Political Economy Of Skill Formation In India

Mehrotra(2016) explained that India follows Anglo Saxton.. system of skill Development and Indian version of the model is very rigid and skill training are very specific b[r]

POLITICAL ECONOMY OF SKILL FORMATION IN INDIA

Harshil Sharma Shipra Ph.D Scholar Centre for Informal Sector and Labour Studies Jawaharlal Nehru University India

ABSTRACT

lines of economic thoughts namely: Neoclassical, Marxian, Emperical Based Heterodox approach, New Institutionalists and New Economics of Policy With the help of all these theories the paper will try to determine concrete roles of state and firms in India skill development system and what policy changes can help in moving forward the skill India initiative

Keywords: Skill development, wage gap, vocational education, political economy, Skill India

1 Introduction

Indian economy is characterized by largest number of illiterates and one of the lowest percentages of formally skilled workforce in the world and is still one of the fastest growing nations There is a dual contradiction in the above statement as in spite of having one of the lowest investments in education, skilled labour and human capital investment the firms in India are able to produce such high levels of growth Conventional economic literature does not provide solution to this paradox The challenge that lies in front of policy makers is to train this large young population to gain productive and meaningful employment to gain a decent standard of living (Pilz, 2015; Wang, 2012) In reality, there is nothing automatic about link between economic growth and demographic dividend both „empirically‟ and „theoretically‟ Age distribution merely creates potential for economic growth and whether that potential is captured or not depends on policy environment of that country (Chandrashekhar et al, 2006)

workforce to use new technology Workers believe that even after gaining a particular skill they are not able to fetch an adequate wage with respect to the skill they have attained This problem cannot be understood by just overlooking these two contradicting perspectives There is a much deeper problem that lies beneath this which involves conflict of interest of capitalists and workers

demographic dividend outcome on basis of longevity then it would be accompanied by higher savings There is high possibility of scenarios where investment rates fall short of savings rate and may result in deflation instead of growth (Chandrashekhar et al, 2006) To understand the whole argument of skill and vocational education it is important to understand meaning of the abstract term „skill‟ and what are varieties of skill formation practiced at different places

Source: NSSO (Various Rounds) and Labour Survey (2015)

Graph shows years of education completed on average by different percentage of the Indian workforce It highlights all the forms in which general and vocational education has been attained by the workforce of India Educational attainment in past two decades has been positive for India Between 2004-05 and 2015-16, the number of illiterates has fallen down drastically which is possible due to implementation of Right to Education Act Even after such improvements overall numbers are still very poor for a sound skill development system Only around 50 percent of the Indian workforce had passed 8th Standard till 2015-16 More specifically, 22 percent of the labour force was illiterate, 31 percent had studied up to the primary level and the middle level When elementary education, a preliminary requirement of the existing skill development system and programmes, has not been completed by majority of the workers, the failures of such

0 10 20 30 40 50 60

1993-94 2004-05 2011-12 2015-16

Illiterate Below Primary Primary and middle Secondary and higher secondary

programmes are inevitable Only 0.02% of total workforce attends school level vocational education compared to 12.26% attending general education Also at senior secondary level enrolment is 6.14% in general education and only 0.48% in polytechnics and 2.26% in CTS and ATS schemes which clearly indicate the worrying state of vocational education in India According to the current training capacity, around million workers are trained per year but the requirement of skilled workforce is around 20 million workers (Mehrotra, 2014)

Second section of this paper would look at theoretical frameworks under which different countries and different authors work in defining role of state , workers and private sector Third Section would focus on current scenario of skill development in India specifically focusing on wage gap, skill gap and skill biased technical change In the last section Various theoretical models would be tried to cross compared with Indian Economy analysis and what alternatives exist for India for creating skilled workforce will be discussed

2 Theoretical Framework of Skill Formation Models There are basic two types of skill development models:

mostly by state led institutions Focus is on class room training and after completion of training the trainee can go for work experience This system of skill training is done in Anglo Saxton countries beginning in United Kingdom and also in countries like US and India

