of 500 professionals now, but we will still need technology professionals to ensure correct delivery of information through IVR.
The other interesting trend is the shift of ITeS jobs to Tier-2, Tier-3 cities and rural areas-a trend that may owe to simple cost effectiveness, but which will require higher emphasis on interpersonal and communication skills. The earlier euphoria over call centre jobs has all but vanished. Here, India seems to be losing out to countries like the Philippines and Malaysia which have staff trained in non-voice analytics and accounting work.
Hope on the horizon
Nonetheless, there are those who still see a glimmer of hope on the employment horizon. "India is among the few countries in the world that has a reason to be optimistic," says N.S. Rajan, member, Group Executive Council, and Group Chief Human Resources Officer at the $100 billion Tata Group. "This could be due to the favourable structural growth story or the presence of a huge demographic dividend or the stability that is provided by democracy." However, even these assets can only be redeemed if the requisite skills and capabilities and the right kinds of jobs are available, he concedes.
For all the turbulence, the significance of new economy enterprises should not be underestimated. These could be in education, healthcare, e-commerce and hospitality. More than half the companies that raised money through IPOs in the equity markets in 2015-16 were from these sectors. As Sebi chairman U.K. Sinha told India Today in December 2015, "This gives a signal that there is a shift happening in economic activity-new entrepreneurial energy is betting on new areas. The traditional sectors such as power and steel have not raised much in fiscal 2016."
This new economy-which is more digital and technology driven and is slowly but definitely changing how we live-from technology interventions in rural areas (the 'JAM' trinity of Jan Dhan Yojana, Aadhaar and mobile connectivity for targeted subsidies) to buying groceries online. India is on the cusp of a second-generation digital revolution, which will spread across the economic spectrum, from agriculture, rural, healthcare, education, retail, other services, manufacturing, and create a new set of jobs and render some existing ones obsolete.
The government, on its part, seems to have grasped this change: new 'thrust areas'-such as Digital India, Skill India, StartUP India and Make in India-all focus on creating an ecosystem that will generate jobs.
Pankaj Bansal, co-founder and CEO, Peoplestrong, an HR consultancy firm, talks about the rise of a 'gig economy'- one in which people will work on a skill- and need-based basis, doing two or more jobs in a year. HR consultants anticipate a digital divide in the country where the digital economy will demand very different skills, though some real economy vocations such as plumbing or carpentry will survive.
S. Ramadorai, chairman, National Skills Development Council and advisor to the prime minister, speaks of the need to create skills portable across borders. "Green sectors such as solar energy and wind, besides defence and aerospace industry, construction, education and healthcare will be the new job creators," he says. Job profiles too will change. Mechanical engineers who can build robots will be in demand. "Look at the transformation in passport kendras. Too much manual work leads to inefficiencies. Digitisation is the solution," says Ramadorai.
It's evident India has missed the manufacturing export opportunity China had in the 1970s. Job creation will be a consequence of increased domestic consumption, which requires macroeconomic stability (low inflation and interest rates), reduced regulatory hassles, further decentralisation and an aggressive skilling campaign. Teamlease's Manish Sabharwal doesn't believe India will ever get to a situation like China's where 34 per cent of its labour force will be involved in manufacturing, up from the current 11 per cent, equivalent to post-industrial United States. However, getting to 20 per cent is possible and that would account for another 100 million jobs. "The good news is, policy moves are accelerating the five labour market transitions that are journeys to higher productivity-farm to non-farm, rural to urban, subsistence self-employment to decent wage employment, informal to formal, and school to work," says Sabharwal. Reforms in the labour market and a greater emphasis on labourintensive industries such as textiles are needed to boost formal employment and sustain urban demand growth. "The skilling challenge is across the board," he adds. Nearly 50 per cent of India's labour force on farms needs to transition to non-farm jobs, but often does not have the skills. "A million young men and women will join the labour force every month for the next 20 years, and many of them will have degrees but will be unemployable," he says. Not a pretty picture.
On hire ground
with Amitabh Srivastava