The Future of Work in India and Beyond

Article The Future of Work in India and Beyond Sandra Polaski 1 Indian Journal of Human Development 10(1) 1 9 2016 Institute for Human Development SAGE Publications sagepub.in/home.nav DOI: 10.1177/0973703016649274 http://ijhd.sagepub.com Abstract There is intense debate all over the world about future of work. This paper 1 discusses the current and future challenges in the world of work, at the global level, looking at the recent economic and labour market developments and income inequality. The challenge in India is also complex and there are four issues promoting employment-intensive growth, boosting female labour force participation, facilitating transition to formal employment and formal firms and strengthening labour market institutions which are critical ones in the context of the future challenges in the labour market. Keywords Global financial crisis, Indian economy, employment and unemployment, job-intensive growth, female labour force participation The Current Global Context Since the financial crisis of 2008 2009, the global economy has not fully escaped recession. Overall, recovery has been fragile, uneven and uncertain, and this is reflected in growing jobs deficits in many countries. There are deficits in terms of both the quantity and quality of jobs. In the face of weak growth and disappointing employment creation, many countries have turned to monetary policy interventions, which have been extensive and even unprecedented in some cases. Of course, pumping huge amounts of liquidity into the international economy has had spillover effects to other economies, with the emerging economies first benefiting from capital inflows, but now unfortunately suffering from capital outflows as the end of monetary stimulus begins to appear on the horizon. This is the general picture, although with highly uneven effects across countries. There are some exceptions to this overall pattern, including relatively solid growth in India and in China until recently. This year, the global economy is facing another challenging phase, as China, which had been one of the few engines of global growth, has seen clear signs of slowdown. 1 Deputy Director General, International Labour Organization. Corresponding author: Sandra Polaski, Deputy Director General, International Labour Organization, Geneva, Switzerland. E-mail: sandrapolaski@gmail.com

2 Indian Journal of Human Development 10(1) India experienced its own slowdown earlier, in 2012 2013 and is now entering a phase of stronger growth. In particular, as a major energy importer, India has benefited from low oil prices. India is, therefore, one bright spot on the horizon, with the economy expected to grow by around 7.5 per cent this year. Nonetheless, the world still remains in the grip of a volatile and uncertain economic situation, which will also affect India s economy. Global Employment The lingering pains of the Great Recession are still acutely felt in the global labour market. If we look at G20 countries, the aggregate unemployment rate across the G20 remained elevated at 5.8 per cent in 2014. Youth unemployment and long-term unemployment remain high in many countries. Labour force participation rates have declined in several G20 countries, due in part to demographic change and to youth staying in school longer, but also due to discouraged workers who have left the labour market. Overall, employment growth remains well below pre-crisis levels across the G20, leading to a substantial job gap. Unfortunately, this is one area in which India is no exception to this trend. Beyond the quantity of jobs, there are serious concerns about job quality for both existing and new jobs. The incidence of non-standard forms of employment, including informal employment and involuntary temporary and part-time work, continues to rise in many countries. In the advanced economies we have seen wage stagnation or even wage declines, which reduces aggregate demand domestically and globally, while contributing to the disturbing rise of inequality. Indeed, inequality has been described as the defining challenge of our time. When measured by Gini coefficients, income inequality has been increasing in most advanced, emerging and developing countries, with important exceptions in a few Latin American countries where strong policy efforts have been effective in combating it. As you may expect, these trends towards greater inequality have roots in the labour market. Again, looking at G20 countries, recent studies by ILO and other international organizations show that widening inequality is closely associated with the declining share of total GDP that goes to working people through their pay checks. The significant slowdown in wage growth in most advanced and some emerging G20 countries, coupled with elevated unemployment and underemployment, explain the decline in the labour share of national income. Inequality is a social issue, raising questions of fairness and reducing social cohesion. And it is a political issue, when frustrated publics lose confidence in governments that seem out of touch with their needs and that cater to the wealthy. But it is also an economic issue. Recent research by the ILO, IMF and others demonstrates that inequality harms economic growth. For example, the OECD recently estimated that rising inequality in Europe had shaved almost 5 per cent of the region s economic growth in recent years. Households that face low or stagnating wages or uncertain jobs do not spend as much, and when households do not spend, businesses do not see reason to invest. As a result, aggregate demand has remained depressed at the global level and this in turn has slowed international trade. Inequality does further harm to economic growth over the medium and long term, as it leads to more interruptions of growth spells and less investment in human capital. It is good that the G20, as the premier forum for international economic cooperation, has finally put inequality onto its agenda this year. It is one of the top priorities of the current Turkish presidency of the G20 and countries have been invited to adjust their growth strategies to address inequality and make growth more inclusive. As an active member of the G20, India now has an opportunity to do so; hopefully it will seize this opportunity.

