National Law Institute University

Bhopal

Economics-II

Trimester-II

Submitted by Submitted to

Koustav Bhattacharya Asst. Prof.Mr.Rajesh Gautam

2018BALLB50

Devansh Malhotra

2018BALLB14

Rajneesh Prajapati

2018BALLB09

Abhijeet Kashyap

2018BALLB01

JOBLESS GROWTH
Page 1 of 37
Certificate

This is to certify that the research paper titled ‖Jobless Growth‖ has been prepared and
submitted by Koustav Bhattacharya , Abhijeet Kashyap, Devansh Malhotra, Rajneesh
Prajapati who are currently pursuing their BA LLB(Hons.) at National Law Institute
University, Bhopal in fulfillment of Economics-II course. It is also certified that this is
an original research report and this paper has not been submitted to any other university ,
nor published in any journal.

Date-

Signature of the student-

Signature of Research Supervisor-

Page 2 of 37
Acknowledgement

The project has been made possible by the unconditional support of many people. We
would like to acknowledge and extend our heartfelt gratitude to Asst.Prof. Mr. Rajesh
Gautam for guiding us throughout the development of this paper into a coherent whole
by providing helpful insights and sharing his brilliant expertise. I would also like to thank
the officials of the Gyan Mandir, NLIU for helping me to find the appropriate research
material for this study.

I am deeply indebted to my parents, seniors and friends for all the moral support and
encouragement.

- Koustav Bhattacharya
2018BALlB50
- Abhijeet Kashyap
2018BALLB01
- Devansh Malhotra
2018BALLB14
- Rajneesh Prajapati
2018BALLB09

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Table of Contents
Introduction .....................................................................................................................7

Statement of Problem ...................................................................................................7

Hypothesis ...................................................................................................................7

Objectives of Study ......................................................................................................7

Research Methodology.................................................................................................7

Review of Literature ........................................................................................................8

Books...........................................................................................................................8

Articles ........................................................................................................................8

Introduction .....................................................................................................................9

ADAM SMITH: WEALTH DEFINITION ...................................................................9

ALFRED MARSHALL’S DEFINITION: SCIENCE OF MATERIAL WELFARE .....9

MODERN DEFINITION .............................................................................................9

Okun's Law ................................................................................................................ 10

Employment and unemployment with its types .............................................................. 12

Employment............................................................................................................... 12

Unemployment .......................................................................................................... 12

There are three main types of unemployment ............................................................. 13

Structural unemployment ........................................................................................... 13

Frictional unemployment ........................................................................................... 13

Cyclical unemployment.............................................................................................. 14

Long-term unemployment .......................................................................................... 14

Classical unemployment ............................................................................................ 15

Underemployment...................................................................................................... 15

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 Causes of Unemployment .......................................................................................... 15

What is a Business Cycle? ............................................................................................. 16

Stages of the Business Cycle ......................................................................................... 17

Explanations by Various Economists ............................................................................. 20

Features of Business Cycles: .......................................................................................... 20

Jobless Growth .............................................................................................................. 22

Consequences of a Jobless Recovery ............................................................................. 23

Causes of Jobless Growth .............................................................................................. 24

Industrial consolidation .............................................................................................. 24

Jobs and Economic Growth ........................................................................................ 25

Employment Cycles ................................................................................................... 25

Sunset Industries ........................................................................................................ 26

Sunrise Industries ....................................................................................................... 26

Lost Kingdom of the Horse ........................................................................................ 26

More Cuts .................................................................................................................. 27

Retraining .................................................................................................................. 27

The Bottom Line ........................................................................................................ 27

On Indian context .......................................................................................................... 28

ECONOMIC .............................................................................................................. 28

SOCIETAL ................................................................................................................ 28

TECHNOLOGICAL .................................................................................................. 29

POLICY CHANGE.................................................................................................... 29

Health Card ................................................................................................................ 29

Economic Growth v/s Population Growth ................................................................... 30

PROBLEM OF JOBLESS GROWTH IN INDIA AND NEW ECONOMIC POLICIES 32

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Reasons behind the Jobless growth ................................................................................ 33

Conclusion .................................................................................................................... 36

Suggestions ................................................................................................................... 36

Bibliography.................................................................................................................. 37

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Introduction
A jobless recovery or jobless growth is an economic phenomenon in which
a macroeconomy experiences growth while maintaining or decreasing its level
of employment. The term was coined by the economist Nick Perna in the early 1990s.

The prospect of a jobless growth economy has ramifications for everyone. An economy
that is growing without showing concomitant growth in the number of jobs challenges
investors, employees, and industries to adapt to the new economic order. When growth is
coupled with high unemployment, it means that the economy is experiencing structural
changes. This structural shift offers opportunities for some, difficult choices for others.

Statement of Problem
To study what are the causes of jobless growth, both on domestic and international levels

and what are the other economic variables affecting them and affecting jobless recovery
and growth.

Hypothesis
If the subsidiary growth variables such as infrastructure and health index of an economy
are more stable , then the rate of recovery would have been more stable.

Objectives of Study
1. To study the causes and growth of jobless growth.
2. To study the consequences of jobless growth.
3. To go for a domestic and international jobless growth.
4. To link the advent of jobless growth and other economic variables.
5. To drawn conclusions and propose solutions.

Research Methodology
The Researcher would apply a doctrinal method.

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Review of Literature

Books
1. Freakonomics by S. D. Lewis- This book greatly helped us as onto understand
the theoretical aspect of jobless growth.
2. Basic Economics by Thomas Swell – This book contains a rich and systematic
account of the reasons of jobless growth.
3. Capital in the Twenty First Centuy by Thomas Picketty – This book contains
a systematic account of linkage of industrialization with jobless growth.
4. The Under Cover Economist by Tom Hankford- This book contains the effect
of such a phenomenon on an underdeveloped nation.
5. Capitalism and Freedom by Milton Friedman – This book helped in finding
the plausible solutions to the problem.

