Knowledge paper on

EMPLOYMENT SERVICE IN INDIA

Submitted to

International Labor Organization Bangkok, Thailand

Submitted by

Anshuman Chaturvedi Assistant Director All India Organization of Employers (AIOE) New Delhi, India
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CONTENTS

Abstract CHAPTER 1
INDIA: situation, challenges and opportunities 1.1 Opportunities............... 1.2 Challenges CHAPTER 2 Employment Services in India 2.1. Defining Employment Services. 2.2. Historical Development. 2.3. Current Overview.. 2.4. Performance of Employment Exchanges 2.5. Employment Exchange and LMI.. 2.6. Stakeholder perspective 2.7. Employment Service: Major Constraints 2.8. Proposed Next Steps

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ABSTRACT

The paper tries to look at the status of Employment Service in India using Employment Exchange statistics and reviews of various stakeholders. The aim of the paper is to discuss the factors affecting the performance of Employment Service, and measures needed to improve the same. We find that 1) lack of accurate information with Employment Exchange regarding labor market 2) opening of various public sector and private recruitment agencies 3) ineffective implementation of Employment Exchange (compulsory notification of vacancies) Act, and 4) unemployability of jobseekers registered with Employment Exchange are the key contributing features behind poor performance of Employment Service in India. To strengthen the Employment Service, and for that matter Employment Exchange, it is recommended that the government consider to 1) ensure private sector participation in management of Employment Exchanges 2) link all Employment Exchanges through a web based computer system, creating a virtualjob-market 3) mandate the vocational trainings institutions share the information of trained candidates with EE and 5) to expand the role of Employment Exchange to provide demand driven vocational trainings.

ABBREVIATIONS
CSC: DGE&T: DGR&E: EE: EMI: EU: GDP: ILO: LISD: LMIS: PPP: PPP: US: Common Service Centre Directorate General of Information and Training Directorate General of Resettlement and Employment Employment Exchange Employment Market Information European Union Gross Domestic Product International Labor Organization Labor Information System Division Labor Market Information System Public Private Partnership Purchasing Power Parity United States

INDIA: situation, challenges and opportunities

India is a country of 1.20 billion aspirations1, the 2nd largest after China. It is the 3rd largest in terms of economy ($4.457 trillion) by Purchasing Power Parity2. Its economy is characterized by Agriculture sector employing nearly 52% of the population; Industry sector, giving employment to 14% and Service sector, consuming rest 34%.3 Contribution of Agriculture, Industry and Service sectors in GDP is 17.2%, 26.4% and 56.4% respectively.4 The country, with nearly 49.10% of total population between the age group of 15-24 years, has a distinct advantage of having one of the youngest populations in the world. Nearly 33.90% of its total labor force comes from 15-24 yrs age group alone.5 The country is today developing into an open-market economy. The policies of Economic liberalization, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, have pushed its economic growth to near 7% since 1997. It was nearing 10% between 2005 and 2007. However, the growth in 2011 has slowed because of a range of factors including current EU crisis, persistently high inflation, high interest rates and current state of policy paralysis. It is now estimated to grow at 5.6% in 2012-13.6 The country has capitalized on its large educated English-speaking workforce to become a major exporter of information technology services and software workers. However, still a major proportion of its workforce comes from unskilled-informal workers. Informality has persistently dominated the Indian labor market. The formal labor market employs barely 7 percent of the work force and remaining 93% fall under informal category. There are huge gaps between wages, social security benefits and other welfare measures of formal or informal sector workers, triggering countrywide debates on the subject. Poverty and unemployment remain a serious concern in India. The Planning Commission 2009-10 statistics suggest that 29.8% population of the country lives below poverty line7. However, this figure will shoot up steeply if the current poverty line threshold (less than a dollar a day) is paired with international standards (US$ 1.25). According to a US Department of States study nearly 700 million people in India live on $2 per day or less.8 High unemployment rates, besides factors like corruption, inflation, policy paralysisetc. could be blamed for such a high incidences of poverty. Nearly 40 million people, or around 9.4% of total labor force, are unemployed in India.9 The country stands 93rd in a list of unemployment in 199 nations.10