Polaski 3 Beyond the rise of inequality, we have also seen other profound changes in labour markets over recent decades. These arise from technological change, increased migration, ageing societies in some countries and youth bulges in others and shifting employment patterns. The direction of the changes has often been away from, not towards, the achievement of full and productive employment, social justice and inclusive economies. And these forces will continue to visit changes in the world of work. ILO Initiative on the Future of Work In light of the these longer-term changes, the ILO Director General has proposed to organize a series of what he calls conversations on four thematic areas addressing the future of work. The first is on the relationship between work and society. The diversification and often polarization of jobs, driven by technological change, globalization and other forces, challenges the expectations that we have had about employment possibilities, incomes and careers. Second, in this context, we have to reflect on the future sources of work: where will the jobs come from, and what will they be like? Will decent jobs become more or less available? A range of policies, from macroeconomic to labour market policies, may need to be revisited in order to promote employment intensive growth and to foster inclusive development. Third, we have to look into the ways in which employment will be organized. Will the standard employment relationship in advanced economies remain standard? In emerging economies, will the pathways to formal jobs and formal enterprises widen or narrow? Finally, having examined these questions, we need to discuss how to govern the new reality of work. For that, we need a fresh look at the policy tools that we have and those that we need to develop. This includes national policies and laws and international labour standards. However, looking at the future does not mean that our approach should be futuristic and certainly not apocalyptic. We should not be technology pessimists, believing that technological innovation will make human life worse or destroy all the jobs. To the contrary, major technological breakthroughs can greatly improve the quality of human life and the productivity that allows living standards to rise for large numbers of people. And while it is useful to try to project trends and impacts, it is also important to remember that our actions today are already shaping the future. We need to put more emphasis on shaping inclusive labour markets today if we have to achieve the future employment patterns and relationships that we want. In this context, what happens in India will be an important factor shaping the future of work, as a result both of the sheer size of the Indian population and the fact that it is a young population, with large numbers in their economically active years for decades to come. Focus on India Four issues that are particularly relevant in the Indian context are: First is the fundamental challenge for economies to ensure that growth translates into more and better jobs for the majority of the population. Second is the critical issue of whether women are able to access employment opportunities and engage in paid work outside the home. When women are constrained from undertaking paid work, economic growth will be lower than its potential.

4 Indian Journal of Human Development 10(1) The third issue is one of the biggest hurdles facing middle-income countries, which is to make the transition to formalization of the economy and labour market. New forms of informal employment have emerged, even within formal sectors, particularly as a consequence of the demand for greater flexibility and pressures from new technologies and globalization. Fourth and finally, in light of rapidly changing economies and forms of work, labour market institutions, including laws and regulations, need fresh thinking in order to address current and emerging employment challenges while providing basic fairness and security to workers and balancing the interests or workers and employers. This is the unavoidable responsibility of governments. These four issues are priorities in India, and they are also the hot topics across the globe. They are among the main topics on the agenda of the G20 and the post-2015 sustainable development agenda. It will be useful to look at these four issues in some detail, and try to connect the Indian and global perspectives. Promoting Job-rich Growth Experience shows that economic growth alone is not sufficient for the creation of adequate decent and productive employment. And now we have the situation in many large economies where growth is so slow that even where earlier rates of employment intensity of growth have been maintained, there is simply not enough growth to create the jobs needed for the workforce. A recent analysis by the ILO for the G20 shows that in the advanced economies, there has not been a weakening of employment intensity since the crisis. Therefore, it is not the case that there has been jobless growth ; rather, there has simply not been enough growth. Situation in India India experienced a period of strong economic growth in the first decade of the 2000s, for an extended period. But the situation in the labour market was puzzling. Data available during this period suggested that employment growth was minimal consequently, many commentators described this as a period of jobless growth. To examine this puzzle, ILO recently carried out an analysis of the employment elasticity of Indian growth, using a common measure of how employment growth responds to GDP growth. Our results show that employment elasticity was relatively stable, at around 0.3 between 1991 and 2007. That is, 1 per cent of overall economic growth produced 0.3 per cent of employment growth. More recently the elasticity has been only about 0.15 per cent, half of the previous level. 2 However, when we focus in at a disaggregated level, we find that employment in India did grow during the recent period, but it grew mostly for men and in urban areas at the same time, women in rural areas withdrew from the workforce. This explains a significant part of the weak overall elasticity of growth. Moreover, it is also true that most of the new jobs created in India were informal, and this was true even in the formal sector as a result of the rise of contract labour. This pattern emerged as India has been undergoing structural transformation, by which we mean the shift of labour and overall economic activity in a developing economy out of agriculture and into manufacturing and service sectors. This has important implication for jobs. In the successful developing countries in East Asia in the second half of the twentieth century, and earlier during the industrial revolution, that shift was accompanied by rapid job creation in manufacturing, jobs that were more productive and could pay higher wages. More recently, however, in India and a number of other middleincome countries, the growth of manufacturing has not mimicked that path, giving rise to the notion of premature deindustrialization. This pattern has also been observed in Brazil, which witnessed a peak in