Articles
1. Jobless growth In India- by I.S. Khan1 – This article is essentially helpful in
understanding the nature of jobless growth in India .
2. Jobless growth is not a myth – by R. Gopalan2 – This article provided with the
causes of the jobless growth problem.
3. Budget 2018 by Arun Jaitley3- This article speaks about the linking of economic
variables by the prospect of jobless growth.
4. Need for unemployment to save Employment by S.Desai4- This article had
been really helpful to establish a link between international and national jobless
growth.

1
Available at https://iasscore.in/economy/jobless-growth-in-india-an-analysis
2
Available at https://www.livemint.com/Opinion/oIfsn1Djr4KpR1mNNe1zDN/Indias-jobless-growth-is-
not-a-myth.html
3
Available at https://economictimes.indiatimes.com/markets/stocks/news/jobless-growth-its-all-about-
reskilling-india/articleshow/62533192.cms
4
Available at https://www.thehindu.com/news/national/need-for-an-employment-policy-to-solve-
jobless-growth/article25041745.ece

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 5. More close examination by Deepanshu Mohan5- This helped to find the
solutions to this issue.

Introduction
Economics is originally derived form the Greek word ―oikosnonos‖ . If we spilt this
word in to two (oikos – household , nomos- management ) with the help of this single
word’s meaning we can derived all the economics comprises and we may also understand
the whole phenomenon of this.

Some definitions of economics given by scholars -

ADAM SMITH: WEALTH DEFINITION

―a branch of the science of a statesman or legislator with the twofold objectives of

providing a plentiful revenue or subsistence for the people and to supply the state or
commonwealth with a revenue for the public services‖ 6

ALFRED MARSHALL’S DEFINITION: SCIENCE OF MATERIAL WELFARE

―Political economy, or economics is a study of mankind in the ordinary business of life; it

examines that part of individual and social action which is most closely connected with
the attainment and with the use of the material requisites of well being.‖ 7

MODERN DEFINITION
― Economics is defined as the study of the administration of scarce resources and the
determinants of income and employment. ‖-J.M. Keynes

―Economics is the study of how man and society choose, with or without the use of
money to, to employ scarce productive resources which could have alternative uses, to
produce various commodities over time, and distribute them for consumption now and in
the future among various people and groups of society.‖8

5
Available at http://www.jgu.edu.in/article/india-needs-more-closely-examine-its-jobless-growth-
problem
6
Smith, A. (1776). The wealth of nations. Scotland, Great Britain: W. Strahan and T. Cadell.
7
Principles of economics (1890)
8
Samuelson Paul A., Economics (1964)

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When it comes to studying the economy, growth and jobs are two primary factors
economists must consider. There is a clear relationship between the two, and many
economists have framed the discussion by trying to study the relationship
between economic growth and unemployment levels. Economist Arthur Okun first
started tackling the discussion in the 1960s by its model known as okun’s law.

Okun's Law:

Okun's law investigates the statistical relationship between a country's unemployment

rate and the growth rate of its economy9.

The economics research arm of the Federal Reserve Bank of St. Louis explains that
Okun's law "is intended to tell us how much of a country's gross domestic product (GDP)
may be lost when the unemployment rate is above its natural rate."

It goes on to explain that "the logic behind Okun's law is simple. Output depends on the
amount of labor used in the production process, so there is a positive relationship
between output and employment. Total employment equals the labor force minus the
unemployed, so there is a negative relationship between output and unemployment
(conditional on the labor force)."

Ben Bernanke10, perhaps most succinctly summarizes Okun's law basic concepts:

"That rule of thumb describes the observed relationship between changes in the
unemployment rate and the growth rate of real gross domestic product (GDP). Okun
noted that, because of ongoing increases in the size of the labor force and in the level of
productivity, real GDP growth close to the rate of growth of its potential is normally

9
Okun's Law: Economic Growth And Unemployment |
Investopedia https://www.investopedia.com/articles/economics/12/okuns-
law.asp#ixzz5YaxeHWGL
last seen 29.11.18 , 8:32 pm

10
Former Federal Reserve Chairman
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required, just to hold the unemployment rate steady. To reduce the unemployment rate,
therefore, the economy must grow at a pace above its potential.

More specifically, according to [the] currently accepted versions of Okun's law, to

achieve a 1 percentage point decline in the unemployment rate in the course of a year,
real GDP must grow approximately 2 percentage points faster than the rate of growth of
potential GDP over that period. So, for illustration, if the potential rate of GDP growth is
2%, Okun's law says that GDP must grow at about a 4% rate for one year to achieve a 1
percentage point reduction in the rate of unemployment."

It is most important to note that Okun's law is a statistical relationship that relies on
a regression of unemployment and economic growth. As such, running the regression can
result in differing coefficients that are used to solve for the change in unemployment,
based on how the economy grew. It all depends on the time periods used and inputs,
which are historical GDP and employment data. Below is an example of an Okun's law
regression:

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Employment and unemployment with its types

Employment
Employment is not a simple term denoting the mere holding of a job for which a wage is
paid, or the operating of one’s own business. Rather, it signifies the state of anyone who
is doing what, under the circumstances, he most wants to do. Such a person is fully
"employed." A community or nation has "full employment" when all of its people are
fully employed.

The ways in which people may be employed are legion. One may be writing a book,
another writing a letter. One may be teaching a class, or speaking from the hustings. One
may be tending a lathe, a baby, or a fish line. One may be driving an automobile, baking
cookies, dancing the twist, enduring an appendectomy, or lying on the ground gazing up
into the blue. All are employment, all are done to satisfy, and the satisfactions received,
whether measurable in money or not, are income to the recipient and a part of the
"national income."

