Higher Education and Job in India – 27 Grads for each new job

The discourse on jobs has captured popular imagination in recent months. The availability of reliable data on employment in India, on the other hand, has always been sparse but we have culled out data from various government surveys (Labour Bureau, National Sample Surveys), from the Central Bank, the IT industry body and others to arrive at a few conclusions and to hypothesise few, likely scenarios from the analysis. As per our estimates, the ratio of the number of students who earned higher education degrees (undergrad and above) to new jobs created had worsened from 9x for the three year period FY11-13 to 27x for FY14-16. Further, as per the latest employment surveys, the job creation at 0.19mn (excl. banks) over 9MFY17 is running short of the 8.8mn who graduated in FY16. Clearly, the gap between demand (for labour) and its supply could only increase with: a) the traditional legs (public sector, manufacturing, IT/ITeS and BFSI) of job creation waning, b) slow evolution of unconventional sources of employment such as personal and social service and c) rapid supply of qualified labour with an inherent mismatch in scope. We hypothesise three likely scenarios playing out as a result of the rising gap between demand and supply of jobs – a) increased outsourcing in the services sector benefiting flexi-staffing companies, b) increased penetration of credit to SME sector and self-employment due to rising self-employment and easy availability of capital, and c) along with the continued migration from agriculture to other sectors, this could temper inflationary pressures going forward.

Widening gap between demand (for labour) and its supply

Based on the quarterly employment survey and RBI’s data on banking employment, a total of 2.5 mn jobs had been created in nine labour intensive sectors that contribute to over 65% of the GDP in the three year period FY11-13 while 22.7 mn people earned higher education degrees in the same period (a ratio of 9 students per new job created). In the following three year period FY13-15, the corresponding numbers stood at 1 mn jobs and 25.9 mn with higher degrees (a ratio of 27 students per job created, more than 3x the previous period). According to the new quarterly employment series, a total of 0.19 mn jobs (excl. banks) were created in the first nine months of FY17 while 8.8 mn students passed out in FY16. The rate of supply of labour has far exceeded that of demand. Especially of concern is that textiles, IT/BPO and banks, which have contributed to about 90% of these new jobs, are exhibiting signs of increasing sluggishness. The misalignment between the education imparted and high growth areas of job creation further complicates the problem.

Chosen excerpts by Job Market Monitor. Read the whole story at JM Financial Ltd.