Over the years, India’s demographic transformation has attracted significant attention. India is at a stage where population growth over the next two decades, along with a substantial increase in the share of the working age population, is expected to provide us with a demographic dividend opportunity window. While all stages of the demographic transition must be thoroughly understood to formulate policies accordingly, the stage at which the working-age population forms the majority of the overall population is more important to consider. A large stock of people of working age indicates greater scope for mobilization of the labor force. According to the National Sample Survey Office’s Periodic Labor Force Survey 2020-21, India’s labor force participation rate for all age groups is around 41.6% (57.5% for males, 25% for females). Our working-age population is projected to grow by approximately 9.7 million per year from 2021 to 2031 and by 4.2 million annually over the period 2031-41, with immense potential to mobilize the growing working-age population and increase labor force participation. When the age structure of the population changes, especially with an expanding portion of the working-age population, the economy can benefit from increased income, investment, and growth of gross domestic product (GDP). However, to achieve this demographic dividend, the population in the working-age group must find gainful employment. It is important to mobilize them into the workforce. The competitiveness framework can be a strong foundation for India to understand the drivers of labor force mobilization.
The competitiveness approach defines national competitiveness in terms of the expected level of output per potential worker. The ‘output per potential worker’ aspect refers to a broader notion of productivity that refers to the productivity of the employed as well as the ability to mobilize the working age population of a country. Both the components are important for creating prosperity. The word ‘potential’ here deeply conjures up our approach to economic growth by capturing the total workforce, which can potentially be harnessed by an economy, and not just by the employed portion. Thus, competitiveness is linked to both components of output per potential worker: output per capita employed and a country’s ability to mobilize its workforce. So the question is, how does India improve its ability to mobilize and employ the working-age population? Specific dimensions of a country’s socio-economic environment may be particularly relevant to understanding the drivers of labor unionization. The competitive approach provides a perspective that views potential workers in the economy as an important aspect of the sector’s competitive conditions. Using this approach will help in focusing efforts on achieving the country’s demographic dividend and formulate policies accordingly.
The ability to mobilize the labor force depends on many factors. Job creation will have to keep pace with the increase in the working age population. It is important to create gainful employment opportunities.
Finance Minister Nirmala Sitharaman said that the Production-Linked Incentive (PLI) scheme in 14 sectors has the potential to create 60 lakh jobs in the next five years. India should give priority to the creation of gainful employment opportunities. Along with job creation, it is essential to promote employment among those entering the potential labor force. Empowering youth in terms of their education, skills and health should be an important priority to increase employability. India is making rapid efforts in this direction. Under the Skill India Mission and through various skill development programmes, around 55.6 million people have received skill training since 2015.
Yet another important aspect of easing labor force mobilization is that we have to look at the issue through the lens of an individual worker’s lifetime. Individuals enter and exit the labor force for a variety of reasons and at various times. There should be multiple paths leading into the workforce. The working age group is considered to be roughly between 20 and 65 years. However, learning and skill should be treated as a lifelong endeavor. In this day and age, continuous skilling and upgrading of one’s skill-set has become paramount to get remunerative employment. In this light, India’s efforts to promote greater labor force mobilization should be directed in a manner that facilitates multiple entry points for a single person into the labor force. It is important to understand that barriers to the labor force market are different for different communities and regions, and especially for women. For example, social norms have long determined women’s employment choices. According to the Periodic Labor Force Survey Annual Report 2020-21, the all India female labor force participation rate (LFPR) in normal condition has increased to 25.1% as compared to 22.8% a year ago. However, female workforce participation in India remains at a low level. The low participation of Indian women in the workforce can be attributed to several factors, including lack of jobs, the burden of unpaid care work and cultural norms. There is a need for more emphasis especially on organizing the Indian female labor force.
Efforts to mobilize more labor should also consider the fact that the growth of the working age population varies across Indian states. According to the Economic Survey 2019-20, the size of the working age population will begin to decline in 11 of the 22 major states during 2031-41, including states such as Punjab, Maharashtra, West Bengal and Himachal Pradesh. By 2041, states that find themselves behind others in demographic transition continue to grow. It is important to take into account these variations, as they will affect individual states’ labor-mobilization efforts.
An older working-age population does not automatically reap the benefits of a demographic dividend. These benefits have to be derived from favorable demographics. Ensuring that this potential is harnessed should be central to India’s development strategy.
Amit Kapoor and Vivek Debroy are, respectively, president, Institute for Competitiveness, India and lecturer at Stanford University; and Chairman, Economic Advisory Council to the Prime Minister.
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