Unemployment
Unemployment represents the number of people in the work force who want to work but
do not have a job. It is generally stated as a percentage and calculated by dividing the
number of people who are unemployed by the total work force. The work force is made
up of those people who want to work; it excludes people who are retired, disabled, and
able to work but not currently looking for a position; for instance, they may be taking
care of children or going to college.

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There are three main types of unemployment:

Structural, frictional, and cyclical. The first two make up the natural unemployment rate.
The third rises when demand falls, usually during a recession. Some economists define as
many as five additional types of unemployment, such as seasonal and classical 11.

Structural unemployment

Structural unemployment exists when shifts occur in the economy that creates a
mismatch between the skills workers have and the skills needed by employers.

An example of this is an industry’s replacement of machinery workers with robots.

Workers now need to learn how to manage the robots that replaced them. Those that don't
learn need retraining for other jobs or face long-term structural unemployment.

Frictional unemployment

Frictional unemployment occurs when workers leave their old jobs but haven't yet found
new ones. Most of the time workers leave voluntarily, either because they need to move,
or they've saved up enough money to allow them to look for a better job.Frictional
unemployment also occurs when students are looking for that first job or when mothers
are returning to the workforce. It also happens when workers are fired or, in some cases,
laid off due to business-specific reasons, such as a plant closure.

11
https://www.thebalance.com/types-of-unemployment-3305522 last seen 28.11.18 4:20 pm

Page 13 of 37
Frictional unemployment is short-term and a natural part of the job search process. In
fact, frictional unemployment is good for the economy, as it allows workers to move to
jobs where they can be more productive.

A long recession often creates structural unemployment. If workers stay unemployed for
too long, their skills have likely become outdated. Unless they are willing and able to
take a lower-level, unskilled job, they may stay unemployed even when the economy
recovers. If this happens, structural unemployment leads to a higher rate of natural
unemployment.

Cyclical unemployment

Cyclical unemployment is not part of the natural unemployment rate. It's caused by
the contraction phase of the business cycle. That's when demand for goods and services
fall dramatically, forcing businesses to lay off large numbers of workers to cut costs.

Cyclical unemployment tends to create more unemployment. This is because the laid-off
workers have less money to buy the things they need, further lowering demand.

Long-term unemployment
Long-term unemployment occurs for those actively looking for a job for over 27
weeks. The effects are devastating. Many employers overlook someone who's been
looking for that long. The emotional and financial costs can be very damaging. Sadly, a
higher percentage of the unemployed fall into this category than before the financial
crisis or in prior recessions. seasonal unemployment as a fourth type of unemployment. It
is part of natural unemployment.

Like its name says, seasonal unemployment results from regular changes in the season.
Workers affected by seasonal unemployment include resort workers, ski instructors, and
ice cream vendors. It could also include people who harvest crops. Construction workers
are laid off in the winter, in most parts of the country. School employees can also be
considered seasonal workers.

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Classical unemployment

Classical unemployment is also known as ―real wage unemployment‖ or ―induced

unemployment.‖ It’s when wages are higher than the laws of supply and demand would
normally dictate. It occurs in one of these three situations

1. Unions negotiate higher salaries and benefits.

2. Long-term contracts set a wage that has become too high due to a recession.
3. The government sets a minimum wage that's too high.

The result is that companies must pay more per employee, so they can afford fewer
employees. Those that are laid off are victims of classical unemployment.

Underemployment

Underemployed workers have jobs, but they aren't working to their full capacity or skill
level. This includes those who are working part-time but would prefer full-time jobs and
those who are working in jobs where they aren't being utilized. Underemployment is
often caused by cyclical unemployment. During a recession, unemployed workers will
take what they can to make ends meet.

Causes of Unemployment12

 They quit their position and are looking for a new one.
 They were laid off due to lack of work and haven't yet been rehired.
 Their company reduced the work force, and they are seeking a new position. This
can be due to a local condition, when the company closes a plant or division, or a
national condition, when the economy slows and many companies reduce their
work force.

12
https://study.com/academy/lesson/what-is-unemployment-definition-causes-effects.html last
seen 30.11.18 10:23 pm

Page 15 of 37
  They have recently returned to the work force - perhaps from pregnancy or
attending school - and haven't yet located a position.
 The need for their skill set has gone down, and there are limited positions
available, which may lead to unemployment until they train for a new position.
 Technology has reduced the need for their type of position.

What is a Business Cycle?

A business cycle is a cycle of fluctuations in the Gross Domestic Product (GDP) around
its long-term natural growth rate. It explains the expansion and contraction in economic
activity that an economy experiences over time. A business cycle is completed when it
goes through a single boom and a single contraction in sequence. The time period to
complete this sequence is called the length of the business cycle. A boom is characterized
by a period of rapid economic growth whereas a period of relatively stagnated economic
growth is a recession. These are measured in terms of the growth of the real GDP, which
is inflation adjusted.13

13
https://corporatefinanceinstitute.com/resources/knowledge/economics/business-cycle/ [Accessed on 30-
11-2018]

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Stages of the Business Cycle
In the diagram above, the straight line in the middle signifies the steady growth line. The
business cycle moves around and about the line. The more detailed description of each
stage in the business cycle is given as follows:

1. Expansion

The first stage in the business cycle is known as expansion. Here, there is an increase in
positive economic indicators such as employment, income, output, wages, profits,
demand, and supply of goods and services. Debtors generally pay their debts on time, the
velocity of the money supply is high, and investment is also high. This process continues
until economic conditions have become favorable for expansion. In its expansion phase,
both output and employment increase till we have reached full employment of resources
and production is at the highest possible level with the given productive resources. There
is no involuntary unemployment and whatever unemployment exists is only frictional and
structural unemployment.

