Demographic Dividend, Employment & Skills

Part 2 · India's demographic dividend

India: A Young Nation in an Ageing World

India's working-age population overtook its dependants in 2018; the bulge will last till about 2055 and arrives at different times in different states.

Demographic Dividend in India

India has one of the youngest populations in an aging world. Currently (in 2020), the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.
- India has 62.5% of its population in the age group of 15-59 years which is ever increasing and will be at the peak around 2036 when it will reach approximately 65%.
- Since 2018, India's working-age population (people between 15 and 64 years of age) has grown larger than the dependant population — children aged 14 or below as well as people above 65 years of age. This bulge in the working-age population is going to last till 2055, or 37 years from its beginning.
- According to Economic Survey 2018-19, India's Demographic Dividend will peak around 2041, when the share of working-age, i.e. 20-59 years, population is expected to hit 59%.
Example: The median age is the age that splits the population in half: half of Indians are younger than 28, while half of Japanese are older than 49.
This transition happens largely because of a decrease in the total fertility rate (TFR, which is the number of births per woman) after the increase in life expectancy gets stabilised.
A study on demographic dividend in India by United Nations Population Fund (UNFPA) throws up two interesting facts.
- The window of demographic dividend opportunity in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world.
- This demographic dividend window is available at different times in different states because of differential behaviour of the population parameters.

Median age, 2020 (years)

India28
China37
US37
Western Europe45
Japan49

Part 3 · Impact on economic growth

How the Dividend Drives Growth

Periods of demographic dividend are often marked by rapid growth, as in Japan, China and South Korea, but the benefit is not automatic.

Impact on economic growth

Studies show such periods are often marked by rapid economic growth. Many Asian economies — Japan, China, South Korea — were able to use this 'demographic dividend'.
Better economic growth brought about by increased economic activities due to higher working age population and lower dependent population. It will be channelised in following ways:
- Increased Labour Force that enhances the productivity of the economy.
- Increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure.
- Rise in women's workforce that naturally accompanies a decline in fertility, and which can be a new source of growth.
- Increase in savings rate, as the working age also happens to be the prime period for saving.
- A massive shift towards a middle-class society, that is, the rise of aspirational class.
Demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
- Japan was among the first major economies to experience rapid growth because of changing population structure.
- The country's demographic-dividend phase lasted from 1964 to 2004.
Rapid industrialisation and urbanisation because of higher number of employment seeking population that would force higher economic activities.
Rise in workforce: With more than 65% of working age population, India will rise as an economic superpower, supplying more than half of Asia's potential workforce over the coming decades.
Effective policy making: Fine-tuning the planning and implementation of schemes and programmes by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.

Not automatic

It is, however, important to note that the growth benefit of a demographic dividend is not automatic. There are many other factors. In the late 20th century demographic dividend in Asia resulted in a seven-fold increase in the GDP of many countries. In Latin America the growth was only two-fold. UNFPA states that countries can only harness the economic potential of the youth bulge if they are able to provide good health, quality education and decent employment to its entire population.

GDP gain during the dividend (times)

Asia7
Latin America2

Late 20th century.

Part 4 · Realising the dividend

Challenges in Realising the Dividend, and Measures

The bulge is largest in India's poorest states, which are least prepared; investment in human capital decides whether it is a dividend or a curse.

Challenges in realizing Demographic Dividend

Asymmetric demography: The growth in the working-age ratio is likely to be concentrated in some of India's poorest states and the demographic dividend will be fully realized only if India is able to create gainful employment opportunities for this working-age population.
Lack of skills: Most of the new jobs that will be created in the future will be highly skilled and lack of skill in Indian workforce is a major challenge. India may not be able to take advantage of the opportunities, due to a low human capital base and lack of skills.
Low human development parameters: India ranks 130 out of 189 countries in UNDP's Human Development Index, which is alarming. Therefore, health and education parameters need to be improved substantially to make the Indian workforce efficient and skilled.
Informal nature of economy in India is another hurdle in reaping the benefits of demographic transition in India.
Jobless growth- There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, the fourth industrial revolution and technological progress. As per the NSSO Periodic Labour Force Survey 2017-18, India's labour force participation rate for the age-group 15-59 years is around 53%, that is, around half of the working age population is jobless.
Whether the demographic dividend promotes growth or transforms into a curse depends on how prepared the states that should benefit from a young population are. Bihar, Uttar Pradesh and other lagging states will experience a much bigger bulge in working population than more developed states like Tamil Nadu. Unfortunately, the less-developed states are also the least prepared to take advantage of the demographic change they will undergo.
Example: For Bihar, a large young workforce is an opportunity only if there are jobs and skills at home; otherwise the dividend leaves the state through migration.