OPPORTUNITIES
India is currently poised on a huge opportunity to meet the future labor demands of the world. When developed countries are struggling with shrinking domestic demands and capacity challenges in meeting
1 2

Census 2011 International Monetary Fund 3 CIA World Fact Book 4 Ibid 5 World Bank 6 Asian Development Bank 7 Planning Commission of India 8 US Department of States 9 National Sample Survey Organization (NSSO) 10 CIA World Fact Book

them, India, with its huge young demographic dividend, is well positioned to become the sourcing hub of the world. There are estimations that by 2020, roughly 325 million people in India will reach the working age. This will come at a time when the rest of the developed world will be faced with an ageing population. Estimations suggest that by 2020, US will be short of 17 million people of working age, China by 10 million, Japan by 9 million and Russia by 6 million. At the same time, India will have a surplus of 47 million working people.11 The country has a very large pool of young English speaking people to meet the demands of these countries.

CHALLENGES
Despite the advantages mentioned above, India suffers due to a huge skill gap in various sectors. While it is estimated that more than 75% of the new job opportunities to be created in India will be skill based, nearly 98% of its total population has not received any formal vocational training. Such a huge skill mismatch is evident from the fact that more than 67% employers in India today face difficulty in filling jobs.12 Therefore, the biggest challenge before the country becomes to train its youth and get them employment. The Government is therefore, strongly emphasizing on upgrading peoples skills by providing vocational education and training to them. It has formulated the National Policy on Skill Development and set a target for providing skills to 500 million people by 2022. Various stakeholders are involved in this process.

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Knowledge paper on strategic and implementation framework for skill development in India, FICCI, Ernst & Young 12 Manpower Group Research

EMPLOYMENT SERVICES: what do they mean?

Public Employment Services are generally taken to mean as Employment Exchange, career counseling and job search assistance activities to provide Human Resources solutions to the business. Generally, these services are provided free of cost by the governments. However, such a definition fails to capture their role in managing Labor Market Programs in most countries. As defined in ILO Convention (No. 88), Employment Services are specific government entities with a variety of functions supporting promotion of employment, depending on national employment policy and is legislated remit13. In India, Employment Services operate through a network of 969 Employment Exchanges spread across the country.

HISTORICAL DEVELOPMENT
The Employment Service came into existence in India after the Second World War. Towards the end of the war, the need was felt for a machinery which could ensure re-absorption of war workers who were about to be released. Keeping in view the complexity and scale of the problem, it was felt necessary to setup the proposed machinery at the central government level for its effective and uniform coordination across the states. Thus, the Directorate General of Resettlement and Employment (DGR&E) was setup in 1945 and Employment Exchanges were gradually opened in several parts of the country. Till the end of 1946, Employment Service facilities (Employment Exchange) were restricted to demobilized service personnel and discharged war workers. In 1947, consequent upon the partition of the country, the Employment Exchanges were directed to deal with resettlement of a large number of displaced persons from Pakistan. Subsequently, the scope of the service was extended to cover general public in 1948. The transition of the Employment Service from a resettlement agency to an all India placement organization resulted in an enormous increase of work and it was felt that the service needs to be restructured if it was to function as an effective machinery to facilitate employment process. Accordingly, the Government setup Training and Employment Services Organization Committee in 1952 to review the set-up and functions of the Employment Service and to make recommendations for its reorganization. The committee submitted its report in 1954 leading to the present structure of the organization and diversification of its functions in the field of Occupational Research, Vocational Guidance and Employment Market Information. The day-to-day administration of the Exchanges was now handed over to the State Governments; however, the program was still operating under the aegis of Directorate General of Employment and Training (DGE&T).

