Imprudent analysis: India predicts 0 unemployment by 2010


Apparently, no one let the Indians in on the notion of frictional unemployment. Though, the Prime Minister’s Economic Advisory Council has been gracious enough to provide numbers no one could ever use in a model. According to the Times of India, “the [EAC] expects that there will be no unemployment by 2010, if not earlier.” EAC”s statement:

“The unadjusted employment elasticity for the latest period (1999-2000 to 2004-05) is 0.48. Even after adjusting sectoral elasticities to lower figures, it is seen that with a GDP growth rate of 8%, by 2010 the workforce will become equal to the labour force.”

Meanwhile, consumer confidence in India is considerably low (63.6, down from 76.4 –out of 100– a year earlier), which in light of the abundant employment opportunities, higher wages causing Indian firms to outsource outsourcing, and unusually high attrition rates in the service sector (40-ish%), makes little sense, assuming the sector-specific adjustments are taken care of as noted. Considering that the lion’s share of the labor force is still primarily agrarian and most of the country’s economic growth is occurring in non-agricultural sectors, I find it hard to believe that the country won’t fall into a situation of non insignificant structural unemployment –even amid food prices propped up by inflation. [Times of India]

India’s employment by sector (EAC 2007/08 Outlook):
Agriculture……58.4%…30m jobs
Services……23.4%
Manufacturing……11.7%

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