State And Structural Transformation Economics Essay

Simon Kuznets Teal,2011 had propounded that economic growing is correlated with a structural transmutation from agribusiness to industry to services. All states belonging to the OECD nine have adhered to this form but the underdeveloped states in an effort to emulate this have non been rather successful, as Ghosh ( 2012 ) points out, the ‘classic ‘ structural alteration does non ever happen even with economic systems with unusually high growing rates.

This leads us to oppugn whether structural alterations in sectoral parts to GDP are accompanied with commensurate alterations in employment constructions or occupational transmutation. Though part of the fabrication or service sectors to GDP has surpassed that of primary sector, employment has been concentrated in primary activities ( agribusiness, excavation, angling etc ) .

This reflects the ‘nature ‘ of economic growing with its skewed distribution and the outlook of traveling people from low skilled informal occupations to skilled formal sector occupations that has been wholly neglected by the growing kineticss.

Following Rostow ‘s phases of the growing procedure, structural transmutation seems like a consecutive procedure where growing in the economic system is characterised by an equal step of addition in employment along with a attendant displacement in employment from the low productiveness to the higher productiveness sector.

Several states like South Korea and several of the Asiatic Liberation Tigers of Tamil Eelams experienced a perfect passage with the employment curve alining towards the fabrication sector. For several developing states this passage has non been successful due to grounds which this paper seeks to look into.

Economists like Nicholas Kaldor ( Alesandrini,2009 ) lay accent on the function of fabricating to accomplish this because it enhances productiveness per worker, as the demand for manufactured goods rise so does income, conveying about the needed alteration in the economic system and the constitution of industrial societies.

Due to unavailability of informations, the paper is based on India, analyzing the being of high growing and low employment which is a state of affairs prevalent in several developing states. In subdivision 1, the paper will analyze the nature and type of capital prevailing in developing states under Liberalisation, Privatisation and Globalisation. Section 2 will analyze the impact of this capital on employment and turn to the paradox of high growing and low employment.

Nature of Investing:

The contours of investing have changed over old ages in all underdeveloped states. Fabrication was initiated under a statist theoretical account called ‘Import-Substituting Industrialisation has given manner to a neo-liberal province with the backdown of the authorities control in this sector. Structural transmutation in many of these states has been marked by structural reforms with the influx of foreign capital. The WDR ( 1995 ) refers to this capital as fleet-footed capital which forges an confederation between the developed and the underdeveloped universe.

Foreign capital has been traveling in at unprecedented degrees and capital has manifested higher mobility than labor. The pouring in of capital has been through two ways, viz. : FDI and FII. Developing states have been doing several efforts to bolster their investing certificates and rope in investing in these two formats. Governments have been offering several to win the investor ‘s assurance and this includes relaxation of several labour statute laws.

Sing the Indian growing narrative, the part of agribusiness and allied sector has declined from 53.1 % in 1950-51 to 13.9 % in 2011-12. The portion of the fabrication sector has increased from 16.6 % to 27 % and for services has jumped from 30.3 % to 59 % for the same period. ( Beginning: Indian Economic Survey, 2012 )

Nature of Employment:

Continuing the Indian growing narrative the employment image is the opposite: the portion of employment in the primary sector has declined marginally from 71 % to 54 % ( 1951- 2012 ) . For the industrial and service sectors are 14 % and 34 % severally. The growing procedure has been led by the service sector since the last decennary and policy has a batch of outlooks from this section of the economic system.

Ironically, the sectors which contribute the most to the GDP ( Information & A ; Technology, communicating and telecom ) history for a miniscule portion of employment. Critics would indicate out that the kineticss of growing have failed to convey about an enlargement of the fabrication sector, conveying about an existent structural transmutation.

Employment has grown at an mean rate of 2 % which has worsened to about 1 % post- 2000. Employment across all developing states has accounted for an norm of 1.5 % ( ILO informations ) . Employment growing in India has decelerated which is reflected as a paradox – when GDP grew at 4.7 % in 1972-73, the employment growing was 2.4 % but in 2009-10 as the GDP growing rate shot up to 8 % , employment grew at 0.22 % ( Papola & A ; Sahu, 2012 ) .

