National Council of Applied Economic Research
Opinion: Aakash Dev and Rajat Kathuria.
What is the impact of rapid technological advancements on employment in the Indian economy? In this post, Kathuria and Dev analyse ‘Consumer Pyramids Household Survey’ data to explore this question. They note a consistent decline in the share of low-skilled workers across sectors, along with reduced employment prospects, particularly in the post-Covid-19 era. They advocate for training these workers – especially women – so that they can transition into higher-skill, higher-paying jobs.
In the past few decades – particularly in the post-Covid-19 period – the world has witnessed rapid technological advancements that have revolutionised industries and labour markets. The Fourth Industrial Revolution (‘Industry 4.0’), characterised by artificial intelligence (AI), automation, and the Internet of Things (IoT), is redefining how we work. India, a key player in the global economy, is no exception to this trend. In this scenario, it is critical to assess the impact of technological progress on employment trends in the country.
In our new research (Kathuria and Dev 2024), we analyse recent trends in technological advancements and employment shifts in the Indian economy. Using data from the Consumer Pyramids Household Survey (CPHS) by the Centre for Monitoring Indian Economy (CMIE), we examine developments over the past five years, starting from 2019. Our study reveals two key trends: (i) a consistent decline in the share of low-skilled workers across all sectors (primary (agriculture), secondary (manufacturing), and tertiary (services)), and (ii) an increase in skill intensity, albeit at varying rates across sectors, is observed, wherein low-skilled workers are gradually being replaced by their more skilled counterparts.
The threat of technological displacement looms large over India’s labour market. The pandemic has accelerated automation, prompting many industries to adopt digital tools that reduce their reliance on human labour. While this transition has benefited skilled workers, our research reveals a troubling reality for low-skilled labourers: while automation increases demand for complementary skills, it also brings the risk of job displacement. Without significant intervention, low-skilled workers are likely to be left behind. As businesses adapted to new technologies and remote work arrangements during the Covid-19 pandemic, the decline in the share of low-skilled workers accelerated. Low-skilled workers bore the brunt of this disruption across all sectors – primary, secondary, and tertiary – though at varying rates.
For India, the ability to work with technology is more crucial than the fear of job replacement. In other words, job polarisation, a characteristic of developed and aging economies, has not yet fully manifested in Indian data. However, low-skilled workers are likely to face greater long-term challenges due to growth and the structural transformation of the economy, which is expected to see a further decline in the share of the primary sector.
This shift signifies a broader transformation in India’s employment landscape: skill is becoming the most valuable asset, even in sectors once havens for the unskilled – Figure 1 below shows the changing trend in the skill composition of workers across the three sectors. In agriculture, the share of low-skilled workers declined while medium-skilled workers filled the gap. There was also a notable increase in the employment of medium-skilled and skilled workers in the secondary and tertiary sectors. The tertiary industries saw the highest growth in professional jobs, with over 65% of their workforce now consisting of qualified workers.
Source: Authors’ calculations based on CPHS-CMIE data.
Of late, the demand for skilled workers has risen significantly. The share of skilled and specialist workers has steadily grown across the secondary and tertiary sectors. Our study points out that industries like IT (information technology), financial services, and healthcare have seen a surge in the employment of highly educated workers, those with at least a 12th-grade education or a university degree. Tertiary industries, which include booming sectors like e-commerce, digital media, and online education, have embraced this trend. Over 65% of the workforce in the services sector now consists of skilled and specialist employees. As more industries adopt AI and automation, workers with critical thinking, creativity, and problem-solving skills are becoming increasingly valuable.
Notably, while India is witnessing a rise in skilled labour demand, it has not followed the job-polarisation trajectory of many developed countries. In Western economies, the disappearance of middle-skill jobs has led to a ‘hollowing out’ of the labour market, where only high- and low-skill jobs remain. In contrast, India’s middle-skill segment is growing, reflecting a more balanced evolution of its labour market. There has been an overall upskilling of the labour market.
While employment opportunities have improved for skilled women, gender disparities in employment remain significant. For low-skilled women, the chances of securing employment have diminished dramatically, falling by nearly 50% since 2019. Given the prevailing gender inequalities and the evolving skill requirements in the labour market, low-skilled women face disproportionately greater challenges. These challenges arise both from gender-biased labour market practices and from a lack of the necessary skill set. Our findings indicate that these women are among the most adversely affected groups in the context of these shifts.
However, there is a silver lining. Skilled women are beginning to gain traction in the labour market. Industries like healthcare, education, and digital services provide more opportunities for women with higher education. The rise of remote work and flexible employment options, catalysed by the pandemic, could also boost female workforce participation in the coming years.
Despite the challenges, the findings offer hope. India stands at a crossroads. As the country’s economy continues to grow, it must confront the challenges posed by rapid technological advancement. While the rise of AI and automation presents opportunities for growth and innovation, it also threatens to exacerbate inequality and push low-skilled workers further into the margins. The workers who upgrade their skills have a better chance of thriving in a technology-driven economy. As more sectors embrace AI and automation, the need for complementary human skills will grow. For example, while AI can handle repetitive tasks, it still requires skilled human workers to interpret data, solve complex problems, and design new systems.
There is a need for policy interventions to address the skills gap. Targeted programmes that provide low-skilled workers the training they need to move into higher-skill, higher-paying jobs could mitigate the skill gap. This is particularly crucial for women, who could benefit from skilling initiatives designed to help them enter sectors where they have traditionally been underrepresented.
The views expressed in this post are solely those of the authors, and do not necessarily reflect those of their organisations or of the I4I Editorial Board