Anglo Saxton model runs on function of deskilling and deunionization Unions are weakened or eliminated, apprenticeship disappears and on the job training is reduced to firm specific training Country‟s predominant skill pattern may be explained historically by nationally specific institutional constraints and opportunities for capital and labour with respect to politics of work organization and of authority at the point of production (Germany- Trade unions are strong which is why a pro worker model was successfully formed) In Anglo-American model elite workers with high but narrow skills, futile worker struggles with workers with almost no skills, deskilling by employers fighting the restrictive practices of skilled workers, high wage dispersion over middle class of managerial generalist

2.1 Alternative Theories of Skill Development

2.1.1 Neoclassical model of Skill Development, SBTC and human capital theory- Acemoglu (2002), Goldin and Katz (1998), Becker (1964), Schultz (1988)

One of the major critiques of this model is when human capital is taken as just another physical capital investment then the assumption breaks when as property rights of this capital are not transferable by sale This model explains the demand of skilled workforce but is that transforming into employment as a whole in a country is still a question left unanswered

2.1.2 Marxian notion of Skill Development-Braverman (1974), Roy (2008), Pavlidou et al (2011), Ainley (1993)

Marx (1867) held skilled labour is nothing just „simple labour intensified‟ and held capitalism system as the originator of concept of „unskilled labour‟ which came into social relation with entry of manufacturing and machines Braverman (1974) argued on lines of Marx that capitalist system ran on the basis of deskilling of individuals due to large scale routinization of work Skill was considered to be more sort of a repetitious work and the more the speed the more skilled a person was considered For technology, Braverman argued, technological changes are brought about by capitalists and are brought about in such a manner that they lead to maximum profits for them This is only possible when they can extract maximum labour power out of labour and devising techniques which are understandable and can be performed by maximum labour so that it leads to increase in labour power and indirectly increase surplus and at the end, increase profits He held capitalist exploitation as the main reason behind routinisation of work At Mass production time, „good enough‟ product was fine but not now Post Fordist regime promise a tendency of multiskilling, re-integration of conceptualization and execution and autonomy of workers in the lean world as opposed to Braverman‟s „deskilling hypothesis‟

other ways like outsourcing, wage pressure and large reserve army of labour due to which new technological changes and not employed On similar lines Pavlidou et al (2011) found that higher investment in human capital in G-7 countries resulted in more part-time, temporary and low paid workers and most of the rise in employment rates was in unskillful labour

2.1.3 Empirical models of Skill Development and SBTC in India- Abraham(2007) , Ramaswamy (2008), Unni and Rani (2008),Ravi Srivastava (2008)

there was growing wage differential between educational similar categories of for example a person being secondary and above but widening wage gaps among people Their claims were on the grounds that there is limitation of measuring skills in terms of education as in developing economies even with low levels of education high levels of technical skills can be attained These models give theoretical basis of presence of SBTC in a selected industries and particular sectors in Indian Economy They don‟t rule out the fact that there are sectors that determine rise in wages for skilled workers in selected industries

Ravi Srivastava (2008) showed that overall level of education and formal skill training is directly related to income, level of education, location, and social identity The study applied logit model for the year 1993-94 and 2004-05 NSSO data taking formal vocational education as dependant variable and sector, sex, poverty status, socio-religious and almost all the variable came out to be significant

2.1.4 New Institutional notion of Skill Development-Busemeyer and Trampusch (2012) David Ashton etal (2001), Warhurstetal (2004)

innovative differentiated markets Employers will have to use forms of work organization that require more, not less, skill and provide greater level of autonomy They suggest major shifts in the institutional and industrial policy frameworks are a necessary but not sufficient condition for the achievement of a high skill economy They suggest focus importance of role of trade unions and focus on skill development strategies as an agenda towards development of the workforce In an environment where firms are being pushed to move up market to compete on high skills, those already of occupying such markets may not welcome the added competition from new entrants, while those pursuing cost based strategies may be unable to respond and therefore survive