2. Peak

The economy then reaches a saturation point, known as peak, which is the second stage
in the business cycle. The maximum limit of growth is attained in this stage. The
economic indicators do not grow further and are at their maximum. Prices are at their
highest. This stage also marks the reversal in the trend of economic growth. Consumers
tend to restructure their budget at this stage. When expansion gathers momentum and we
have prosperity, the difference between the potential GNP and actual GNP becomes zero,
that is, the level of production is at the highest production level. A good amount of net
investment is occurs and the demand for durable consumer goods is also high. Prices also
generally rise during the expansion phase but due to the high level of economic activity
people enjoy a high standard of living.

Then something may occur, whether banks start reducing credit or profit expectations
change adversely and businessmen become pessimistic about future state of the economy

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which brings an end to the expansion or prosperity phase. Economists differ regarding the
possible causes of the end of prosperity and starting of downswing in economic activity.

Monetarists have argued that contraction in the bank credit may cause downswing.
Keynes has argued that a sudden collapse of expected rate of profit (i.e. Marginal
Efficiency of Capital, MEC)14 is caused by some adverse changes in expectations of
entrepreneur who lowers the investment in the economy. This fall in investment,
according to Keynes, causes a downswing in economic activity.

3. Recession

The recession is the 3rd stage which follows the peak phase. The demand for goods and
services starts declining rapidly and steadily in this stage. Producers do not notice the
decrease in demand instantly and continue producing, which creates a situation of excess
supply in the market, now prices tend to fall as the demand is low and the supply is
higher. All the positive economic indicators such as income, output, wages, etc.
consequently start to decline.

4. Depression

There is a significant rise in unemployment. The growth in the economy continues to

decline, and also falls below the steady growth line; this stage is known as depression.
During contraction, not only there is a fall in GNP but also the level of employment gets
reduced. As a result, involuntary unemployment appears on a huge scale. Investment also
decreases causing a further fall in consumption of goods and services.

At times of contraction or depression prices generally fall due to the fall in the aggregate
demand. A significant feature of depression phase is the fall in the rate of interest. With
lower rate of interest people’s demand for money holdings increase and there is a lot of
excess capacity as the industries which produce capital and consumer goods work much
below their capacity due to the lack of demand by the consumers.

14
The MEC is the net rate of return that is expected from the purchase of additional capital. It is calculated
as the profit that a firm is expected to earn considering the cost of inputs and the depreciation of capital. It
is influenced by expectations about future input costs and demand.

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Capital goods and durable consumer goods industries are especially hit hard during the
depression. Depression, it may be observed, occurs when there is a severe contraction or
recession of economic activities. The depression of 1929-33 (known as the great
depression) is still remembered because of its great intensity which caused a lot of human
suffering.

5. Trough

In the depression stage, the growth rate of an economy becomes negative. There is a
further decline until the prices of various factors, as well as the demand and supply of
goods and services, reach their lowest. It is the negative saturation point for a given
economy. There is an extensive depletion of national income and expenditure. There is a
limit to which the level of economic activity can fall. The lowest level of economic
activity, which is generally called as trough, lasts for a short time only. Capital stock is
allowed to depreciate without replacement. The progress in the technology makes
existing capital stock obsolete. If the banking system starts to expand credit or there is a
spurt in investment activity due to the emergence of scarcity of capital as a result of non-
replacement of depreciated capital and also because of new technology is coming into
existence which requires various new types of machines and other capital goods.

6. Recovery

After this stage, the economy comes to the recovery phase. In this stage, there is a
turnaround from the trough and the economy starts recovering itself from the negative
growth rate. The stimulation of investment brings about the revival or recovery in the
economy. The recovery becomes the turning point from depression to expansion. As the
investment rises, it causes induced increase in the level of consumption. As a result
industries start producing more and more, excess capacity is now utilized fully due to the
revival of aggregate demand. Employment of labor increases and the rate of
unemployment start falling. Demand starts to rise due to the lowest prices and
consequently, supply starts reacting, in the same manner. The economy develops a
positive attitude towards the investment and employment and hence, production starts

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increasing. Employment also begins to rise and due to the accumulated cash balances
with the bankers, lending also shows positive signs. In this stage, depreciated capital is
replaced by the producers, leading to new investment in the process of production.
Recovery continues until the economy returns to steady levels of growth. This way one
full business cycle of boom and contraction is completed. The extreme points of which
are the peak and the trough.

Explanations by Various Economists

J.M. Keynes15 explains the occurrence of business cycles as a result of fluctuations in
aggregate demand, which bring the economy to short-term equilibriums which are quite
different from full employment equilibrium. Keynesian Models do not necessarily
indicate the periodic business cycles but imply cyclical responses to shocks via
multipliers. The extent of these fluctuations depends upon the levels of investment, for it
determines the level of aggregate output.

On the contrary, economists like Kydland and Prescott, associated with the Chicago
School of Economics, out rightly challenge and deny the Keynesian theories. They
consider that the fluctuations in the growth of an economy not a result of monetary
shocks, but a result of technology shocks, such as innovation. It is generally rejected by
mainstream economists who follow the path of J.M. Keynes.

Features of Business Cycles:

Though different business cycles may differ in their duration and intensity, they
have some common features which are explained below:
1. Business cycles occur periodically. Though they do not show the same regularity, they
have some distinct phases such as expansion, peak, contraction or depression and trough.
Further the duration of cycles varies a great deal from minimum of two years to a
maximum of ten to twelve years.