CURRENT OVERVIEW
National Employment Service, functions within the ambit of Employment Exchanges (Compulsory Notification of Vacancies) Act 1959, enacted within the framework of the ILO Convention No. 88 on Organization of Employment Services. The Act mandates all the public sector establishments and those

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Employment Service Convention, 1948 (No. 88)

non agricultural private sector establishments having 25 or more employees, to notify their vacancies to Employment Exchanges, resulting into a listing of job opportunities across the country. Currently the National Employment Service covers all states and Union Territories through a network of 969 Employment Exchanges14. Out of these 969 exchanges, 81 are located in universities and 43 are special Employment Exchanges for physically handicapped persons. Services offered by Employment Exchanges include Jobseeker registration, placement, vocational guidance and career counseling. Besides, Employment Exchanges also play a lead role in executing Employment Market Information program. The program is one of the most important sources of information about the structure of employment, occupational compositions and educational profile of employees, manpower shortages in the organized sector etc.

PERFORMANCE OF EMPLOYMENT SERVICE

In early years of their inception, Employment Exchanges played a key role in bridging the labormarket gap due to emergence of large number of public sector establishments/ public sector undertakings. However, over the period of time, the effectiveness of Employment Exchanges has reduced significantly, making them redundant in current scenario. According to DEG&T statistics, around 38.82 million (38826900) people were registered with Employment Exchange in 2010. Against the backdrop of such a high volume of job seekers, Exchanges received only 0.71 Million (7,10,000) vacancy notifications from employers; and eventually, only 0.51 million (5,10,000) could find job placement.15 The performance of EE gets even critical while considering the fact around 71.4% of total job seekers registered till December 2009, were between the age group of 20-39the most productive workforce of any nation. This is further shocking to note that such a high degree of unemployment was present in a pool of youth where 76.5% (of live register) were educated.16 The other aspect of data underlining the non-relevance of Employment Exchanges to industrial establishments is that out of meager 0.71 million vacancy notifications received in 2010, around 71.83% came from only two states-Gujarat and Maharashtra. Employers in remaining 26 states did not count upon Employment Exchange services to fill their vacancies. A study Relevance of Employment Exchanges in new millennium, published in 2009, is also critical to understand the efficiency of these exchanges. According to the study, there were only 4 placements per exchange per year out of 37 employment exchanges in Bihar. Assam had an average of miniscule 7 placements per exchange. Andhra Pradesh provided 42 job placements per exchange out of its 31 17 exchanges; and Uttar Pradesh managed to provide 37 placements per exchange from its 90 exchanges. The table below presents a broader picture of the performance of the Exchanges in last five years.18

14 15

Data as on December 31, 2010. DGE&T Employment Exchange Statistics 2011, DGE&T. 16 Ibid 17 Relevance of Employment Exchanges in the new Millennium, March 2009, ASSOCHAM 18 Employment Exchange Statistics 2011, DGE&T

Year

No. of EE

Live Register

2010 2009 2008 2007 2006

969 969 968 965 947

38.82 Million 38.15 Million 39.11 Million 39.97 Million 41.47 Million

No. of jobseekers between 20-39 yrs (Live Register) Number % of live register NA* NA* 28.19 Million 28.21 Million 28.95 Million 29.97 Million 71.4 72.2 72.4 72.3

New registrations

Vacancies notified

Placements

6.18 Million 5.69 Million 5.31 Million 5.43 Million 7.28 Million

0.7 Million 0.42 Million 0.57 Million 0.52 Million 0.36 Million

0.5 Million 0.26 Million 0.3 Million 0.26 Million 0.18 Million

EE: Employment Exchange Live Register: Total number of job seekers as on date NA: Information Not Available

A close analysis of available data clearly establishes the inefficiency of Employment Exchanges in providing employment to millions of registered job aspirants. It also indicates towards the employers dwindling faith in the institution as the number of vacancies notified to EE is too scanty when compared with the volume of total job seekers (live register). However, the performance of EE in placing job seekers against the vacancies notified in a particular year has been little satisfactory (71%, 61% and 52% placed in the year 2010, 2009 and 2008 respectively), underlining their potential in providing employment and presenting a strong case for their overhaul. The data gives the freedom to assume that an increase in volume of vacancies notified to EE will have a corresponding impact on the number of job placements every year.

