All is not well on the employment front


One of the perils of writing on the Indian economy is that the access to data and numbers continues to remain very poor. Given this, every time I come across some new data on the Indian economy which is regularly generated, I try and write a column around it.

Some time back, thanks to a story in the Business Standard newspaper, I realised that the government of India puts out employment numbers as well. The Labour Bureau based out of Chandigarh puts out a quarterly report on changes in employment in selected sectors.

Interestingly, the bureau has been doing this for some time now. The surveys started in the aftermath of the financial crisis which started in late 2008. As the latest survey report released by the Labour Bureau earlier this month points out: “A need was felt to have an indication about the impact of the Global Financial Crisis on employment situation in India on quarterly basis. The Government of India therefore entrusted the task of conducting the Quarterly surveys on employment changes in selected sectors to Labour Bureau.”

The first survey was carried out for the period October to December 2008, immediately in the aftermath of the financial crisis breaking out, with the investment bank Lehman Brothers going bust in mid-September 2008. The latest report is the twenty-fifth in the series and concerns the period January to March 2015.

The latest survey covers a total of 2013 sample units in eight selected sectors. These sectors are textiles, leather, metals, automobiles, gems & jewellery, transport, IT/BPO and handloom/powerloom.

While the number of sample units at 2013 is not very big, it does give us some flavour of the employment scenario in the country. Also, it is worth remembering here that unlike a number like gross domestic product or index of industrial production, an employment number is not a totally theoretical construct.

So how do things look like? The eight sectors added 64,000 jobs between January and March 2015, in comparison to December 2014. Of this, 49,000 jobs were added in the contract category and the remaining were direct workers. The bureau defines a contract worker as: “a workman who is hired in or in connection with the work of an establishment by or through a contractor, with or without the knowledge of principal employer.”

The IT sector added 37,000 jobs during the period. The textiles sector came in next with 24,000 jobs and automobiles added 20,000 jobs during the period. A simplistic conclusion we could draw here is that the IT sector added close to 58% of the total jobs (37,000 expressed as a proportion of the total 64,000 jobs).

But that would be incorrect.

Allow me to explain. As Jordan Ellenberg writes in How Not to Be Wrong—The Hidden Maths of Everyday Life: “For example, say I run a coffee shop. People, sad to say, are not buying my coffee; last month I lost $500 on that part of my business. Fortunately, I had the prescience to install a pastry case and a CD rack, and those two operations made $750 profit each. In all, I made $1000 this month [$750 each from the CD rack and the pastry case plus a loss of $500 on the coffee part of the business] and 75% of that amount came from my pastry case.”

So far so good.

Saying that 75% of the profit came from the pastry case makes it sound like pastries are bringing in almost all the money. But that is not really true. As Ellenberg writes: “It’s just as correct to say that 75% of my profits came from the CD rack. And imagine if I’d lost $1000 more on coffee—then my total profits would be zero, infinity percent of which would be coming from pastry!”

This is a very important concept that needs to be understood. As Ellenberg puts it: “Negative numbers in the mix makes percentages act wonky.”

Now getting back to the employment data. The IT sector added 37,000 jobs, the automobile sector added 20,000 jobs, the metals sector added 1,000 jobs and the textiles sector added 24,000 jobs. In total, these four sectors added 82,000 of the 64,000 jobs. Hence, these three sectors added 130 % of the jobs.

This is an absurd result. And we are getting this absurd result because there are negative numbers in the mix. If jobs were gained in some sectors, they were also lost in certain sectors. In total, 18,000 jobs were lost in leather, gems and jewellery, transport and handloom/powerloom sectors.

Hence, whenever negative numbers are also involved, expressing in terms of percentages is incorrect.

Also, between March 2014 and March 2015, there has been a growth of 5,21,000 jobs with the IT sector adding 2,34,000 jobs. The textiles sector comes in a close second adding 2,21,000 jobs. 18,000 jobs were lost in the leather sector.

Narendra Modi came to power in late May 2014. Hence, the 5,21,000 jobs that have been created are a reflection of the performance of his government.

The question is how many jobs were created between March 2013 and March 2014 when Manmohan Singh was the prime minister and the Congress led United Progressive Alliance was in power. During that period a total of 2,76,000 jobs were created. Hence, Modi’s performance looks much better than that of Singh.

Nevertheless this comes with a caveat. Of the 5,21,000 jobs created between March 2014 and March 2015, the maximum of 1,82,000 jobs were created between April 2014 and June 2014. Manmohan Singh was in power through much of this period. If we were to adjust for this, Singh’s performance looks a little better.

But even with this adjustment Modi’s performance has been better than that of Singh, on this front.

Another point that needs to be made here is that the number of jobs being created since March 2014 has been falling in every quarter. As mentioned earlier, 1,82,000 jobs were added between April and June 2014. The number fell to 1,58,000 jobs between July and September 2014. It fell further to 1,17,000 jobs between October and December 2014. And finally collapsed to 64,000 jobs between January and March 2015.

The initial euphoria around Modi’s election as the prime minister being good for the business as well as the economy is getting wiped out. And this is clearly a reason to worry.

The column originally appeared in The Daily Reckoning on October 28, 2015