15
In his book The General Theory of Employment, Interest and Money (1936).

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2. Secondly, business cycles are synchronic. That is, they do not cause changes in any
single industry or a particular sector of the economy but are of all-embracing character.
For example, depression or contraction occurs simultaneously in all the industries or
sectors of an economy. Recession passes from one industry to another and this chain
reaction continues till the whole economy is in the clutches of recession. Similar process
works in the expansion phase, prosperity spreads through various links of input-output
relations or demand relations between various industries, and sectors of the economy.

3. Thirdly, it has been often observed that the fluctuations do not occur only in the level
of production but also in other variables such as employment, investment, consumption,
rate of interest and price level simultaneously.

4. Another significant feature of business cycles is that investment and consumption of

durable consumer goods which includes cars, houses, and refrigerators are most affected
by the cyclical fluctuations. As emphasized by J.M. Keynes, investment is greatly volatile
and unstable because it depends on profit expectations of private entrepreneurs. These
expectations of entrepreneurs change quite often which make the investment quite
unstable. Since the consumption of durable consumer goods can be deferred, it also
fluctuates greatly during the course of the business cycles.

5. Another important feature of business cycles is that consumption of non-durable goods

and services does not vary much during different phases of business cycles. Past data of
business cycles reveals that the households maintain a great stability in consumption of
non-durable goods.

6. The immediate impact of depression and expansion is on the various inventories of

goods. When depression sets in, the inventories start accumulating beyond the desired
levels. This often leads to cut in production of goods. On the contrary, when recovery
starts, the inventories go below the desired levels. Mostly this encourages the
businessmen to place more and more orders for goods whose production picks up and
stimulates investment in capital goods.

Page 21 of 37
7. Another important feature of business cycles is that the profits fluctuate more than any
other type of income. The occurrence of business cycles causes a lot of uncertainty for
the businessmen and makes it difficult to forecast the economic conditions. During the
depression period profits may even become negative and many businesses may also go
bankrupt. In a free market economy profits are justified on the ground that they are
necessary payments if the entrepreneurs are to be induced to bear that uncertainty.

8. Lastly, business cycles are international in their character i.e., once started in one
country they spread to other countries through trade relations between them. For
example, if there is a recession in USA, which is a large importer of goods from other
countries, it will cause a fall in demand for imports from other countries whose exports
would be adversely affected causing recession to them as well. Depression of 1930s in
USA and Great Britain engulfed the entire capitalist world.

Jobless Growth
The prospect of the jobless growth economy has ramifications for everyone. An economy
which grows without showing concomitant growth in the number of jobs challenges
investors, employees, and industries to adapt to the new economic order. When the
growth is coupled with high unemployment, it means that the economy is experiencing
significant structural changes. This structural shift offers opportunities for some, difficult
choices for others who are remaining. As the population of a country grows, people need
work in order to earn their livelihood, support their families and themselves. An
expanding economy is necessary to employ all those people who seek work. Without
sufficient economic growth, people who look for work will be unable to find it. In any
economic condition, it is the individual workers who are possessing employable skills
will find work first. If the supply of jobs is plentiful, then more opportunities are opened
up for those with less attractive skill sets.

In a jobless growth economy, unemployment remains stubbornly high despite the growth
in the economy. This tends to happen when a relatively large number of people has lost
their jobs, and the ensuing recovery is not sufficient to absorb the unemployed, under-
employed, and those first entering the work force.

Page 22 of 37
Consequences of a Jobless Recovery

Long periods of high unemployment are without a doubt detrimental to unemployed

workers and to the health of the economy. However, there are other, less-known
consequences. Yale economist Lisa Khan found that college graduates entering the job
market during economic downturns experience a large, negative and persistent effect to
their lifetime opportunities. Young workers who enter the job market during a jobless
recovery may experience temporary unemployment and are more likely to accept less-
attractive and lower-skill jobs due to limited opportunities. On average, their initial wage
is significantly lower than the initial wage of their counterparts who graduate when the
job market is strong. The disadvantage continues; even 15 years after graduation, their
wages and career attainment remain lower than those of their luckier counterparts. The
social consequences of a prolonged jobless period may be as significant as the economic
consequences. For example, the majority of studies on unemployment and crime suggest
that a high unemployment rate is positively linked to increases in property crime. What is
more, economists Naci Mocan and Turan Bali16 found that the connection between
joblessness and property crime is asymmetric: An increase in the unemployment rate is
accompanied by soaring property crime, while a decline in the unemployment rate is
followed by only a gradual drop in property crime. Serious property crimes may further
damage the economic development and social welfare in urban areas, especially in inner-
city neighborhoods. A recent study by economists Dhaval Dave and Inas Rashad Kelly 17
found that an increase in the unemployment rate results in negative changes in eating
habits among a studied group of people with a high risk of unemployment. A 1 percent
increase in the unemployment rate is associated with a 2-4 percent reduction in the
consumption of fruit and vegetables. Such a reduction in healthy food potentially affects
workers' health in the long run. In low-income families, inadequate nutrition could affect
the physical and mental development of children; the stress that affects the jobless
parents also affects their children. The welfare of children in some communities could be
further undermined because a high unemployment rate may affect family stability by

16
Asymmetric Crime Cycles by Turan G. Bali, Naci H. Mocan (2005).
17
In their work How does the business cycle affect eating habits? (2012).

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reinforcing the retreat from marriage. 18 In less-affluent communities, economic status has
been a requirement for marriage. Less-educated people are even less likely to have a job
when the unemployment rate is high. Because of that, they find it harder to meet the
material threshold for marrying. Persistent joblessness may result in a permanent cultural
change in some communities if marriage becomes a luxury good.

Causes of Jobless Growth

Economists are still divided about the causes and cures of a jobless recovery: some argue
that increased productivity through automation has allowed economic growth without
reducing unemployment . Other economists state that blaming automation is an example
of the luddite fallacy and that jobless recoveries stem from structural changes in the
labor market, leading to unemployment as workers change jobs or industries.