EMPLOYMENT SERVICE AND LABOR MARKET INFORMATION

The Labor market information in India is collected by a number of agencies including the Labor Bureau of India, The National Council of Educational Research and Training, the National Sample Survey Organization and the Central Statistical Office. Employment Exchanges here play a lead role in executing Employment Market Information program, considered as one of the most important sources of information about labor market. The EMI program collects data from all establishments in the public sector and non-agricultural establishments employing ten or more persons in the private sector. While data on employment in the public sector and non-agricultural establishments in the private sector employing more than 25 persons is collected under the provisions of Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959, the same from the nonagricultural establishments in the private sector employing 10 to 24 persons is collected on a voluntary basis. Data collection is done through Employment Exchange Statistical Returns (12 returns, furnished at different intervals in a year), covering specific fields of activities like registration, placement, number of vacancies notified and placement effected against vacancies notifiedetc.

However, the data collected through EMI program could not be taken as a true reflection of Labor Market situation in India. It is beset with a number of issues including its limited coverage, a not-soefficient data collection methodology and delayed publication of inaccurate reports. The program covers only the formal/ organized sector of the economy, excluding a vast majority of workforce (nearly 92%). This is thus understandable that findings of EMI program are not necessarily applicable to the entire workforce which consists of 92% informal workers. Second, data collection from nonagricultural establishments in the private sector employing 10 to 24 persons is voluntary in nature which, generally, results into exclusion of these organizations from the data. Moreover, publication of Employment Market information is very irregular. Publication suffers due to lack of data with Employment Exchanges and lack of manpower with dGE&T. However, the country is today in the process of establishing a Labor Information Network System at National and Regional levels. The networking program envisages computer networking of all the offices of the Labor Bureau, various state labor departments, the DGET as well as the main Secretariat of the Ministry of Labor. The Labor Information Systems Division (LISD) of the National Informatics Centre is coordinating the computerization program.

EMPLOYMENT SERVICE: Stakeholder Opinion

The People: A common perception about EE among general public is that the institution has today lost its edges. It has completely failed to keep with technological advances, and at the same time, to reach out to job seekers beyond urban boundaries. Broadly the public in general believes that Employment Exchanges are only to provide Jobs. Their role in administrating other services including the Labor Market Information program is completely unknown to people. Besides, this is also a common understanding that Employment Exchanges are meant only for low skills requiring less paid jobs. Therefore, a vast majority of professionals do not register themselves with these exchanges and rather count upon private placement agencies or door-to-door job search. The Government: The government itself is critical to performance of EE. According to DGE&T- since the public sector has set up channels like Staff Selection Commissions, Banking Service Commissions and Railway Recruitment Boards therefore, Employment Exchanges are left with only stray cases at the lower levels of employment. Thus, in the placement side (regular wage employment) the role of Employment Exchanges is definitely going to be not very significant.19 One cannot be more honest than that. The Industry: For Industry, Employment Exchanges are today of little relevance. Most of the industries have set up a separate in house recruitment department, or count upon private placement agencies which offer them a reliable, transparent, technology friendly and swifter service.

