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Providing jobs for the “missing middle” in India

June 21, 2016

With steady economic growth throughout the 1990s and early 2000s, there seemed to be an abundance of jobs in India. Jobs were available in service industries like information technology and in the large-scale manufacturing operations of international companies. Despite these job opportunities, however, India had a growing number of unemployed, unskilled workers.

IDRC-supported research found that the country’s strong and steady growth in this time period was strikingly uneven. There was an ever-widening wage-gap between educated, urban workers and uneducated, rural workers. The economy’s “middle” was missing, as small manufacturing firms weren’t evolving into the mid-sized firms that could absorb more workers. As a result, India’s unskilled, mostly illiterate workers remained largely in agriculture and informal jobs.

Researchers found that the expansion of employment outside agriculture was closely related to the expansion of education. India must focus on delivering better education to its rural villages, to equip potential workers with the basic skills and literacy they will need to seek employment in other sectors. Further, India must invest in infrastructure and promote urbanization to ensure that such a labour transition is possible.

Research also showed the importance of providing the adequate institutional infrastructure for domestic businesses to thrive. Current laws impose real costs on companies that employ more than 10 workers. They also restrict companies with more than 100 workers from firing employees without government consent. These laws make mid-sized firms more financially vulnerable than other firms. The Indian government must make it easier for small manufacturing firms to evolve into mid-level firms that can absorb more workers.

Read a summary of the research (PDF)

Read the book, Globalization, Labour Markets and Inequality in India, by Dipak Mazumdar and Sandip Sarkar.