Polaski 5 manufacturing in the 1980s. Manufacturing has become more capital and skill intensive, even in India where labour is abundant. How does India compare to other large emerging economies? Taken as a group, the crisis of 2007 2009 resulted in a reduction in the employment intensity of growth in emerging G20 economies. Even now, the employment intensity of growth has failed to recover to pre-crisis levels (an elasticity of 0.19 compared with 0.23 in the pre-crisis period). With economic growth also decelerating in most emerging G20 economies, the employment picture has been disappointing. For G20 emerging economies as a whole, growth increasingly is driven more by gains in labour productivity than by increased employment. Again, in labour abundant countries this is not an optimal pattern. This leads to the question: what can drive growth and job creation in the future? What can be done to promote job-rich growth in India, growth that absorbs the country s abundant labour and takes advantage of its demographic dividend? This requires policy interventions that address both the demand and supply sides of the labour market. On the demand side, the main way to increase demand for labour is by increasing overall demand. And to increase overall demand, there is need to start at the household level, where higher incomes, more reliable incomes, can lead to higher consumption. Steadily increasing consumption is also what attracts investment, in goods and services, helping to move the economy onto a self-reinforcing and sustainable growth path. Macroeconomic policies should support demand, and labour market and social policies that increase wages and disposable income and reduce household insecurity should be pursued in tandem with these macro policies, each reinforcing the other. Anti-poverty policies such as the National Rural Employment Guarantee Act (NREGA) provide important support for demand by raising and stabilizing household incomes, and should therefore be credited for their macroeconomic benefits as well as their pro-poor effects. The key to success in strengthening the link between growth and employment is the design and effective implementation of coherent policy packages that address the range of challenges simultaneously and in a coherent and inter-related way. For instance, fiscal policies and infrastructure investment can be designed to maximize employment creation. Some of the policy tools fall within the areas of responsibility of labour and employment ministries, while others fall under the responsibility of other ministries. Coordinated interventions are required. Boosting Female Participation in Paid Work Turning to the supply side of the labour market, as mentioned earlier that one critical element of the growth job puzzle in India is the declining trend in female participation, notably in rural areas. Overall, female labour force participation is a driver of growth and in fact the G20 last year agreed on a specific target to reduce the gap between male and female labour force participation as a way to boost global growth. The McKinsey Global Institute has just released a report which finds that if there were parity between men and women in labour markets, as much as $28 trillion, or 26 per cent, could be added to global GDP by 2025. The report estimates that the biggest potential gain from parity in labour force participation is found in India: complete parity would imply a massive 60 per cent increase in GDP by 2025! The participation of women in the labour force varies considerably across economies, far more than in the case of men. India belongs to a set of countries in this region and across the Middle East and North Africa where less than one-third of women of working-age participate, in contrast with East Asia, where