Industrial consolidation

Some have argued that the recent lack of job creation in the United States is due to
increased industrial consolidation and growth of monopoly or oligopoly power.[6] The
argument is twofold: firstly, small businesses create most American jobs, and secondly,
small businesses have more difficulty starting and growing in the face of entrenched
existing businesses (compare infant industry argument, applied at the level of industries,
rather than individual firms).

As the population of a country grows, people need work in order to support their families
and themselves. An expanding economy is necessary to employ all those who seek work.
Without sufficient economic growth, people looking for work will be unable to find it. In
any economic condition, it is the individual workers possessing employable skills who

18
See Edin and Kefalas Promises I can Keep (2005) for details.

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will find work first. If the supply of jobs is plentiful, then more opportunities open up for
those with less attractive skill sets.

In a jobless growth economy, unemployment remains stubbornly high even as the

economy grows. This tends to happen when a relatively large number of people have lost
their jobs, and the ensuing recovery is insufficient to absorb the unemployed, under-
employed, and those first entering the work force.

Jobs and Economic Growth

Economies experience cyclical as well as structural changes as they recover from a

recession. In a cyclical economy, employment growth and decline follows the expansion
and contraction of the economy. A structural change, however, displaces many
unemployed workers, as their companies are unable to recover fully.

Employment Cycles

In cyclical economies, the GDP of the country contracts as companies lay off workers to
bring costs in line with revenues. Unemployment climbs, contributing to the economic
contraction. At some point, the economy stabilizes and begins to expand again. When it
does, companies rehire their laid-off workers. This rehiring process reduces the level of
unemployment. In this case, the skills and training of the workers fit the needs of the
companies. This rebound in activity in established industries helps laid-off workers
become rehired in their field or increases their chances of finding similar work at a
different company.

In a cyclical recovery, the core industries of the economy remain viable, and even strong,
and are thus able to recover relatively quickly without undergoing significant changes in
their basic operations. As a result, employment rebounds, even though it lags the
recovery levels of the economy as a whole. Eventually, the economic growth drives
unemployment levels down.

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Sunset Industries

Economies experiencing high unemployment even as their gross domestic product (GDP)
expands are encountering structural changes in their economy rather than a cyclical
recovery. Many of the existing companies are unable to recover fully in a recession
caused by structural changes. These companies are no longer able to compete in the
marketplace as demand for their products or services falls. This can be due to new goods
or services becoming available at a lower cost. In other cases, entirely new products may
replace a company's niche product or service. Since these companies are unable to
recover, they do not rehire their former workers. With the jobs previously available now
gone, these workers must find work in other industries, where their skills are not as
valuable.

Sunrise Industries

New industries usually recover more quickly and grow faster because they often benefit
from a structural shift in the economy. Along the way, they need workers with different
skill sets and training. These workers usually require superior skills, along with more
education and training. That said, the growing companies may hire people with minimal
skills to support a service function.

Lost Kingdom of the Horse

Consider the dawn of the 20th century, when automobiles replaced the horse and buggy.
The companies that made buggies encountered a structural shift away from their
products. The people who made buggies were no longer employable, and needed to
acquire new, more sophisticated skills in order to assemble complicated
automobiles, with engines and drive trains. Workers who began in the auto industry were
more skilled than cart makers, making it hard for former buggy workers to get a start.
(Read about the man who brought automobiles to the masses in Henry Ford: Industry
Mogul And Industrial Innovator.

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New industries create new employment opportunities for those individuals with the
necessary training, education, and skill sets. These companies tend to lead with
innovation, creating new products or services. They also depend on research and
development to create hard-to-replicate, higher-value products.

More Cuts

In a structural recovery, many companies change the nature of their operations to remain
competitive. Some depend on productivity improvements via technology, and some
companies simply move jobs to lower-cost countries in order to remain competitive.
Once again, the unemployed people who formerly held jobs with these companies find it
very difficult to find new work. (Read about controversies of outsourcing to low-cost
countries in The Globalization Debate.

Retraining

Employees in shrinking industries must acquire new skills and undergo additional
training to become employable. Acquiring these new skills takes time, as does the
process of adapting to changing industries. This adjustment period is one of the reasons
unemployment can increase even though the economy is showing signs of stability or
even growth. Technology and productivity improvements change the nature of
employment, while increasing the time it takes to retrain employees.

Structural change in an economy results in a large number of workers who are unable to
find work. A large number of unemployed or underemployed people holds the growth of
the economy back, as it takes a number of years before these individuals gain the skills
they need to be employed at a similar level. (Read Six Steps To Successfully Switching
Financial Careers for tips on a smooth career transition).

The Bottom Line

A jobless growth economy indicates the existence of changes to the fundamental basis of
work for everyone. Some workers will do well, as they have the skills and training that

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growing industries require. Others face long-term unemployment or underemployment,
and will be unable to find work until they obtain new skills.

Investors who recognize the structural changes in the economy will benefit if they align
their investment portfolios with the economy's growth opportunities. Finding sectors that
are growing can be as simple as following the employment numbers by industry. Then, a
more detailed study can be done on the promising companies within that sector.

For related reading, take a look at Industries That Thrive On Recession.

On Indian context

4th Industrial revolution is on onset and India is in the period of & Age of Mass
Consumption & suggested by Rostov a great geographer in his & 39stages of growth &
mode where Service sector and other tertiary sectors dominate India & 39 GDP.
However, India missed one stage behind this and i.e. & Take off & stage where
Manufacturing Sector plays an important role in bringing social economic growth at peak
and providing prosperity in terms of employment, social, the political benefit to people.
This happened because of multiple factors like social, economic and technological etc.

