''Economic growth in the recent past has been led by increase in labour productivity.'' Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour productivity. (UPSC CSE Mains 2022 - General Studies Paper 3)
- As an economy''s labor productivity grows, it produces more goods and services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price.
- There is usually a need to increase both the number of jobs and the productivity as well as incomes from employment. The link between jobs and economic growth is not always a straight line for countries, but that does not mean it is broken. Economists track the relationship between jobs and growth using Okun’s Law, which says that higher growth leads to lower unemployment. In net, the sectoral bias of rising productivity has not diminished aggregate labor demand but has yielded skill-biased demand shifts.
- India is indeed the fastest growing large economy in the world; yet with investment low, credit offtake low, capacity utilization in industry low, agricultural growth low, plant load factor low, it is hardly surprising that job growth is low as well.
There can be a growth pattern that will lead to creation of more jobs without compromising labor productivity.
- First, an industrial and trade policy is needed.
- Second, special packages are needed for labor-intensive industries to create jobs.
- Three, there should be cluster development to support job creation in micro, small and medium enterprises (MSMEs).
- Fourth, align urban development with manufacturing clusters to create jobs.
- Fifth, focus on women. Girls are losing out on jobs, or those with increasing education cannot find them, despite having gotten higher levels of education in the last 10 years.
- Sixth, public investments in health, education, police and judiciary can create many government jobs.
Conceptual Part - Additional
The employment elasticity shows the proportion of an economy''s growth (development) process that goes toward creating jobs for its population. When the employment elasticity is 1, employment increases at the same pace as the economy. A value of 0 for elasticity means that employment does not increase at all regardless of economic expansion. Employment contracts as the economy expands, which is referred to as negative employment elasticity. This is important since it''s a prevalent misconception that employment will expand with just economic development.
Two types of complaints are frequently levelled towards employment elasticity measurement:
- The link between output and employment doesn''t need to be one-way.
- The idea of employment elasticity is true given a particular technological stage, pay rate, and set of policies.
The negative employment elasticity in agriculture suggests that individuals move out of agriculture and into other industries with higher wage rates. This movement of excess employees to other sectors in search of productive and profitable labour is required for inclusive growth. However, the manufacturing sector''s negative employment elasticity was a reason for concern, especially given the sector''s strong production growth.
Employment elasticity is a concise method of summarising the intensity of the increase in employment or the sensitivity of employment to output growth. It is also often used to track sectoral job creation potential and estimate future employment development.
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