Demographic Dividend -- these are the two most abused words, when it comes to fund managers, economists, stock market experts and everyone else, who have been trying to sell the India growth story over the last two decades.
Countries go through a phase when its workforce increases at a faster rate than its overall population. When the youth (people who cross the age of fifteen) in such a country, enter the workforce, find work, earn money and then spend it, they end up creating economic growth.
That kind of economic growth pulls out many people out of poverty. Or so that’s how the dynamic is supposed to work.
In fact, one corollary to this theory is, that as women become more literate, and join the workforce, earn and spend money, it creates additional economic growth.
In other words, as the society becomes more equal in gender terms, it leads to additional economic growth. (You can read one
such argument from McKinsey, which was published in September 2015 and was doing the rounds on the social media, on the occasion of women’s day, recently).
But there is a key assumption in that theory—
those who are looking for work, are able to find it. Only when this happens, are they going to earn money, spend it, help others earn money, who will spend the money as well, and help still others earn money. Or so the multiplier effect is supposed to work, create economic growth and jobs, and in the process pull people out of poverty.
In India’s case, the demographic dividend is gradually turning into a disaster, especially, as we shall see, for women. In fact, a lot has been written about India’s unemployment crisis over the last few years. So, in this piece, we won’t go down that lane. But what we will look at is India’s labour force participation rate or the proportion of the working-age population, which either has a job or is unemployed and is
looking for one.
The working-age population essentially comprises of people who are of age 15 years or more. Let’s take a look at this issue pointwise.
1) The Centre for Monitoring Indian Economy regularly puts out the labour force participation data. In February 2019, the labour force participation rate for working-age population of India stood at 42.74%. This basically means that only 4,274 individuals out of every 10,000, who are a part of the working-age population, either had a job or were looking for one.
The interesting thing is that the labour force participation rate has fallen dramatically over the years. In January 2016, it was 47.70%. Hence, back then, for every 10,000 individuals who were a part of the working-age population, 4,770 individuals either had a job or were looking for one.
2) Let’s look at this data in some detail. The women who are a part of the working-age population have had to face the brunt of the fall in the labour force participation rate. In January 2016, the labour force participation rate among women was at 16.81%. This has since fallen to 10.97% in February 2019. In urban India, it was at 10.37% and in rural India it was at 11.28%.
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Basically, in simple English, around 11 out of 100 women who are a part of the working-age population, either have a job or are looking for one. The number was around 17 earlier. This is a real reason to worry.
3) As far as men are concerned, the labour force participation rate has fallen from 75.06% in January 2016 to 71.19% in February 2019. The labour force participation rate of men has also come down but not as dramatically as that of women.
4) The interesting thing is that a bulk of this fall has happened after October 2016. The overall labour force participation rate in October 2016 had stood at 46.49%. From there, as mentioned earlier, it has dropped to 42.74%. The labour force participation rate for men and women, had stood at 74.87% and 14.76% during the month, from where it has fallen to 71.19% and 10.97%, respectively.
Not surprisingly, demonetisation happened in the month of November 2016. As cash went out of the system, large parts of the informal economy which depended on cash, were destroyed.
5) For those who lost their jobs after demonetisation, it became very difficult to find a new job. And slowly, these individuals stopped looking for jobs, and in the process dropped out of the workforce.
These people who have dropped out of the workforce, do not get counted among India’s unemployed, even though they do not have a job. And this is something that never gets talked about in the India’s unemployment debate.
6) In October 2016, India’s working age population, stood at around 95.51 crore. Of this, around 41.43 crore people had jobs. In February 2019, India’s working age population had increased to 100.9 crore . The number of people with jobs stood at 40.01 crore. Hence, the employment rate has fallen from 43.37% to 39.65%.
What does this mean? While, the working age population has risen by 5.4 crore individuals since demonetisation, the number of employed people has come down by more than 1.4 crore. Hence, one there has been destruction of jobs. And two, no new jobs have been created for so many individuals entering the workforce.
7) This further means that other than jobs being destroyed after demonetisation, the economy has been unable to create jobs for the nearly 2.3 crore individuals who enter the workforce every year, though not all of them are looking for jobs. This is a sad state of affairs which never gets mentioned anywhere in the media or even by economists, who are supposed to track such things.
8) Women have had to bear the brunt of this. In January 2016, 7.41 crore women were a part of the labour force. This has dropped to 5.23 crore by February 2019, a fall of more than 29%. Meanwhile, the working age population of women has increased from 44.1 crore to 47.7 crore, during the same period. What this basically means is that more and more over the age of 15, are simply not looking for a job because it has become very difficult to find one. Meanwhile, the number of men in the workforce during the period has increased slightly from 37.35 crore to 37.9 crore.
To conclude, India’s so-called demographic dividend clearly is not working the way it’s supposed to, especially for its women. For them, it has been a disaster.
See also:
Lower rates alone will not stop GST evasion — simpler rules will
Why even an economic growth of 6.6% is not believable
