Future of Cities’ Economy and Labour Market

Liberalisation has made way for the structural transformation of the urban labour market in the developing world. Earlier production was labour intensive, now it has become capital intensive, technology-based and knowledge-based which result in a huge labour cut in the firms. Large-scale old industries are being modernised and in turn, labour absorption is declining.

Furthermore, large-scale firms are, on the one hand, employing mainly contractual labourers and on the other hand, subcontracting their production activities to the small firms located in rural areas which are mainly unorganised in nature.

In addition to this structural change in the production system, cities are going through the process of deindustrialisation as industries have been shifted from the city core to the periphery which often comes under the jurisdiction of rural panchayats.

All these changes have been contributing to the decline in the growth of manufacturing employment in the cities and in the formalisation of the workforce. And informal workers are often less paid and neither have job security nor have covered under social security measures.

While this is the macro trend of the urban labour market, proponents of liberalisation argue that liberalisation has made way for several new job creations. Indeed the argument is true but we should not forget that the newly created jobs are very few in number and most of which are for those who are highly educated and well acquainted with technological know-how.

For example, Bangalore, the economy which is considered a direct fall out of liberalisation, has less than 10 per cent of its workforce employed in the “knowledge economy” (McKinnon, 2011 in Biau, 2012). In the era of liberalisation demand for some kind of unskilled workers have also been created like a security guard, housekeeper, waiter, car driver etc. but as mentioned before, they are poorly paid even though they work for 12 hours or more per day and have no job security.

Given this changing pattern of the urban labour market, there is a remote possibility that unskilled or semi-skilled workers will be absorbed in the organised sectors of employment. On the other hand, according to an estimate (Kundu, 2014), because of the “demographic dividend”, 410 million people would be added to the labour force by 2050.

Importantly, the majority of this additional labour force would come from rural areas and it is not likely they would be absorbed in the primary sector because of very low or no marginal productivity of labour in that sector.

As a result, it would not be erroneous to believe that majority of that additional labour force would migrate to the cities (as the scope for employment in the small and medium towns is limited) in search of employment and would be self-employed in the low productive informal sectors. The growing proportion of self-employment is an indication of that.

At this juncture, India has much to learn from China. In China, following the liberalisation of the economy in 1978, employment has increased considerably in the manufacturing sector which is the major receptor of rural-urban migrants. Widespread rural industrialisation (Township and Village Enterprises [TVEs]) made this possible.

As a result, employment in the TVEs increased from 28 million in 1978 to 135 million in 1996 (Thomas, 2012). Consequently, the number of towns has also risen to 7,168 in 1984 from 2,968 in 1983 and 19,555 in 2001 (NBS, 2002 cited in Shen, 2006).

On the contrary, in India, in the post-liberalisation period (1993-94 – 2009-10) only 10.64 per cent of newly created non-farm employment was from the manufacturing sector and employment in the manufacturing sector fell by 11 per cent in the 1990s and even the absolute numbers of employees in this sector declined by 5 million in the later part of the last decade (2000s) (Thomas, 2012).

Against this backdrop, around 3000 new towns emerged in 2011 which were, unlike China, guided by the agrarian distress-driven increase of non-farm employment in the villages (Guin, 2015; Guin and Das, 2015; Mitra and Kumar, 2015).

Thus, there is a remote possibility that these new urban centres will help to provide employment to the (additional) labour force that will be added by 2050. Hence, policies and programmes should be adopted to create employment opportunities in these new towns (as well as other small and medium towns), otherwise, migration of this future labour force to the cities will make the cities over-urbanised.