2.1.5 Economics of Policy- Mehrotra(2014), Pilz (2015) and Mehrotra (2016)

These authors take notion of skill development as intrinsic to growth and development of nation and focus on strategies and policy prescription to improve the ongoing skill development policies in various parts of the world There is no set of universal strategies that can be employed to make a successful TVET system There were dirigiste skill development policies in Singapore and minimum government intervention in Hong Kong Data conforms that Singapore has been more successful in skill development policies than Hong Kong They take skill development not as a sufficient condition for generation of employment and higher wages but as a necessary condition for growth and development Through cross-country comparisons they intend on providing adequate skill development strategies for both developed and developing countries Anglo-Saxton skill development model cannot replicate the success of dual education model of Germany but through Euler 11 principles there are various ways in which a country can make its skill system more accommodating and flexible (Pilz,2015)

system of skill Development and Indian version of the model is very rigid and skill training are very specific because of which there is less chance of horizontal and vertical mobility Even after implementation of NSQF the prejudice related to vocational training is still far from being removed Free rider problem exist in companies as they themselves avail free rider advantage of state run institutions Mehrotra regards the lack of involvement of private sector in skill training as major factor in failure of TVET system in India Companies are apprehensive to invest in training due to fear of „free rider‟ where the employee may leave the firm after being trained and the benefits of their training may go to a competitor Private sector has itself been a free rider of public education system which wants to minimize the labour cost as that helps in increasing the value added share of profits

On the basis of theories of skill development, nations can be classified into Varieties of Skill Formation System:

a) Statist (Sweden, France): Government controls supply of skilled labourer and it is their commitment and responsibility to invest in skill development

b) Segmentalist (Japan): Firm willingness to invest on skill formation very high and control much of the demand and supply of skilled labour force,

c) Liberal Skill Formation (US, India): Skill Development through markets and general education, limited institutional linkage and vocational education Firm‟s involvement is very less

d) Collective Skill Formation (Germany): Commitment of both state and firm to invest in skill formation Cost shared by employer, state and individual (Busemeyer and Tampusch, 2012)

  

Figure: Varieties of Skill Formation

Lean production or the liberal skill regime itself lead to intensified taylorism and results in intensified application of deskilling hypothesis The problem with most of studies and theoretical approaches related to macro dynamics of skill formation are that they focus on either describing how involvement of government and others focus on excessive market involvement will lead to deskilling There is a need to determine how at various levels, both state and firms have to play a pivotal role in skill formation Firms need to get involved financially for training of workers Firms also need to get involved in training in collaboration with developmental state

3 Current Scenario of Skills in India 3.1 Wage Gap

We begin analysis of skill by studying the relative wage inequality in the labour market of Indian Economy Due to paucity of data pertaining to skill labourers education is the parameter used to classify skilled and unskilled labourers All those workers who have attained less that secondary education are termed as unskilled and all those who have

Statist

Segmentalist Involvement and

influence of state

Involvement and influence of firms Liberal Skill Regime

Who Controls Who Provides

Who Pays

Relation between Vocational and General Education

attained education above secondary education (including diploma and technical education degree holders) are termed as skilled Using the NSSO data of 61st and 68th round we first look at proportion of skilled to unskilled workers in various sub sectors of Indian economy

Table Proportion of Skilled to unskilled worker

Industry 2004/05 2011/12

Agriculture and allied activities 0.11 0.16

Mining and Quarrying 0.24 0.34

Manufacturing 0.32 0.36

Electricity, Gas and Water 1.51 1.53

Construction 0.14 0.17

Trade 0.60 0.75

Hotels 0.25 0.56

Transport 0.49 0.65

Finance 5.85 9.30

Real Estate 2.79 2.68

Public Administration 2.16 2.14

Education 7.06 6.04

Health 2.64 2.80

Other Services 0.29 0.16

Private 0.08 0.25

All 0.26 0.38

61st and 68th NSSO rounds

does not reflect in wages being given to the workers The rise is apparent in construction, trade, hotels, transport and finance sectors Rise in proportion of educated workers being hired in agricultutre sector may be attributed to fall in absolute number of labourers being hired in agriculture sector and reverse migration trend due to implementation of NREGA during the same time period Rise in educated proportion of workforce should in general case be reflected in higher wages being given to skilled workers as compared to unskilled workers and that can be seen with help of wage trends