ECONOMIC

 70%population engaged in the primary sector contributing only 14% of

GDPGDP, More focus on services which is less service intensive

 Agriculture becoming nonviable due to low MSP, climate change, food wastage,
decrease in the size of the landholdings.

SOCIETAL

 Lack of education and skill development Patriarchal development, Patriarchal

society leading the women confined to the homes

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  More focus on theoretical aspects of learning which do not match with market-
needs Lack of social security and special facilities for women at the workplace

TECHNOLOGICAL

 Lack of coverage of financial inclusion, optical fiber and technology penetration-

Automation and use of technology also lead to unemployment sometimes.

 Lack of internet facilities and computer centers in rural areas leading to

dependence on the traditional agriculture practices only as the source of income

POLICY CHANGE

Investments in agro-business and industries- MAKE IN INDIA, SEZs Ease of doing

business- Easy approval of projects, IABC, labor reforms

Focus on MSMEs- MUDRA

SkillMUDRA, Skill Development Programmed- SWAYAM, DDUGKY Behavioral

change Empowerment change, Empowerment of women through SHGs, TREAD Gender
budgeting and positive approach Social security to the domestic workers- policy for them
Col-chain, diversified crops, mitigating the effects of climate change, e-NAM, Soil

Health Card

Focus Card, Focus on labor intensive sectors like leather and textile Competitive and
Cooperative Federalism.

The immediate solution to India and employment woes is to engage them in the
manufacturing sector and although we have lagged behind the countries like China in
making the industry robust, the initiatives can still reverse the situation given the strong
growth prospects and a favorable & Demographic Trap& of India. As usual, the key

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remains sound implementation and monitoring along with adequate planning and ensure
that potential results into actual outcomes.

Economic Growth v/s Population Growth

In addition to employment growth, population growth must also be considered

concerning the perception of jobless recoveries. Immigrants and new entrants to the
workforce will often accept lower wages, causing persistent unemployment among those
who were previously employed.

Surprisingly, the U.S. Bureau of Labor Statistics (BLS) does not offer data-sets isolated
to the working-age population (ages 16 to 65). Including retirement age individuals in
most BLS data-sets may tend to obfuscate the analysis of employment creation in relation
to population growth. Additionally, incorrect assumptions about the term, Labor force,
might also occur when reading BLS publications, millions of employable persons are not
included within the official definition. The Labor force, as defined by the BLS, is a strict
definition of those officially unemployed (U-3), and those who are officially employed (1
hour or more).

The following table and included chart depicts year-to-year employment growth in
comparison to population growth for those persons under 65 years of age. As such, baby
boomerretirements are removed from the data as a factor for consideration. The table
includes the Bureau of Labor Statistics, Current Population Survey, for the Civilian
noninstitutional population and corresponding Employment Levels, dating from 1948 and
includes October 2013, the age groups are 16 years & over, and 65 years & over. [9] The
working-age population is then determined by subtracting those age 65 and over from the

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Civilian noninstitutional population and Employment Levels respectively. Isolated into
the traditional working-age subset, growth in both employment levels and population
levels are totaled by decade, an employment percentage rate is also displayed for
comparison by decade.

When examined, by decade, the first decade of the 2000s, the United States suffered a
95% jobless rate when compared to the added working age population.

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PROBLEM OF JOBLESS GROWTH IN INDIA AND NEW ECONOMIC
POLICIES
The policies of privatization were initiated in India in 1985. The new Industrial Policy of
1991 gave a big push to these policies of privatization, liberalisation, globalisation and
marketization of the economy. The new wave created an atmosphere in which the
policies of expansion of the public sector pursued in the last four decades of planning
were considered to be ruinous for the Indian economy. It is alleged that the new policies
were dictated by the World-Bank-IMF combine who promised huge foreign loans to bail
out the Indian economy which was deeply engrossed in the foreign exchange crisis. There
were employment effects of the New Economic Policy under two assumptions of a high a
low growth scenario. The conclusions of the study (1993) reveal that by 1994, even with
a high growth rate,"the stabilisation programme will raise unemployment rate from less
than 4 per cent in the current year (1991-92) to about 5 per cent. The new Economic
Policy by its programme of technological upgradation has promoted capital-intensive
technologies and as a consequence, employment elasticities have further declined. But as
facts stand today, to hope that the corporate sector would become a leading sector in

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generating more employment is to live in a fool's paradise. The employment elasticity of
the corporate sector has slumped to a level of 0.19. It may also be noted that the share of
the corporate sector in total employment is very small. Consequently, even if the GDP
growth rate starts improving, still unemployment would continue to be a serious problem
even by the end of the 20th century. The distinction between manufacturing industry and
services has now become irrelevant. Even in a typical manufacturing firm, a very large
number of persons are engaged in providing services? design, planning, distribution,
finance, personnel management and only a small proportion operates on manufacturing
per se. In industrial economies, nearly 2/3rd of labour force is engaged in services,
whereas in developing countries, only one-fourth caters to the service sector. It is this
sector which has a very great employment potential. This is both an opportunity and a
challenge for our development process. To sum up, it may be stated that India is passing
through a phase of jobless growth and the structural adjustment programme undertaken
recently and the silent implementation of exit policy have contributed to this
phenomenon.

Till now we have discussed the problem of jobless growth but a detailed analysis of this
topic would require to study the reasons behind this phenomenon.