19

http://dget.gov.in

EMPLOYMENT SERVICE: MAJOR CONSTRAINTS

Effectiveness of Employment Services, or say Employment Exchanges, has suffered badly due to a whole range of factors including ineffective enforcement of law, poor outreach to job seekers, opening up of private placement agenciesetc. Some of the most critical factors could be identified as: 1. Lack of accurate information regarding labor market: Employment Exchanges lack the accuracy in information regarding demand and supply patterns of Labor market. The Employment Market Information system, run by the Employment Exchanges, is broadly ineffective in most states, with delayed publication of inaccurate Employment Market report. The data collected through EE is full of duplications or eliminations due to following reasons: a. All the job seekers or unemployed do not necessarily register themselves with the Employment Exchanges b. The job-seekers, when find employment through agencies other than Employment Exchanges do not intimate the Employment Exchanges for deletion of their names from the live register. c. Job seekers registered with the employment exchanges are not necessarily unemployed d. Employers do not always intimate the Employment Exchanges about the selection of candidates even when selection is done from the list supplied by Employment Exchanges. 2. Out dated non-transparent, time-consuming service delivery system: Most of the Employment Exchanges are running manually keeping thousands of paper records of bio data of the job-seekers, and select the suitable records matching the recruiting criteria of the employers from that database through manual searching. As a result of such a time consuming process, the employers have to wait for months for getting a list of twenty candidates for recruitment. This leads to employers preference to private placement agencies. 3. Unemployability of the registered jobseekers at the Exchanges: Lack of identified marketable skills among job seekers registered with Employment Exchanges is a key reason behind poor placement records of EE. Available statistics suggest that most of the job seekers (nearly 80%) in employment exchanges are without any professional skill. Since EE do not have any role in providing skill trainings to such candidates, their placement is bound to remain a critical issue. 4. Ineffective implementation of law: of Employment Exchange (compulsory notification of vacancies) Act: a complete disregard to Employment Exchange (compulsory notification of vacancies) Act could be seen as one of the biggest culprits behind dismal performance of EE. A recent Judgment of the Supreme court discourages the employers to go to EE by making it obligatory on the part of the employers to advertise the vacancies in other media and consider candidates not only submitted by the employment exchanges but also those responding to the open advertisements for selection of candidates. 5. Opening up of private placement agencies: According to a rough estimation there must be not less than 800 private placement agencies in the country.20 These agencies have caused a big loss to employment figures of the Exchanges. They have a very limited profile and concentrate primarily on

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http://dget.nic.in/dex/nes.htm

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job placements. Their swifter, transparent and technology friendly services get them preference over government Employment Exchanges. 6. Establishment of public sector recruitment agencies: Another key reason behind decreasing popularity of Employment Exchanges is opening up of various public sector employment channels like Staff Selection Commissions, Banking Service Commissions and Railway Recruitment Boards, leaving EE with only stray cases at the lower levels of employment.

PROPOSED NEXT STEPS

If Employment Exchanges are to survive in the current age of globalization and to serve the national interest fulfilling the aspiration of both the employers and the job-seekers, their restructuring and modernization needs to be paid immediate attention. Given below are some suggestions: 1. The Employment Exchange Act should be amended to develop a Public Private Partnership mechanism for Employment Exchanges. Involvement of private sector in government Employment Exchanges will increase their efficiency. 2. All the exchanges should be linked through a web based computer system (portal) creating a virtual job-market for employers and job-seekers. The access and use of the portal should be easy and user-friendly. Job-seekers should be able to upload their biodata in the portal from the convenience of their homes or through a common service center (CSC) or kiosks. Kiosks may be developed at every technical / professional institute for uploading the biodata. It will not cost much. Employers should have easy access to the portal to select the suitable candidates from the data bank with minimum government control. 3. Employment exchanges should launch some vocational training programs in PPP model for skill development of the job-seekers. It will enhance their employability and eventually, improve the placement record of EE. Government may provide subsidy for both the trainee and training provider for this purpose. 4. Employment Exchanges must be provided with efficient manpower to conduct a primary assessment of the applicants skills and to offer him career counseling. 5. Employment Exchanges must enhance the focus on Skill development and Vocational guidance activities to increased employability of job seekers. 6. Vocational training institutions at district level must be required to furnish the training records (sector wise details of trained candidates) to EE. It will help the EE to supply skilled manpower to the industry. If implemented effectively, these measures would enable the government to link employment exchanges across the country and increase their accessibility. It will also provide an opportunity to better analyze the employment/unemployment trends and provide guidance to the policy.

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