Is India facing a labour shortage? Yes, it does. Industry, labour experts and civil society groups working with migrant workers all confirm it.

TeamLease, India’s leading staffing solution provider, points to a shortage of 15-25% workers across industries, particularly in manufacturing, engineering, construction, healthcare and pharmaceutical. It attributes the shortage to reluctance of migrant labours to return and the continued pandemic threat. Even though some companies are offering incentives like attendance allowance, employment insurance, health coverage, travel cost, higher minimum wages and production incentives to retain labour.

Industry association CII’s Decoding Job report 2022 flags off shortage of migrant workers. It expects a fall in migrants returning to tier-1 cities in 2022 in comparison with 2021 – leaving a yawning gap of 68%. Although it foresees more migrants returning to non-tier-1 cities, there too the shortfall is likely 32%. As for white colour jobs, the report highlights limited talent pool at all levels – entry level, mid and upper levels – particularly a shortage of 32% software engineers.

These assessments from industry are quite ironical and contradictory on the face of it for two reasons: (i) job crisis is not only chronic but worsening and (ii) poverty is growing, notwithstanding the two recent reports of the IMF and World Bank claiming to the contrary.

Mahesh Vyas, managing director of data research firm CMIE, writes that employment has fallen by 1.7% in FY22 (401.8 million) from the pre-pandemic level of FY20 (408.9 million). The labour force shrank by 1.5% (from 441.8 in FY20 to 435.2 million in FY22) and the number of unemployed jumped by 1.2% (from 33.9 million in FY20 to 32.9 million in FY22) during the same period.

All this points to worsening job crisis even as the economy recovers to the pre-pandemic level (FY20). Another irony: The GDP growth for FY22 (AE2) is 8.9% – up from -6.6% in FY21 and 3.7% in FY20.

That poverty has neither declined nor been eliminated is evident from the fact that the central government extended supply of “free” ration (5 kg food grains per person) to 75% of rural and 50% of urban population, under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). The scheme will run till September 2022. The “free” ration is in addition to the “subsidised” ration of 35 kg food grains per family for the same individuals and households (62.5% of the total population) under the National Food Security Act (NFSA) of 2013.

No government would need to do this if the financial health of people is improving and poverty is declining or eliminated. Free ration can only avert hunger deaths, not raise the income levels of people to pull them out of poverty.

What would then explain the mismatch between labour shortage and apparent job crisis and poverty?

Labour mismatch

Rajiv Khandelwal of Ajeevika Bureau, which works with rural, informal workers (including migrants), says India has a “job quality crisis”. Informal workers, especially migrants, are not willing to take poor quality jobs in cities – low wages coupled with lack of housing, social security and other amenities. They would rather take up the menial and low-paying MGNREGS work (which pays less than statutory minimum wages in all states except Uttar Pradesh which has the lowest minimum wages) or other casual work locally available.

“Often people (migrant workers) tell us they prefer the poverty of their villages than the indignity of cities. If they have access to PDS (subsidised ration), housing, health, transport like in China, then lower wages would be acceptable to them”, he tells Fortune India.

Lack of social security has been a perennial problem: 89% of all workers are informal (Economic Survey (2021-22) with no social security cover, even 54.2% of the best quality jobs, regular wage/salaried employment (22.9% of all jobs), don’t provide social security (PLFS of 2019-20).

Prof Vinoj Abraham of public sector research body Centre for Development Studies confirms Khandelwal’s contentions. He also adds that the labour shortage that the industry is talking about could also be because employers are not able to offer good wages/salaries because of the prolonged economic slowdown and are looking to hire skilled workers at relatively lower wages – which may be less in supply. He points to the larger trends in the economy – higher unemployment among the educated workers, overall decline in wages, fall in regular wage/salaried jobs (the best paying jobs) and rise in casual and contract work in the economy – to explain the apparent contradiction in the labour shortage while the job crisis continues.

