What is Employment Elasticity? How low Employment Elasticity in India results in Jobless Growth?

Employment elasticity is a measure of how employment varies with economic output. An employment elasticity of 1 implies that with every 1 percentage point growth in GDP, employment increases by 1%.

It is an irony that a few years back, when India was on high growth trajectory, its growth was jobless growth.  Jobless growth means that the high growth in GDP did not accompany a similar growth in employment, resulting in a low Employment Elasticity.

As a missed opportunity, the extraordinary growth during yesteryears didn’t lead to any employment growth at all. For example, between 2004–05 to 2009–10, employment elasticity of India was as low as 0.01, which implies that with every 1 percentage point growth in GDP, employment increased by just one basis point.

In recent years, the highest employment elasticity has been shown by the Construction and utilities sector (which includes energy, water and waste management). These are the biggest job generators in our country. Further, the graphics above shows that farm sector in India has shown negative employment elasticity. This simply indicates that growth in farm sector is accompanied by reduction in farm employment as more and more people leave this sector and go out for jobs in non-farm sector.

This indicates a daunting task for the government. On the one hand, it has to revive growth; on other hand, it has to provide new and better-paying jobs for a growing workforce.