There is need to invest more on healthcare, quality education, jobs and skills to build human capital, which is key to supporting economic growth, ending extreme poverty, and creating a more inclusive society. Human capital is now the fastest-growing component of India's wealth. It is already the largest component of global wealth.
Skill development to increase employability of young population. India's labour force needs to be empowered with the right skills for the modern economy. Government has established the National Skill Development Corporation (NSDC) with the overall target of skilling/ up skilling 500 million people in India by 2022.

Conclusion

No country can achieve its potential and meet the challenges of the 21st century without the full participation of working population, both women and men. High-quality education is one of the strongest ways for countries to reduce poverty, achieve gender equality, and create more jobs. Building human capital translates into higher rates of economic growth and job creation. Demographic dividend without investments in human capital will be a wasted development opportunity, and it will further widen economic and social gaps, instead of narrowing them.

Part 5 · Employment versus employability

Employability: The Real Employment Challenge

India must create enough jobs, but the bigger task is improving the quality of jobs and the skills of the people who fill them.

The employment problem

With ever increasing population and jobless nature of growth, India faces challenge of both quantitative and qualitative employment. Recent economic slowdown and pandemic has further aggravated the problem of unemployment.

Data of the Periodic Labour Force Survey (PLFS) had indicated that the unemployment reached a four-decade high of 6.1 per cent in 2017-18. A report by Asian Development Bank (ADB) and International Labour Organisation (ILO) (ADB-ILO report) has said that 6.1 million youth may lose jobs in India due to Covid-19.

Not just providing employment but increasing the employability of the labour force is the main issue

The quantitative magnitude of the employment challenge in India is, no doubt, large and could be met only with accelerated and restructured employment-oriented growth over a medium term period.
- As per Niti Aayog, the Indian economy will need to generate nearly 70 lakh jobs annually to absorb the net addition to the workforce.
The qualitative dimensions of the challenge, however, are of much larger order and require much greater effort both in terms of labour market and economic and social policy interventions.
ILO has already highlighted a huge Decent Work deficit in the employment scene in India.
Example: 'Decent work' (ILO) means work that pays a fair income, is safe, offers social security and lets workers organise. A daily-wage loader with no contract, leave or insurance has a job, but not decent work.
Micro and small-sized firms as well as informal sector firms dominate the employment landscape in India.
- As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there were 6.34 crore unincorporated non-agricultural micro, small and medium enterprises (MSMEs) in the country engaged in different economic activities providing employment to 11.10 crore workers.
- A large majority of these firms are in the unorganized sector. By some estimates, India's informal sector employs approximately 85 per cent of all workers.
- These employees have no access to social security provisions like accident compensation, maternity benefit, health insurance, terminal benefits and pension, as provided under various legislative measures which cover only the workers in relatively larger establishments.
Share of workforce employed in Agriculture is very high at 49.
- Most of farmers (85%) are small and marginalised farmers and they suffer from disguised unemployment.
Productivity across all sectors:
- A large share of India's workforce is employed in low productivity activities with low levels of remuneration.
- This is especially true of the informal sector where wages can be one twentieth of those in firms producing the same goods or services but in the formal sector.
There is serious issue of lack of quality education and training.
- There is a direct link between India's under-skilled workforce and high unemployment rates. According to NSSO Report 2011-12, only 2.3% of the total workforce in India had formal sector skill training.
- According to the India Skill Report 2018, only 47 per cent of those coming out of higher educational institutions are employable.

Quantity and quality

Thus, India will have to deal with both the number of employment as well as quality of employment. Further, we currently lack timely and periodic estimates of the work force. This lack of data prevents us from rigorously monitoring the employment situation and assessing the impact of various interventions to create jobs.

Recently, Government has taken some measures to deal with the unemployment problem e.g. Stand Up India Scheme, Start Up India Scheme, Pradhan Mantri Kaushal Vikas Yojana, prime minister employment generation programme, "Skill India" programme, codification of 29 labour laws into four codes.

Part 6 · Way forward (mention briefly)

Way Forward for a Long-term Employment Policy

Skills and apprenticeships, labour reforms, more women at work, better data, easier industrial relations, fair wages and safer workplaces.

Enhance skills and apprenticeships:
- The Labour Market Information System (LMIS) is important for identifying skill shortages, training needs and employment created. The LMIS should be made functional urgently.
- Ensure the wider use of apprenticeship programmes by all enterprises. This may require an enhancement of the stipend amount paid by the government for sharing the costs of apprenticeships with employers.
Labour law reforms:
- Complete the codification of labour laws at the earliest.
- Simplify and modify labour laws applicable to the formal sector to introduce an optimum combination of flexibility and security.
- Make the compliance of working conditions regulations more effective and transparent.
- The National Policy for Domestic Workers needs to be brought in at the earliest to recognize their rights and promote better working conditions.

