Recent employment trends in India and China: An unfortunate convergence

1
Recent employment trends in India and ChinaAn
unfortunate convergence

• C. P. Chandrasekhar
• and
• Jayati Ghosh

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Asian century?

• Both China and India have large populations
  covering substantial and diverse geographical
  areas, large economies with even larger potential
  size.
• Current success stories of globalisation two
  economies that have apparently benefited.
• Success defined by the high and sustained rates
  of growth of aggregate and per capita national
  income the absence of major financial crises
  and substantial reduction in income poverty.

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Not similar economies

• These economies are often treated as broadly
  similar in terms of growth potential and other
  features.
• But there are crucial differences between the two
  economies which render such similarities very
  superficial .

4
Institutional conditions

• India was a mixed economy with large private
  sector, so essentially capitalist market economy
  with the associated tendency to involuntary
  unemployment.
• China was mostly a command economy, which until
  recently had a very small private sector there
  is still substantial state control over
  macroeconomic processes in forms that have
  differed from more conventional capitalist
  macroeconomic policy.

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The financial sector

• India financial sector was typical of the mixed
  economy without comprehensive government control
  over the financial system financial
  liberalisation since early 1990s meant further
  loss of control over financial allocations by the
  state.
• China financial system still under the control
  of the state, despite recent liberalisation. Four
  public sector banks handle the bulk of the
  transactions in the economy, and can regulate the
  volume of credit to manage the economic cycle,
  and direct credit to priority sectors.

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Rates of GDP growth

• The Chinese economy has grown at an average
  annual rate of 9.8 per cent for two and a half
  decades, showing volatility around high trend.
• Indias economy has grown at around 5-6 per cent
  per year over the same period, breaking from
  Hindu rate of 3 per cent. But very recently the
  average growth rate for the last four years is
  just above 8 per cent.

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Rates of investment

• The investment rate in China (investment as a
  share of GDP) has fluctuated between 35 - 44 per
  cent over the past 25 years, compared to 20 - 26
  per cent in India.
• Aggregate ICORs (incremental capital-output
  ratios) have been around the same in both
  economies.
• Infrastructure investment from the early 1990s
  has averaged 19 per cent of GDP in China,
  compared to 2 per cent in India.

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Structural change over four decades

• China classic pattern, moving from primary to
  manufacturing sector, which has doubled its
  share of workforce and tripled its share of
  output.
• India Move has been mainly from agriculture to
  services in share of output, with no substantial
  increase in manufacturing, and the structure of
  employment has not changed much. Share of the
  primary sector in GDP fell from 60 per cent to
  25 per cent in four decades, but share in
  employment still more than 60 per cent.

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Trade patterns

• China Rapid export growth involving aggressive
  increases on world market shares, based on
  relocative capital attracted by cheap labour and
  heavily subsidised infrastructure.
• India Lower rate of export growth, with cheap
  labour due to low absolute wages rather than
  public provision and poor infrastructure
  development. So exports have not yet become
  engine of growth, except in services.

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Poverty reduction

• China Officially 4 per cent of the population
  now lives under the poverty line, unofficially
  around 12 per cent. (Reflects earlier asset
  redistribution and basic needs provision in China
  under communism, plus larger mass market and
  recent role of agricultural prices.)
• India Official poverty ratio much higher and
  persistent, currently 28 per cent. Food
  deprivation is much higher.

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Human development

• China earlier extensive public provision of
  health and education universal education until
  Class X, and public services to ensure nutrition,
  health and sanitation. (In the 1990s, higher fees
  and some privatisation of such services led to
  reduced access and worsening indicators since
  2002 revival of public spending in these areas.)
• India the public provision of all of these has
  been extremely inadequate throughout this period
  and has deteriorated in per capita terms since
  the early 1990s. Very recently slight increase in
  education spending but still well below China
  government health spending still very low.

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Inequalities

• In both economies the recent pattern of growth
  has been inequalising.
• China spatial inequalities across regions
  have been the sharpest. More recently, vertical
  inequalities, especially for migrant population
  vis-à-vis others.
• India vertical inequalities and the rural-urban
  divide have become much more marked.

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Sustainability of current patterns

• China high export-high accumulation model which
  requires constantly increasing shares of world
  markets and very high investment rates. Already
  signs of reduced unit values of exports and
  stagnation/decline of manufacturing employment.
• India IT-enabled services experiencing current
  boom, but competitive threat from other
  countries, plus question about whether it will be
  enough to transform Indias huge labour force
  into higher productivity activities.

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India Employment growth
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India Growing role of self-employment
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India Growth rates of employment(Annual
compound rates per cent)
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India Real wages of regular workers
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India Real wages of casual labour
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India Organised sector employment
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India Labour productivity in organised
manufacturing
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India Wage share of value added in organised
manufacturing
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India Real wages in organised manufacturing
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India Remuneration in self-employment
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India Unemployment rates
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China Work force distribution
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China Output and employment growth
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China Urban employment
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China Rural non-agricultural employment
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China Annual change in real wages
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Unorganised and migrant workers in China

• These real wage data leave out the increasing
  proportion of unorganised workers, most
  particularly the rural migrants.
• Rural-urban migrants currently estimated by CASS
  to be around 150 -180 million (half the urban
  work force).
• Recent CASS survey shows that in 2005 a majority
  of migrant workers were in informal activities
  and typically faced long hours of work for all
  days of the week, for less than minimum wages and
  with poor residential conditions.

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Current issues similar

• Most important problems in both economies are
  currently the same
• Agrarian crisis
• Inadequate generation of employment in terms of
  decent work
• Public neglect of social sectors
• Growing inequalities.

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Lessons

• For more inclusive growth, the generation of good
  quality productive employment is the most
  critical variable.
• Need growth strategy that allows and encourages
  labour productivity increases overall while
  significantly expanding expenditure and
  therefore income and employment opportunities
  in social sectors.
• Major role for state intervention, through direct
  public investment and through fiscal, monetary
  and market-based measures that alter the
  structure of incentives for private agents.