Insights into Editorial: A misleading story of job creation
A recent research report titled “Towards a Payroll Reporting in India” authored by the Group Chief Economic Adviser of the State Bank of India and a professor from the Indian Institute of Management, Bangalore has caught the media’s and the Prime Minister’s attention.
The main objective of the report was to make a case for a better payroll reporting system in India, which is perfectly justified and needed.
The report also made an extravagant claim that 55 lakh new jobs are created every year in India.
What is the basis of report, ‘Towards a Payroll Reporting in India’?
The estimates in the report is based on organised sector employment data — which include the Employees’ Provident Fund Organisation (EPFO), the Employees’ State Insurance Corporation (ESIC), and National Pension System (NPS) enrolment numbers — up to the end of November 2017, which the researchers have extrapolated for the full year 2017-18.
In order to be conservative on estimates, and to avoid any data anomaly, they have excluded the zero-contribution accounts and considered new workers in the age group 18-25.
The authors said the attempt to capture payroll data in India is similar to the nonfarm payroll numbers published monthly by the United States, which also publishes monthly wage growth data.
‘Nonfarm payroll’ is the term used in the US for any additional jobs during a month, excluding proprietors, farm work, unincorporated self-employment, and employment by private households. The military and intelligence agencies are also excluded. Nonfarm payroll accounts for approximately 80% of workers who produce the GDP of the US.
Experts say these assumptions and exclusions are justified. Also, this is primarily an establishment survey for collecting information on employment in the unit; therefore, it does not provide information on unemployment.
- Organised sector covers the businesses where the terms of employment are regular and people have assured jobs.
- Government laid rules and regulations to follow.
- The salaries are paid as per Basic Wage Act.
- The people enjoy the security of employment in organised sector.
- Employees in organised sector enjoy insurance and medical claims and benefits.
- The employees of the organised sector cannot be forced to leave the job without any strong reason.
- The employees of the organised sector are only 8% of the total people but constitute 50% of the GDP of India.
- The employees of the organised sector have extra benefits like overtime pays, paid leaves, medical leaves, etc.
- Manages the funds contributed by the workforce engaged in the organized sector in India.
- EPFO manages a corpus of over Rs 11 lakh crore for its estimated 5.5 crore subscribers across jurisdictions in over 190 industries employing more 20+ people
- It is an autonomous corporation by a statutory creation under Ministry of Labour and Employment.
- Employees’ State Insurance is a self-financing social security and health insurance scheme for Indian workers.
- ESIC manages corpus for 1.2 crore subscribers for 65 industries with 10+ employees
NPS (National Pension Scheme):
- It was launched on the 1st of Jan’04 and was aimed at individuals newly employed with the central government and state government, but not including ones in the armed forces.
- NPS currently manages corpus of 50 lakh people in state and central government organisations.
GPF (Government Provident Fund):
- The total number of Government employees is 2 crores (1.67 crores in State Government & Parastatal State Government Units and 33 lakh in Central Government & Parastatal Central Government Units)
What are the suggestions of the Report?
This is the first attempt to report the payroll situation in organised sector in India.
- Monthly Reporting: EPFO, ESIC & NPS in collaboration should publish monthly report of new payrolls in India who have made a first contribution to their schemes monthly with age buckets, geography, and top 20 industry classification. The data could be used by policy-makers to reorient our skill development programmes towards such industries.
- Quality of payroll reporting: The study suggested measures to improve the quality of payroll reporting, such as making it mandatory for professional bodies, hospitals, nursing homes etc. to submit details of new joinees every three months to local government offices.
- From April 1, 2018 Government should ask every GST filer for giving total number of permanent employees on payroll and total no of contract employees on payroll.
- Tax deductions for Domestic help: Report suggested that some tax deduction (per person) may be given for domestic help, if their name and details are registered with tax authorities by the household employing them.
- The report also suggested that the government should continue with the Rs 50,000 extra tax deduction for contributions to NPS and provide new incentives also to encourage people to join NPS.
- In contrast to the new estimates, the Labour Bureau’s fifth Quarterly Employment Survey (QES) showed that in the period between January and March 2017, job creation stood at 185,000 as against 122,000 in October-December 2016 and 32,000 in July-September 2016.
- The QES published by the Labour Bureau has several limitations, and does not capture job creation appropriately, the report said.
What are the flaws in analysis?
There is a seeming disconnect with the key macro-economic numbers and what the Payroll employment study shows. This disconnect is also evident in the consumption, investment trends over the period under consideration.
Report found that as of November 2017, there were 36.8 lakh new members in the age group of 18-25 years who registered with the EPFO vis-à-vis the previous year. It assumed that any 18- to 25-year-old registering with the EPFO implies that he or she found a new job in the organised sector.
New 18- to 25-year-old EPFO members do not automatically mean net new jobs in the economy; an informal job that turns formal with an EPFO registration does not mean it is a new job.
It then extrapolated this November 2017 data to the full year of FY-2018 and boldly claimed that 55.2 lakh new jobs were created in FY-2018.
This number may not totally be correct because demonetisation recently acted as an external force in formalising employment resulted in thousands of employers retrenching a large part of their informal workforce paid in cash and registering the remaining employees as formal workers with benefits such as provident fund. This upheaval will show up as new formal jobs in the EPFO data set but it does not mean net new jobs were created. The study does not adjust for these effects.
The GST by design was a policy of formalisation of the Indian economy through a networked system of tax credits which could be claimed only if the business was formally registered under the GST. It is likely then that the GST coerced thousands of small and medium businesses in the country to transition at least a part of their workforce from informal to formal employment.
The above argument would be further reinforced by the data from an informal study. According to that study, after demonetisation, in FY-2017, the total number of contributing EPFO members grew 20% and by December 2017, it had grown a further 23% where as it was only 7% in FY-2015.
The EPFO methodology does not capture any of these costs of forced.
When we talk of new jobs in the economy, we usually mean net new jobs, not gross jobs. So, it is somewhat misleading to claim that the economy has “created 55 lakh new jobs” when we do not know how many lost their existing jobs.
If enough jobs are being created over the last year, why doesn’t it correlate with the private consumption trends, demand–revival and investments? This is a question that begs an answer.
Even if the EPFO-job data is correct and the job scenario is not depressing, hence the government shouldn’t alter its focus from job creation. This is because there are far too many youngsters out there entering the job market every month — a number much beyond what the job market can accommodate as of now.
Quality data is needed to understand the ground reality. The EPFO-based job data study can be a good start to work out a new payroll model.