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Why is the size of discouraged labour force increasing in India?

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Abstract

The Indian economy is currently passing through a critical phase of economic development as its structural transformation in employment has stalled, whilst both the youth unemployment rate and the number of youths “Not in Employment, Education, and Training (NEET)” have increased to an unprecedentedly high level. In the context in which the share of the youth population is continuing to rise despite the declining fertility rate to below the replacement rate, increased educated youth unemployment has caused an upsurge in the Discouraged Labour Force (DLF). This paper explores the trends, composition, and determinants of rising DLF in India using national level employment-unemployment surveys and macro-level panel data. Based on Multinomial logit and System GMM regression results, it is argued that policies aiming to enhance human capabilities through an improved base of technical education and the promotion of industry are necessary to enhance the growth of quality jobs in order to combat the problem of rising educated youth unemployment and DLF. Moreover, these measures could help in the process of harnessing the demographic dividend in India through an increased level of labour productivity in the long run.

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Fig. 1

Source: Authors’ calculation and plot using NSS (EUS and PLFS) data

Fig. 2

Source: Authors’ calculation and plot using NSS unit level data

Fig. 3

Source: Authors’ calculation and plot using NSS and PLFS unit level data

Fig. 4

Source: Authors’ calculation and plot using the micro-level regression post estimation results

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Notes

  1. This advantage is likely to be over by 2040 and the Indian economy will become an ageing society forever.

  2. As per the National Youth Policy (2014), Ministry of Youth Affairs and Sports, Government of India, the youth population consists of persons belonging to the age group 15 to 29 years.

  3. Although the youth completed education and training but were neither found in jobs nor searched for jobs (actively or passively), this could be partly called the DLF. We classified them as out of labour force. Persons belonging to this category were excluded from our sample to avoid confusion.

  4. These workers consist of women and young male members of the family. They are not the principal breadwinners of the family, but they support and supplement the family income during times of crisis.

  5. Population projection done by the Ministry of Health and Family Welfare, Govt. of India. Report of the technical group on population projections, November, 2019.

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Authors and Affiliations

  1. School of Economics, University of Hyderabad, Gachibowli, Hyderabad, Telangana, 500046, India

    Jajati Keshari Parida

  2. Department of Economics, Christ University (YPR), Nagasandra, Near Tumkur Road, Bangalore, Karnataka, 560073, India

    Shiba Shankar Pattayat

  3. ILO International Labour Organization, Geneva, Switzerland

    Sher Verick

  4. Institute of Labour Economics, Bonn, Germany

    Sher Verick

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  1. Jajati Keshari Parida
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Appendix

Appendix

See to Tables A1, A2, A3, A4

Table A2 Earning function estimates
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Table A3 Summary of variables used in micro-level estimations
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Table A4 Summary of variables used in macro-level estimations
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Parida, J.K., Pattayat, S.S. & Verick, S. Why is the size of discouraged labour force increasing in India?. Econ Change Restruct 56, 3601–3630 (2023). https://doi.org/10.1007/s10644-023-09538-0

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