Stalled Structural Change Brings an Employment Crisis in India

Abstract

Using national-level employment data, this paper explores both the supply and demand-side factors responsible for stalling India’s structural transformation on the employment side. We have found that although the overall LF participation has consistently been declining, the size of open unemployment and discouraged LF are rising at an unprecedented pace. This employment crisis arose because of the stalled structural transformation owing to the lack of effective demand for skilled workers in the non-farm sectors. This crisis is not only reflected in stagnant real wages, but it also adversely affected GDP growth and the incidence of poverty. Hence, unless measures are taken quickly, India’s demographic dividend, which ends in 2040, is under severe threat.