Part 7 · Sector-wise employment after 2000

Trends and Implications of Sector-wise Employment

Growth after liberalisation created few jobs, and most of them in construction; farm jobs fell, manufacturing stayed flat, services rose.

The trends and implications of sector wise employment generation in the country after 2000

While in post liberalisation era growth economy picked up. But this growth was characterised by joblessness. The employment generated didn't commensurate with the growth. The trend between 2000-2020 is same as the trend from liberalisation onward.
The data also shows that the trend of job creation has been quite skewed in this period.
- While the pace of non-farm job creation in the post liberalization era (at 3.39% per annum) is similar to the pace of job creation in the decade immediately preceding liberalization (at 3.59% per annum), the growth of jobs in the post-liberalization era has been very narrowly concentrated in a few sectors.
- Nearly a third of new jobs added in the Indian economy in the post-liberalization era have been in the construction sector alone, the data shows. Since 1990-91, the construction sector added almost as many new non-farm jobs as the next four top job-generating sectors— trade, miscellaneous services, transport and storage, and education— put together.
While the construction boom in the country has helped people seeking an exit from farm jobs to find an alternative, it has not helped them move to a very productive job.
Example: A farm labourer from Gaya who moves to a building site in Delhi earns more, but the work is still casual, seasonal and without social security.
While the farm sector has indeed shrunk, the transformation of the economy has been limited by the paucity of productive jobs and the lack of skilled workers.
- Employment share in agriculture sector declined from 56% in 2000 to 43.21 in 2019.
In other Asian economies, which witnessed a transition from low-productivity jobs to high-productivity jobs, the manufacturing sector played a big role in that transition.
- In India, the role of the manufacturing sector has been very limited.
- The share of manufacturing in employment has remained nearly the same as it was three decades ago. This sector accounts for 12 per cent of the total employment in the country.
- Within manufacturing, the share of labour-intensive industries such as textiles and leather has actually shrunk over the past few decades.
The share of Industrial sector has increased from 17.5% in 2000 to around 25% in 2020.
The share of service sector in total employment has risen sharply over the past decades. This generates more employment than any other sector.
- It has risen from 25.74% in 2000 to 32.33% in 2020.

Share of employment by sector

Sector	2000	2019–20
Agriculture	56%	43.21% (2019)
Industry	17.5%	around 25% (2020)
Services	25.74%	32.33% (2020)

Notes: quality of employment

As per ILO, the trends in employment structure in post 2000 pointed towards an increasing decent Work deficit.
- However, the Economic Survey 2019-20 has pointed that the government's various measures to enhance the formalization of jobs have started yielding the desired results and total formal employment in the economy increased from 8% in 2011-12 to 9.98% in 2017-18.
Public employment in government and government enterprises, which have most characteristics of decent employment, has declined continuously.
- In 2012, central government employed 8.5% of the organised workforce. This was a decline of about 4%, from 12.4% in 1994. In 2014, the central government had 47 lakh employees.
Employment in the private organised sector, which could be considered next in the decent work ladder, has also registered a decline, from 8.79 million in 1998 to 8.25 million in 2004.
According to ILO estimate, the proportion of those in regular salary and wage employment has increased from 15.2 per cent in 2004-05 to 23.99 % in 2020.
The proportion of the self-employed has continuously declined from 53 per cent in 1999-2000 to 47% in 2020.
The distribution of workers in casual labour category decreased by five percentage points from 33 per cent in 1999-2000 (30% in 2011-12) to 25% in 2017-18 with the decline being in rural areas.

Regular salaried workers

2004-0515.2%
202023.99%

Self-employed workers

1999-200053%
202047%

Exam preparation

BPSC Mains Previous Year Questions

Every question this page prepares you for, with the parts that answer it.

Q156th–59th BPSC · 2016

What is 'demographic dividend'? Explain its impact on economic growth.

Study:Key Ideas Dividend in India Impact on Growth Challenges & Measures

Q260th–62nd BPSC · 2018

"Not just providing employment but increasing the employability of the labour force is the main issue of a long-term employment policy in India." Discuss this statement with special reference to knowledge and skill development through quality education and training. Also explain the trends and implications of sector wise employment generation in the country after 2000.

Study:Employability Way Forward Jobs Since 2000

Quick revisionConclusion on the dividend Quick revisionWay forward on employment Quick revisionJobs since 2000

Demographic Dividend & JobsA Young Nation's Window

What Is the Demographic Dividend?