India’s millions of jobseekers are short on skills

By Mihir Sharma

India’s destiny for centuries to come will be determined by the young people joining its workforce today. A few years ago — in 2019, by some calculations — the country entered the most favorable stage of its demographic transition. There are more working-age people than those over 65 or under 16. This will be true for another three or so decades; if India doesn’t grow rich in that period, then the chances are it will stay poor forever.

That’s a great responsibility for this generation — and one it can only fulfill if it the right jobs are available, allowing them to increase their productivity and grow incomes. But those don’t seem to exist. India’s growth numbers may appear comfortable, but that isn’t being accompanied by an expansion of employment. There are no reliable statistics on joblessness rates — and these are deceptive in poorer countries anyway. But scenes like those in 2022, when 12.5 million candidates applied for 35,000 junior positions in Indian Railways and then rioted over the selection process illustrate the scale of the challenge.

Prime Minister Narendra Modi’s government knows that this is a problem. Which is why this month his cabinet agreed to begin a new “employment-linked incentive” program for companies. Federal finances will pay a month’s worth of social security, and give employers 3,000 rupees (about $35) every month for every new employee they hire. This subsidy will last for two years — or four, if the company in question is in the manufacturing sector, which is a state favorite. These aren’t big numbers, but the government nevertheless insists the handouts will create millions of new jobs.

I’m a bit more skeptical. It may result in some jobs that wouldn’t otherwise exist, but this sort of program assumes the main constraint that potential hirers have to deal with is their wage bill. That doesn’t seem to be the case. More often than not, what employers complain about is that there are too few people to hire.

That’s an odd thing to hear in the world’s most-populous country. What that statement actually means is that companies can’t find enough reliable, skilled workers to fill entry- or middle-level positions. This is particularly true in the manufacturing sector that the government is so determined to support. The problem isn’t that Indian workers are $35 a month too expensive; the problem is that there are too few of them with the talents that employers want. That’s what Modi needs to address.

One major problem is the educational system. Primary schooling is particularly bad. It may already be too late for the generation currently entering the workforce, but fixing schools should be a priority anyway. The most reliable school survey has found that only one of every four third-graders can do simple tasks, like subtraction, that they should have learned in second grade. The gap between curriculum and achievement widens as they head into high school. If a large part of the workforce struggles with basic numeracy, then it might be too much to expect them to be hired for skilled manufacturing jobs.

If formal education isn’t working well, then India’s network of vocational and technical schools should have picked up the slack. Unfortunately, those are even worse. The skills they teach are out of touch with the private sector’s needs. Most don’t even have active placement cells to connect their graduates with possible employers. According to the government’s official think tank, less than 0.1% of the hundreds of thousands trained in Industrial Training Institutes were recorded as being placed in a company.

But Indians have learned to live with public-sector dysfunction. Why don’t they acquire the skills that would get them a private-sector job without the government’s help?

Partly because they don’t see how it would make economic sense. The compressed wage structure means that the returns to education and skilling are far too low. That’s really clear if you read the large-scale wage survey that the labor bureau conducts every few years. In the last iteration, it found that a skilled machinist in the automotive sector makes barely 20-25% more than an unskilled manual laborer in the same factory. That’s not really enough of an incentive for most people to spend their time and money on vocational school.

Perhaps young Indians might be more willing to take a few risks if the jobs they got later felt a bit more secure. They certainly try exceptionally hard for the few government or public-sector positions that are available. But those come with more job security, as well as health and other benefits. India’s minimal social safety net means that private-sector employment doesn’t pay enough to make up for how insecure they are.

There’s a lot else the government can and should be doing if it wants more people to be hired. It needs to provide the sort of safety net that encourages them to take the risk of investing in their own human capital. It needs to fix schooling, and make sure the next generation of workers are literate and numerate enough to learn quickly on the job. And it must find new ways of getting skills to the workforce — perhaps using digital methods. Giving companies a dollar or so a day is simply not enough to create the scale of employment that India needs to grow.