MS Unnikrishnan, head of IIT-Bombay-Monash Research Academy, says it is the traumatic experience (“fear factor”) of distress migration of 2020 workers that haunts and is one of the reasons for the reluctance of migrants to return to their urban jobs. The distress migration saw millions walking home with family and luggage – after having lost jobs, wages and shelter following the lockdown.

In all, 11.4 million migrants went back to their rural homes in 2020 – as the Lok Sabha was told by the government. Students and researcher collected information about 971 deaths due to non-Covid causes (exhaustion and accidents, including 96 who died during their travel by trains which were later run) during the distress migration. The Census 2011 says there are 54 million inter-state migrants (of the total of 455.7 million total migrants most of who migrate within a state) in India.

Is labour market tightening?

Labour shortage would show up in tightening of wages in urban areas. Since no data is available on urban wages, there is no way of knowing if labour shortage can be corroborated with wage data.

Even the quarterly PLFS reports, which track urban jobs only, don’t provide wage information. The Q1 and Q2 reports of FY22 don’t even show trends in different categories of workers, which Q4 of FY21 did. The Q4 of FY20 survey showed a rise in self-employed and casual workers (uncertain and low paying) and a fall in regular wage/salaries (best category jobs) from the pre-pandemic Q4 of FY20.

This trend was seen in the annual PLFS report of 2019-20: a shift from best paying regular wage/salaried jobs to casual and self-employment, both in urban areas and all the all-India level in comparison to the PLFS of 2018-19.

There is further evidence of falling wages in urban areas.

The Indian economy is witnessing a reverse structural change. Workers are migrated back to low-productive and low-paying informal agricultural job from better paying manufacturing and services.

The PLFS of 2019-20 (pre-pandemic) showed the share of agriculture going up from 42.5% (in 2018-19) to 45.6%, while manufacturing’s share went down from 12.1% to 11.2% in those years. A five-year study between FY17 and FY21 by Ashoka University-CMIE showed agricultural jobs increased by 4% (from 36% to 40% in total employment) while manufacturing jobs nearly halved (fall of 46%) and the overall employment fell by 7% (from 407 million in FY17 to 378 million in FY21) during those five years.

Such a shift means loss of jobs and lowering of wages in high-productive, high-skilled manufacturing and service – a sign of deep and structural economic distress.

That wages have been falling is also evident from the share of compensation to employees (workers and managers) and operating surplus in private organised sector. The average share of compensation to employees (wages and salaries) went down from 55.59% during 1980-81 to 1992-93 to 36.48% during 2011-12 to 2017-18. The average share of operating surplus went up correspondingly.

That the surplus labour went to rural areas is also evident from the rural wage data.

The RBI data shows the growth in annual average “nominal” wages for 25 categories of rural works was 1.8% in FY22 (up to January 2022). With the CPI-Rural inflation of 5.4% for FY22, the growth in rural wages is negative.

Yet another indicator of falling wages is dramatic rise in low-paying (lower than statutory minimum wages) MGNREGS work. From 54.8 million households and individuals and 78.8 million individuals in FY20 (pre-pandemic), the number of those who availed MGNREGS work increased sharply to 72.6 million households and 106.2 million individuals in FY22.

Ironically, the average MGNREGS wage has fallen from ₹208.86 in FY22 to ₹204.99 in FY23.

Measures to help migrant workers

The government had announced two measures to help migrant workers come back: (i) portability of ration cards under the one-nation-one-ration card (ONORC) that would ensure they receive PDS supply at their urban locations (ration cards are tied to designated fair price shops) and (ii) urban housing (“affordable rental housing projects”) for migrants.

Going by the official statement, about 56% of the total beneficiaries are using the portability facility to get subsidised and free ration. But nothing is known about the progress in the “affordable rental housing projects” for which the 2021 budget announced extending the existing interest subvention of ₹1.5 lakh. The 2022 budget is silent on it. Unnikrishnan laments that not a single such house has been added to the list since the 2021 budget.

But going by the ground realities, it is the higher wages, job and social security and civic amenities which would help in bringing back migrant workers from their rural homes to urban areas.

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