India’s demographic dividend can positively affect labour shortages internationally. Policies to develop a global workforce with market-ready skills are the need of the hour.
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India’s demographic dividend, adding 9.7 million potential workers per year through this current decade, has implications for its economic growth, socioeconomic structure, income distribution and broadly, its future. What has been largely neglected is how India’s approach towards its demographic dividend will impact global labour markets. Given the magnitude of the dividend, its potential to affect global productivity and its concomitant ability to dictate international economic patterns needs to be incorporated into policy discussions.
Figure 1: Projected population structure in India
Source: Indian Economic Survey
The first step towards addressing this issue will entail treating labour as a global common —a resource that is shared universally and not owned by a particular nation. From a theoretical viewpoint, common goods are non-excludable and rivalrous, i.e., they can be used by all but are limited and exhaustive. Usually, the high oceans, the atmosphere, outer space, and other common-pool resources are treated as global commons. Curtailing constraints on international labour mobility will render labour a global common, too. However, it is distinct from a public good for two broad reasons: first, it is not global, and thus, is in limited supply due to legal impediments on mobility; second, it has a market-determined price.
The Indian demographic yield can remedy the problem of global labour shortages by facilitating the transition of labour from a global common towards a global public good. In an economist’s ideal free market setting, if labour is allowed perfect international mobility, there will be a significant rise in the global supply of labour. Notwithstanding the orthodox neoclassical result of lower wages, this would cause a global rise in productivity and prosperity. With an appropriate framework for international skill-matching, the labour influx in labour-deficient economies will enhance productivity, adding to national income and net welfare. The magnification of welfare is the positive externality generated by migration, making labour a global public good.
With an appropriate framework for international skill-matching, the labour influx in labour-deficient economies will enhance productivity, adding to national income and net welfare.
Unemployment and global labour shortage sound incongruous, even paradoxical. It is not just a numbers game; qualitative attributes play a major role in labour markets. Europe and Australia were looking to fill 1 million and 400,000 jobs respectively in 2023, while also facing unemployment rates of 5.9 and 4.1 percent. This phenomenon of simultaneous vacancies and unemployment arises from labour market asymmetries in the form of skill or talent mismatch. Other drivers, like a declining share of working-age populations and inactivity in mature markets, are at play in the background. Industries like manufacturing, logistics and healthcare bear a disproportionate cost of this shortage.
While the European Union (EU) is facing the crisis of an ageing population and the US is experiencing a decline in its workforce, India is expected to have 1.04 billion working age individuals by 2030. India’s dependency ratio (ratio of dependents to working age population) is on the decline, expected to reach a minimum by 2030. Even beyond 2030, India is estimated to add 4.2 million workers per annum for another decade. While the Indian economy is poised to grow substantially during this period, absorbing this quantum of workforce domestically is bound to lower labour productivity. Making the labour force globally accessible will spin these dynamics, and ensure greater productivity both in India and abroad.
India’s growth since the 1990s, predominantly led by the services sector, boasts of a highly-skilled workforce. Information and communication technology (ICT) services and software services exports have grown, with India exporting around 4.6 percent of world services. This goes on to show India’s comparative advantage in skilled-labour, delineating an opportunity to address the qualitative aspect of labour market inefficiencies. India’s potential to deliver workers is abundantly clear from demographic features, but it can also ameliorate the skill-mismatch problem that ails the Global North. With the highest number of STEM graduates, India can provide medium- to high-skilled workers who can abate the supply-demand gap in emerging economies.
Making the labour force globally accessible will spin these dynamics, and ensure greater productivity both in India and abroad.
India, within its boundaries, also faces an identical problem of skill-mismatch, with workers lacking in-demand skill sets. This issue prevails across all skill categories, showcasing the need for vocational training, and amendments in curriculums to prepare more market-relevant workers. While this can be construed as excessive market-oriented-ness, i.e., moulding workers according to business needs, it is quite the contrary. This will augment the human capital possessed by workers and enhance their productivity. With policies targeted at diminishing the skill divide, education, training, and human capital formation can take place in an organic manner which will provide individual liberties to persons, mostly absent in a fragmented market.
In light of these facts and figures, it is evident that this is not a zero-sum game. India creates a global workforce, supplies workers to the world, and restores global productivity. India secures livelihoods and enhances individual capabilities for its nationals, bags remittances as a major source of international income, and optimises domestic productivity. The alluring positives are, however, at policy distance. The window of opportunity is narrowing with each passing minute. Policies to develop a global workforce with market-ready skills and high human capital levels are the need of the hour. As the case is for any public good, institutional intervention is necessary to facilitate international labour mobility, in the absence of which, this is all but rhetoric.
Arya Roy Bardhan is a Research Assistant with the Centre for New Economic Diplomacy at the Observer Research Foundation.
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Arya Roy Bardhan is a Research Assistant at the Centre for New Economic Diplomacy, Observer Research Foundation. His research interests lie in the fields of ...
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