An Approach to the Problem of Employment in India

Deepankar Basu, Department of Economics, University of Massachusetts Amherst.

Abstract

The challenge of employment in the Indian economy, especially after it growth acceleration
since the mid-1980s, relates to its quality rather than its quantity. While
employment growth has kept pace with the labour force over the long run, what has
grown is informal employment. The coexistence of rapid capital accumulation, robust
output growth and lack of growth of formal employment can be understood using the
well-known Harris-Todaro model of a dual economy. This framework highlights the key
role of the wage gap between the modern and traditional sectors as a determinant of
urban informal employment. Hence, one of the most effective and egalitarian ways to
address the employment problem is to adopt policies to increase agricultural productivity
and income, which can reduce the wage gap. Since crop yields in India are far
lower than many other countries in the world, including China, Brazil, and Bangladesh,
there is ample scope for land-augmenting and labour-absorbing technological change in
Indian agriculture. Efforts to ramp up industrialization should be taken up in earnest
only after the wage gap has been narrowed significantly.

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Suggested Citation:

Deepankar Basu, An Approach to the Problem of Employment in India, CSE Working Paper #1, Azim Premji University, March 2018.