Macro Economy

Leap of faith: Seven million new formal jobs claim is turning Goebbelsian

Praveen Chakravarty
February 15, 2018

At 7 million new formal jobs a year, India would, by far, be the world’s largest formal job creator

The debate over whether India creates 7 million new formal jobs every year should not be a debate at all. Instead, it is now acquiring a Goebbelsian hue of repeating it a thousand times until it is perceived as the truth. (“The golden age of labour market research”, February 14). For the final time, the claim that India creates 7 million new formal jobs every year is fallacious.

At 7 million new formal jobs a year, India would, by far, be the world’s largest formal job creator. China, with five times larger GDP, a manufacturing powerhouse of the world and a 1.5 times larger labour force creates roughly 13-15 million total jobs of which 4-6 million are formal jobs a year (Ministry of Human Resources & Social Security, China Household Income Project 2016). Given that almost every other economic report, data point and empirical evidence point to a slowdown in the economy over the last two years, it is a laughable claim that India has surpassed China in its annual run rate of new formal jobs in exactly these two years.

Even if one were to accept the claim made by the authors, 7 million new jobs every year is more jobs than the number of skilled people entering the labour force every year, according to their own estimates. So, if there are multiple job offers for every new skilled worker in the country, it should reflect in real wage growth. The Economic Survey tells us that nearly 90 per cent of all active employees in the EPFO data set earn LESS than Rs 15,000 a month. Let us think about that. Minimum NREGA wages for unskilled workers is around Rs 6,000 in India. If approximately 90 per cent of all formal sector employees still earn less than Rs 15,000 a month, it is surely not a sign of an economy that is spewing new jobs left, right and centre, is it?

There were 2.3 million new active EPFO contributors in FY15, 2.7 million in FY16 and 7.5 million in FY17. (EPFO website, Parliament question). Clearly, the steady state seems to have been around 2-3 million new additions to the EPFO database every year. In FY17, there were 7.5 million new additions. FY17 was also the year of demonetisation which was undeniably a big externality to India’s economy and hence the labour market. Any logical interpretation of this would be to hypothesise that perhaps demonetisation had a formalisation effect on the labour market in FY 17 that resulted in a spike and then to test this hypothesis before rushing to claim that India is now creating 7.5 million new jobs. But this is precisely what the authors of the EPFO study do. They present numbers for just two years — FY 17 and FY 18, both of which had externalities in the form of demonetisation and GST, and make tall claims based on these two years. At the minimum, rigorous research demands that the authors provide a time series of their data set and test for this sudden spike in registrations.

The authors also claim that they have access to some data set from EPFO that others don’t and hence we should trust their findings. This is not the authors proprietary data collected through primary means. This is government data of 87 million Indians. Why this should be shared with two select private individuals, ostensibly to make tall claims about jobs in India, is baffling.

The only way this can be settled is for the authors of the study to put out their data set in public, provide a time series of the data and explain the impact of externalities. Otherwise, it is merely a case of their word versus the rest which will not quite qualify as rigorous research. I have repeatedly argued that the author’s larger message to call for a non-farm payroll data gathering exercise and to use “big data” for labour market research is one I endorse entirely. But that does not mean they take a massive leap of faith and propound exaggerated claims of India being a jobs haven.

Leave a Reply

Your email address will not be published. Required fields are marked *