Recent employment trends in India and China: An unfortunate convergence

C. P. Chandrasekhar and Jayati Ghosh

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.

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 .

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.

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.

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.

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.

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.

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.

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.

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.

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--vis others.

India: vertical inequalities and the rural-urban divide have become much more marked.

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.

India: Employment growth

Annual rates of employment growth for usual status workers (per cent)
4 3.5 3 2.5 2.03 2 1.5 1 0.5 0 Rural 1983 to 1987-88 1987-88 to 1993-94 1993-94 to 1999-2000 Urban 1999-2000 to 2004-05 1.36 0.66 1.97 2.77 2.27 3.39 3.22

India: Growing role of self-employment

Share of self-employment in usual status employment
65 60 55 50 45 40 35 1983 1987-88 Rural males 1993-94 Rural females 1999-2000 Urban males 2004-05

Urban females

India: Growth rates of employment

(Annual compound rates per cent)
1993-94 to 1999-2000 -0.53 1.06 0.03 2.34 2.68 2.26 3.13 2.91 2.27 1999-2000 to 2004-05 2.89 -3.18 0.83 5.72 3.79 5.27 4.08 4.64 4.67

Agricultural self employment Agricultural wage employment Total agricultural employment Rural non-agri self employment Rural non-agri wage employment Rural total non-agri employment Urban non-agri employment Secondary employment Tertiary employment Total non-agricultural employment

2.53

4.66

India: Real wages of regular workers

Average real wages per day of regular workers (at constant 1993-94 prices)
110.00 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 1993-94 Rural males 1999-2000 Rural females Urban males 2004-05 Urban females

India: Real wages of casual labour

Average real daily wages of casual labour (at constant 1993-94 prices)
45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 1993-94 Rural males 1999-2000 Rural females Urban males 2004-05 Urban females

India: Organised sector employment

Employment in the organised sector
80 70 60 50 40 30 20 10 0

1981

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Public Sector

Private Sector

Total

2003

India: Labour productivity in organised manufacturing

Net value added per worker (in constant prices)
2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5
1981 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

0.10
1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003 2003-04

0.15

0.20

0.25

0.30

0.35

India: Wage share of value added in organised manufacturing

Share of wages in value added

India: Real wages in organised manufacturing

Average real wages in organised manufacturing
12000 11500 11000 10500 10000 9500 9000 8500 8000 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 200393 94 95 96 97 98 99 2000 2001 2002 2003 04

India: Remuneration in self-employment

Per cent finding their selfemployed activity remunerative 51.1 51.4 51.2 60.9 50.9 58.6 Per cent finding this amount of Rs. per month remunerative

Rural males Rural females Rural persons Urban males Urban females Urban persons

01000 12.9 34.2 21.2 4.9 32.8 10.4

10011500 17.5 23.5 19.7 8.2 20.2 10.6

15012000 16.5 15.4 16 9.9 12.6 10.4

20012500 11.4 8.9 10.5 7.2 7.7 7.4

25013000 12.9 7.2 10.7 12.2 8.1 11.5

> 3000 27.3 9.9 20.5 56.5 18.3 48.9

Chart 4: Per cent of self-employed workers who consider their own income remunerative, by income-range considered remunerative

80 70 60 50 40 30
<1000 1000-1500 1500-2000 2000-2500 2500-3000 >3000

20

Rural Males

Urban Males

Rural Females

Urban Females

India: Unemployment rates

Rural India 15-19 Usual Status Current Daily Status Usual Status Current Daily Status 1993-94 1999-00 2004-05 1993-94 1999-00 2004-05 1993-94 1999-00 2004-05 1993-94 1999-00 2004-05 3.3 5.5 7.9 9.0 13.1 15 1.9 3.2 6.7 8.3 12.8 12.6 20-24 All 15+ Males 4.9 2.0 5.2 2.1 6.2 2.1 10.3 5.6 11.7 7.2 12.9 8.0 Females 2.8 1.3 4.9 1.5 9.3 3.1 8.2 5.6 12.1 7 14.9 8.7 15-19 11.9 14.2 14 16.2 19 18.4 12.8 13.2 15.6 18.6 18 16.4 Urban India 20-24 12.6 12.8 12.5 17.0 17.1 15.8 21.7 19.4 25.8 28.5 25.9 27.3 All 15+ 5.4 4.8 4.4 6.7 7.3 7.3 8.3 7.1 9.1 10.4 9.4 11.6

China: Work force distribution

1952 1965 1975 1985 1995 2005

Primary 83.5 81.6 77.2 62.4 52.2 44.8

Secondary 7.4 8.4 13.5 20.8 23.0 23.8

Tertiary 9.1 10.0 9.3 16.8 24.8 31.4

China: Output and employment growth

198090 Primary sector Annual employment growth Annual Value Added growth Employment elasticity Secondary sector Annual employment growth Annual Value Added growth Employment elasticity Tertiary Sector Annual employment growth Annual Value Added growth Employment elasticity All sectors Annual employment growth Annual Value Added growth Employment elasticity 2.8 6.2 0.45 5.9 9.5 0.62 7.9 12.2 0.65 4.1 9.3 0.44 19902000 -0.8 3.8 -0.21 1.6 13.5 0.12 5.1 9.1 0.56 1.1 10.1 0.11

China's exports
800 700 50 600 40 500 400 300 20 200 10 100 0 1981 1982 1983 1985 1986 1989 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Total exports, $ bn Per cent processed in total exports 0 30 60

US clothing imports from Mainland China

30 6

25

20

15

10

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Volume-based market share

Unit value

China - Employment in manufacturing

11000 10000 9000 8000 7000 6000 5000 4000
78 80 85 89 90 91 92 93 94 95 96 97 98 99 00 01 20 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 02

China: Urban employment

Share of urban employment by type of employer
90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
1978 1980 1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

State owned units

Collectives & coops

Other private units

Self-employed

China: Rural non-agricultural employment

Share of rural employment
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
1978 1980 1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

TVEs

Private enterprises

Self-employed

China: Annual change in real wages

Average of all units 1978 1980 1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 6.0 6.1 5.3 -4.8 9.2 4.0 6.7 7.1 7.7 3.8 3.8 1.1 7.2 13.1 11.4 15.2 15.5 12.0 10.5 12.8 Stateowned units 6.2 6.0 4.8 -4.6 9.7 3.2 7.0 5.7 8.7 0.4 2.6 4.2 6.7 12.9 10.9 16.2 16.3 12.3 11.1 13.6 Urban collective units 5.1 6.9 6.6 -6.1 6.6 5.6 4.1 5.9 0.2 3.7 0.6 1.7 3.1 9.7 7.6 8.9 12.7 12.2 9.5 13.2 Units of other ownership type

22.5 -2.3 8.9 10.5 5.3 7.9 1.5 1.4 1.7 3.2 -1.7 11.0 10.9 9.7 9.9 9.3 8.0 10.4

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.

China - Investment and consumption rates

44.0 42.0 40.0 62.0 38.0 36.0 34.0 54.0 32.0 30.0
19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

68.0 66.0 64.0

60.0 58.0 56.0

52.0 50.0

Investment rate

Consumption rate

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.

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 marketbased measures that alter the structure of incentives for private agents.