Reasons behind the Jobless growth

In India, service sector is attributed all the growth, in which both the employment and
wages have seen a rise. But agriculture is the biggest employing sector in India,
employing around 45% of the population but contributing only 15% to the GDP 19,
whereas the Service contributes the most to the GDP but employs less than 30%. This has
led to jobless growth in India. Moreover, in India 4th industrial revolution is on onset and
tertiary sector including the service sector dominate Indian Economy. However, while
achieving this position India skipped a few steps in between that include the stage where
manufacturing sector plays an important role in bringing social economic growth and
providing prosperity in terms of employment, social, the political benefit to people. In
India, Manufacturing should greater responsibility of job creation than agriculture as it is

19
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and
services produced in a period of time, often annually or quarterly.

Page 33 of 37
already employing more than half of Indian population and services sector cannot absorb
the million youth who are joining it every month. To this effect the centre is trying its
best to push manufacturing through he Make in India 20 initiative but this seems to fail.
Reasons behind this phenomenon are-

 Labour- confusing and rigid labour laws enforced by myriad agency has worked
against the cause of labour in India. These labour laws discourage our employers to
employ more workers because then they would be forced to comply with more
stringent laws. This has led to intensive manufacturing sector not becoming the
engine of growth in India. In fact, it enabled the knowledge-intensive services sector
which along with some segments of capital-intensive manufacturing was the engines
of growth in India. But these sectors by their nature were not employment-intensive.
 Imports- The domestic market of India is flooded with competitively priced good
mainly from China that reduce the market size of the home manufactures. This means
that India did not move from the import substitution stage of the economic
development to the export-oriented development strategy and hence did not witness a
strong growth in the labour-intensive segment of the manufacturing sector.
 Capital intensive- Indian manufacturing sector by its nature is not employment
friendly as most of them are automated and any employment is of the highly skilled
labours. Thus, they have contributed to growth, but not necessarily to employment.
To the counter the labour intensity of micro and small-scale industries21 is four times
higher than that of large firms. But numerous problems are faced by these industries
including poor access to credit. Moreover, they are plagued by many serious
problems which has limited their growth potential. These impediments to
entrepreneurial growth in small firms such as high costs of formalisation along with

20
Make in India, a type of Swadeshi movement covering 25 sectors of the economy, was launched by the
Government of India on 25 September 2014 to encourage companies to manufacture their products in
India and also increase their investment. As per the current policy, 100% Foreign Direct Investment (FDI) is
permitted in all 25 sectors, except for Space industry (74%), defence industry (49%) and Media of India
(26%).
21
The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of India, is the apex
body for the formulation and administration of rules, regulations and laws relating to micro, small and
medium enterprises in India.

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 history of small-scale reservation policy which prevents the entry of large-scale units
in labour intensive industries.
 Incentives- In addition to the issues mentioned above there also exists another issue
relating to the benefits that a small-scale industry gets. The small-scale industries
strive for the benefits granted by the government but these incentives are driven by
the amount of investment and not the number of jobs created. Moreover, lack in
education of labours has left them behind in the race as they are able to take up
skilled jobs which has more demand then the unskilled jobs.
 Social Services- Provision relating to this sector has been neglected for a long time in
our zeal for creating physical infrastructures. The need of the hour is to enlarge social
services like education, health, child and family welfare, care of the old and the
handicapped. There are too many societal activities which need to be developed in a
welfare state, much less has been done. This area, if properly developed, will absorb a
large proportion of unemployed human resources.

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Conclusion
To counter the phenomenon of jobless growth, it would be desirable to reallocate
investment in a decentralised pattern so that the benefits of investment percolate to the
rural areas rather than getting restricted to metropolitan locations. Instead of moving rural
people to infrastructures in urban areas, it would be more fruitful to take infrastructures to
the rural people. Promotion of small enterprises is the surest way to enlarge employment.
Lack of credit and poor management have acted as brakes on the growth of small
enterprises. This underlines the fact that the policies of liberalisation failed to generate
adequate employment in the organised sector, though all concessions and exemptions
were provided to boost this sector. It should be tapped. Experience of skilled labour,
technicians, engineers, doctors, other educated and technical manpower which go abroad
from India, reveal that Indians are in no way inferior to their foreign counterparts in
service sector. The same is true of other developing countries, by and large. Not only
should the service sector grow within India, it should also enlarge its share in the global
trade in services.

Suggestions
 In the current scenario of India, government must focus on livelihood creation that is
central to development strategies rather than just protecting it as natural fallout of
growth. It is essential to understand that it is not possible to tackle the problem of
employment by organising manufacturing sector as it was in the past.
 To boost employment the confusing labour laws needs to be eased as due to the
stringent Labour Laws Corporates in India are preferring Capital intensive mode of
Production in a country where labour is abundant.
 Encouraging people’s entrepreneurial instincts — whether they create mom-and-pop
undertakings countrywide, or deliver results under the Start-up India or Stand-up
India missions — will generate sustainable outcomes.
 In today’s economy the ned for skilled labours is much more than that of unskilled
labours and thus there is a need to improve our education system to create the desired
skill sets. The prevalent education system is failing at every front in delivering what it
is designed to do.

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 As talked earlier, MSME sector has greater potential as compared to large firms, thus
employment can be expanded by increasing investment in this sector, for this purpose
Mudra scheme should be developed as it can be a game changer.

Bibliography
1. Indian Economics Since Independence, by S. Kripalni, Seventh
Edition,2007, Pg. 121-130.
2. The Indian Economy by Sanjiv Verma, Fisrt Edition, 2016, Pg. 120-125.
3. Indian Unbound , by Gurucharan das, First edition, 2017, Pg.201-210.
4. Emerging India, by Bimal Jalan, Seventh Edition, 2009, Pg. 290-310.
5. An uncertain Glory , by Amartya Sen, Twentieth Edition, 2006, Pg.- 310-
330.
6. www.sparknotes.com
7. www.scribd.com
8. www.economicsweekly.com
9. www.thehindu.com
10. www.economictimes.com

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