Table 2: Wage ratio of skilled to unskilled

total India (male+female)

INDUSTRY 2004 2011

Agriculture (01-05) 2.98 4.28

Mining and Quarrying (10-14) 1.87 1.75 Manufacturing1 (15-22) 2.82 2.09 Manufacturing2 (22-37) 3.01 2.95 Electricity, Gas and Water

(40-41) 2.03 2.65

Construction (45) 2.32 2.23

Trade (50-55) 2.15 2.16

Transport and storage (60-64) 2.18 2.66

Services (65-93) 2.86 2.68

Private 3.02 1.23

All 2.91 2.78

Wage ratio signifies the relative wage inequality prevailing in the labour market that is the average wages received by skilled workers as compare to average wages of unskilled workers In table two by analyzing the wage inequality among skilled and unskilled workers it can be seen that wage inequality has risen in agriculture, Electricity Gas and Water and Transport and Storage It has actually fallen in majority of sectors This does not mean that everyone is getting paid well but in contrast to this the rising educated/ skilled workers are also receiving same level of wages as there unskilled counterparts This can be confirmed by stagnant overall real wages in whole labour market in India in the concerned period This gives us the evidence for lack of Skill Premium or no incentive for unskilled workers to become skilled

3.2 Skill Gap and Skill Biased Technical Change

different manufacturing units into different knowledge industry groups and same classification is used for calculation of employment share, compounded annual growth rate and graduate intensity in different manufacturing groups and the following data has been computed from Unni (2014)

Table Share and growth of Non Agricultural Employment in Knowledge Industries, 1999-2000 and 2009-10

Knowledge Industry group (KII) OECD classification

Share of

employment 2009-2010 (%)

CAGR, 1999-2000 to 2009-2010 (%)

Percentage

Graduates 2009-2010

High tech

manufacturing

0.7 1.4 29.7

Medium high tech manufacturing

2.8 2.3 22.2

Medium low tech manufacturing

6.1 1.1 7.0

Low tech

manufacturing

13.9 1.1 4.9

Knowledge

Intensive Business Services

4.2 4.5 49.2

Social Knowledge Intensive Business Services

7.2 2.8 57.3

High tech

Knowledge

Intensive Services

1.7 7.2 52.1

Less KIS (LKIS) 41.8 1.5 11.8

Construction 20.1 8.0 2.8

Mining and

Quarrying

1.4 2.2 14.2

Total 100 2.7 14.7

Source: Computed from Unni (2014)

registered in high-technology knowledge intensive service industries (HTKIS) These included telecommunication, computer services and R&D, whose share was quite small but increasing over the decade The second highest growth was registered in knowledge-intensive business services (BKIS), 4.5 per cent These included financial services, real estate, and other businesses and recreational and sporting services This was followed by the social knowledge service industries (SKIS), with 2.8 per cent growth and the share was 7.2 per cent This was mainly the education and medical service industries (Unni & Sarkar, 2012a)

Table 4: Sector-wise skill gaps in nonfarm sectors

Sub-sectors Year Skill Gap Index

Manufacturing

2004-05 0.858

2011-12 0.834

2015-16 0.872

Service

2004-05 0.491

2011-12 0.46

2015-16 0.527

2004-05 0.767

Overall

(Non-farm sectors) 2011-12 0.741

2015-16 0.775

Note: This skill gap index ranges from zero to one Zero implies no skill gap and one implies a situations of 100% skill gap

Source: Mehrotra (Forthcoming)

Mehrotra (Forthcoming) calculates skill gap index for different sectors of Indian Economy with the help of following formulae

Where,  si

st i st st S L E L

SGI  

  

  

 *1

SGI=skill gap Index

Ssi= Share of workers with S level of skill in the ith sector Lst =Size of labour force with skill level S at period t