6 Indian Journal of Human Development 10(1) the proportion reaches around two-thirds. This variation is driven by a variety of economic and social factors including availability of employment, educational attainment, fertility rates and social norms. It was most puzzling, therefore, to see the falling engagement of women in the Indian labour force during a period of strong economic growth and rising wages in the 2000s. The female labour force participation rates in India declined from 34.1 per cent in 1999 2000 to 27.2 per cent in 2011 2012. From 2009 2010, their participation finally increased in urban areas, while it continued to decline in rural areas, as women withdrew from agriculture but faced a lack of alternative employment opportunities, such as in the manufacturing sector. Based on ILO research on this topic, the trends in India appear to be driven by a combination of factors: improved educational enrolment of women and increased household incomes, which are positive trends, but also the lack of job creation in places and in sectors which women could access. Whether more women can be engaged in paid work represents one of the fundamental question marks over the future growth and development trajectory of India. This is an unexploited resource that India cannot afford to waste. As mentioned earlier, the G20 adopted an ambitious goal of reducing the gender gap in male female participation rates by 25 per cent by 2025. The countries are now in the process of implementing relevant policy measures and must report on progress. The G20 has also emphasized that this is not just about the quantity of employment but also about improving the quality of women s jobs. There is now a strong global consensus that women s labour force participation and access to decent work are not only women s issues and not questions only of values or discrimination. They are an important opportunity for faster economic growth and better distribution of the benefits of growth and should be a concern for the top levels of economic policymaking. In India as in many other countries women continue to face barriers to enter labour markets, barriers relating to access to employment, low wages, discrimination and balancing the competing burdens of work and family responsibilities. In addition, women are heavily represented in the informal economy where they have the least legal protection. These barriers can be breached through intelligent and integrated policy responses. Policymakers in India should take a comprehensive approach by improving women s access to and quality of education; increasing the relevance of training programmes and skills development; providing access to child care and maternity protection; and enhancing the safety and accessibility of transport. If undertaken in a macroeconomic context that promotes growth and creates job opportunities, these measures could markedly increase women s participation in employment. A coordinated policy framework should be constructed that addresses both the gender-specific constraints that face most women and the overall pattern of economic growth. Facilitating the Transition to Formal Employment The challenge of informality in the Indian context is indeed a daunting one. In 2011 2012, over 92 per cent of Indian workers were working informally, which can be broken down into 82.7 per cent of workers in the unorganized sector and 9.3 per cent of workers who were in the organized sector but without access to social security. The aggregate figure combines two trends: first, a small but welcome fall in the share of workers in the unorganized sector, which reflects that Indian enterprises have been growing in size; but second, a rise in the share of informal workers in the organized sector. Thus, informality takes place both in the traditional informal economy but also increasingly through informalization of the formal economy. Indeed, the increase in informal economy workers in recent

Polaski 7 years is largely due to the growing use of contract labour and outsourcing of production: the share of contract labour in organized manufacturing reached 34.0 per cent in 2010 2011, up dramatically from 13.9 per cent in 1995 1996. The use of contract labour is not limited to the private sector but is also increasing in the public sector. And even in the currently vibrant economy of India, informalization has led to growing inequality. The rising tide in India has not lifted all boats. The issue is complex and requires interventions across a range of policies. Indeed, slow progress on formalization reflects the lack of coherent and integrated policy frameworks to address informality in most countries. Now, thanks to recent efforts, a number of successful policy packages have been created and demonstrated to work in some countries. A useful framework is also available to guide policy development. Some time back the ILO s governing International Labour Conference adopted a new Recommendation on the Transition from the Informal to the Formal Economy. This instrument provides guiding principles that are based on successful experiences drawn from countries that have reduced informality. It offers an integrated policy framework that addresses the problem through economic and tax policies, labour market laws and regulation, equality and anti-discrimination measures, skill development, financial and business services, social protection and income security and social dialogue. It is based on practical, successful experience and it was negotiated by governments and employers and workers organizations in 185 countries. So it represents a consensus between public and private sectors across a range of income levels and circumstances on how to formalize jobs and businesses. It can be done, if the political will exists. Strengthening Labour Market Institutions Needless to say, all of these policy measures require strong and effective labour market institutions and hence strengthening them is extremely important. Around the world, many debates on employment and job creation have been centred on the perceived impact of labour market regulation, including laws that govern the employment and dismissal of workers. In this context, the debate over labour market regulation has too often been seen as a simplistic regulation/deregulation dichotomy. This assumes that the alternatives are either heavy governmental intervention in the labour market or very little regulation, a polarization of thinking that is now increasingly rejected around the world in favour of a focus on better regulation, appropriate to country-specific, modern labour market realities. This move away from a simple deregulation approach is based on robust research that shows that well-designed labour law regimes can have a positive impact on growth and employment creation, while at the same time contributing to other important social and economic goals such as better incomes and security for workers. Practical experiences show how this can be done while lightening administrative burdens on the firms that employ them. Appropriate labour law and regulatory reform can be good for business, because it reduces uncertainty, complexity and archaic rules, and at the same time good for workers, because it creates a predictable and reliable floor of rights. It can encourage the parties to negotiate with each other and can enable government to modernize and target compliance activities. In light of this evidence, some international institutions, including the World Bank, have recently shifted their position away from a simplistic call for deregulation to a more nuanced stance in favour of better regulation. In fact, the ILO has recently collaborated with the Bank to produce an internal guidance manual for Bank staff that presents the case for modern regulation that fairly balances the needs and interests of workers and firms.

8 Indian Journal of Human Development 10(1) In the case of India, it is clear that the existing legal framework is outdated and fragmented. Some sectors of the economy are heavily regulated, while others lack even the most basic protections. There is, therefore, considerable scope for a reform process in this country, which could create a modern, comprehensive regulatory framework comparable to those that are being constructed in some other G20 jurisdictions. One element of this reform might be to shift to a legal approach in which employers, workers and their representatives have a greater role in setting, and securing compliance with, wages, hours and working conditions, through processes such as collective bargaining and workplace health and safety committees. The prevalence of collective agreements is much lower in India than in the other BRICS, so this suggests room for improvement. The promotion of greater involvement by workers and employers organizations entails a changed, but not diminished, role for the state. Some countries recent reforms to labour regulation have included the formation of professional and strategic labour inspectorates to ensure compliance and build firms capacity for compliance; the establishment of quick and effective dispute resolution systems; improvements to workplace health and safety regimes; and provisions to help informal workers come under social insurance schemes. These tested approaches can modernize and make labour regulation more efficient while still ensuring decent job quality and reasonable job security. India can benefit from looking at the most innovative and effective labour law reforms elsewhere, and ILO is ready to help in any way requested, based on our comparative global experiences. It is also very important to think about the sequencing of policy reforms. The Indian government is currently considering both labour law reforms and the extension of social protection and social security to more of the population. I would argue that extending social protection to workers outside the formal economy and making the existing social protection and provident systems more integrated and portable across employers and sectors are a necessary first step. If workers know that losing a job, changing employers or moving between sectors will not mean the loss of all income they are more likely to accept mobility. The greater dynamism that is sought in the Indian labour market requires a stronger social protection floor. So the government might consider moving first on the extension and integration of social protection before moving on integrating and reforming labour market regulations. The Way Forward These topics highlight both the challenges and opportunities facing India and the Indian labour market. One positive feature of recent years is the willingness of the Indian government to experiment with new approaches and implement innovative policies. The NREGA is such a scheme, one that is known around the globe for its innovation and its effectiveness in raising rural incomes. Similarly, efforts to expand social security to the unorganized sector are commendable. The increasing efforts to expand bank accounts to all workers and households and to put payroll and social insurance transactions on line are building blocks for further progress. With the uncertainties around the future of work, further creative approaches and bold decisions will be needed. Some important elements for a forward-looking agenda are: First, structural transformation has to be better harnessed to promote employment-intensive growth. This requires new types of industrial policies that seek to promote sectors that can absorb workers, and especially focuses on creating jobs in the places where they live. India s efforts under Make in India, Skill India and other initiatives are important.

Polaski 9 A second challenge is to ensure that progress will benefit more women, more marginalized groups and more people in rural areas. Inclusiveness is increasingly recognized as the foundation for both faster growth and growth of better quality and sustainability. Third, coherence across policies and the collaboration of different policymakers and ministries is required to find solutions to multi-faceted challenges. And it should be done inconstant dialogue with the private actors in the economy, particularly employers and workers. ILO has been at the heart of efforts to develop policies that create more jobs, jobs of better quality and jobs that are available to previously excluded segments of society. These issues have made their way onto the G20 agenda in the last few years and into the core of the new Sustainable Development Goals agreed by global leaders in New York last week. It is hoped that India would continue finding creative, made-in-india policies; to continue its important presence on the global stage and to learn from the innovative approaches of others as additional means to promote sustained and inclusive growth and jobs. Notes 1. This is an edited version of the first lecture of IHD 2nd Decennial Lecture Series, delivered in New Delhi on 7 October 2015. 2. ILO, OECD, WBG (and inputs from IMF), G20 Labour Markets in 2015: Strengthening the link between growth and employment, September 2015.