This measure uses both demand and supply side information for calculation The range of this SGI is from zero to one While a SGI value zero implies no skill gap, a value equal to unity implies a very severe skill gap This SGI value also reflects the employer‟s choice and preference pattern for a particular skill category of workers For example, a low value of SGI could imply employer‟s preference for low skilled workers is high and vice versa Data in table shows skill gap to be very high in case of manufacturing sector in comparison to services sector This complements the results of table three where graduate intensity in overall manufacturing sector is very low Data of other sectors has not been taken in the analysis but that also showed a trend of high skill gap prevailing in Indian Labour market

As claimed by conventional neo-classical literature that due to capital skill complementarity in the labour market Whenever a new technical change is brought about then the demand for skilled workers rises by more than the change brought about by the technical change leading to rise in wages of workers To check the same in India context we look at the percentage change of capital labour ratio denoted by percentage change in Net Fixed Capital Stock (NFCS) divided by total labourers (K/L) employed which will be indicator of technical change Also, proportion of skilled workers and both premiums are calculated using the NSSO dataset for looking at any sort of discrepancies in the proposed model According to the conventional hypothesis both the variables will move in same direction to maintain the Skill Biased Technical change

Table 5: Technical change and proportion of skilled workers for various sub-sectors % Change in K/L % change in proportion of

skilled workers

Industry 1999-2004 2004-2011 1999-2004 2004-2011 Agriculture, Forestry &

Fishing 18.271 19.328 1.61 1.82

Mining & Quarrying 0.867 -2.751 0.16 62

Manufacturing 15.46 11.69 -0.25 13

Electricity, Gas & Water

Supply 18.908 62.62 0.03 -1.02

Trade, Hotels&

Restaurants -9.865 2.681 0.01 1.35

Transport, Storage&

Communication 8.43 13.84 -0.09 67

Financing, Insurance,

Real Estate 25.987 29.294 -0.82 -.21

Community, Social&

Personal Services 21.76 11.283 -.73 16

Total: Net Capital Stock 27.229 21.374 0.03 64

It can be observed in agriculture both technical change and proportion of skilled workers has risen positively For mining and quarrying technical change has become negative and proportion of skilled workers has shown positive change The exact opposite is true for manufacturing where proportion of skilled workers has increased and technical change shows negative results For construction the rise in technical change is significantly in positive direction but the proportion of skilled workers has fallen Most of the service sectors also show opposite growth rates which contrary to the capital skill complementarity literature So, it can safely be said that movements/change in share of skilled workers in the Indian Economy are not caused by skill-complementary technologies being employed Even after high supply of skilled workers, the technological advancements are not converting into employment opportunities for the skilled workers in India It can also be observed that the belief that technological changes will be intrinsically skill complementary, is not a universal fact that may hold for all countries

4 Conclusion and what Lies Ahead

employees needs to be questioned Objective of government policies of vocational education should be to fill the gap between educated and employable (MSDE, 2016) Issue that needs a close scrutiny is regarding financing of the training models where India‟s skill System is government sponsored and government driven Studies have recommended formation of training funds in private sector and funding taking place through private route to attain efficiency Corporates should be compulsorily made to spend 3-5% of their total earnings on skill development of its employees Training funds have existed in several Latin American countries since 60 years for keeping coordination between who finances these funds and who takes the benefits of the same Levy based financing can help in solving problem of free rider and moral hazard as is held by the private sector (Mehrotra, 2016)

1 Need to see growth of formal apprentices where state will play a role Need a rise in internship opportunities

2 Incentivize teachers from private sector to take up training- before sending them for training impartation they should be given some pedagogic training to make them a better instructor

3 Curriculum designing has non-involvement of private sector- states are not ready to let go of their power and lack vision of making a skilled workforce for future Certification process needs to be improved- have stakeholder from all departments

i.e Trade unions, firms and government Currently there is little or practically no work experience requirement before certification of skills Apprenticeship should be made mandatory for certification

5 Placement counseling system is needed to be put in place for not only the ITI pass-outs but improving upon the newly formed LMIS

recommendation as it is practically impossible but steps in making the system more accommodative is needed Curriculum needs to be work based and link between jobs and education need to be reconnected Skill agenda is necessary to be put forward as national and global priority

“The illiterates of 21st

Century will not be those who can‟t read and write but those who cannot learn, unlearn and relearn”- (DSKMAG, 2009)

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