Another factor to be considered is employment snap. Employment snap the ratio of employment growing to growing in value added ) has declined over old ages.

Table no.1: Employment snap across all sectors in India


Employment snap









Beginning: Papola & A ; Sahu ( 2012 )

The above tabular array indicates that the 1991-reforms have non led to just distribution of the benefits of exponential growing and the phenomenon of ‘jobless growing ‘ prevails with a broad spread between GDP growing rate and employment growing rate.

The primary failure of the growing procedure has been the inability to travel people out of low-productivity primary activities to high-productivity fabrication and third activities. The classical theoretical account of growing particularly the Lewis theoretical account developed by Arthur Lewis had propounded a complete transmutation of labor from the traditional sector to the modern, capitalist sector ( Todaro & A ; Smith, 2012 ) .

Lewis envisages that with a higher pay rate in the modern industrial sector, the supply curve of labor would be elastic and lead to employment enlargement with investing and capital accretion ( the excess capital enhanced in subsequent phases ) . This procedure would go on until all the excess labor from the traditional sector is absorbed and a transmutation takes topographic point to modern industry. However, the employment scenario points to the contrary, with increased investing labor productiveness has been enhanced without a significant transportation of labor from the ‘traditional ‘ to the ‘modern ‘ and therefore, negligible employment enlargement.

Ghosh ( 2012 ) points out that the ground behind low employment snap is that the fabrication sector has non expanded as desired. The fabrication sector has expanded non in the formal, organized sector but in the informal sector. The being of a double labor market has disguised the possible ‘claim ‘ of an addition in employment chances with outpour of capital.

Table 2: Employment in the organized sector


Employment Growth rate in the Organised Sector ( % )















Beginning: NSSO ( 61st Round )

The employment growing rate over the old ages has declined except in the 2005-08, formalizing the point made above that the organized sector has non witnessed enlargement over the old ages.

Percentage Distribution of Informal/ Formal employment

Table 3.1: Informal Workers


Informal sector

Formal sector










Table 3.2: Formal Workers


Informal Sector

Formal Sector










Table 3.3: Sum


Informal Sector

Formal Sector










Beginning: NSSO ( 61st Round )

Detecting the information given in tabular arraies 3.1, 3.2 & A ; 3.3 ; the formal sector has been shriveling in its presence though it improved somewhat in 2009-10. That leaves approximately 84 % of the labour force in the informal sector without any occupation stableness or societal security. Even in the formal sector, the portion of ‘informal workers ‘ has been increasing. The rise of the informal sector with the ushering of new capital has been a noteworthy characteristic of employment form in the current epoch.

Traveling by the classification of employment we can state that in India self-employment constitutes the largest portion of employment. Though it has reduced in the procedure of modern economic development it still accounts for a big portion and is a portion of the informal sector. The other two classs are regular pay employees protected by occupation and societal security and insouciant labor. Casual labor is bearing the brunt as they are hired on a contractual footing and in 2004-05 approx. 32 % were gaining less than the poorness line income.

Table 4: Classs of Employment

















Beginning: NSSO ( 61st Round )

Harmonizing to Jan Breman ( 1997 ) , the conventional position that formalization of labor Begins with a rise in per capita incomes is a myth. Even though the province and international administrations speak in favor of formalization of work the policies formulated by them loosen up regulations and ordinance delivery in an component of flexibleness which perpetuates dualism in the labor market. In fact, the formal sector remainders on the ace construction of the informal sector.

An betterment over the classical Lewis theoretical account, the Harris- Todaro theoretical account, captures the informal sector, explicating the migration form of labor from rural to urban countries where the informal sector is seen as a gateway to the formal sector. The Harris-Todaro theoretical account ( Todaro & A ; Smith,2012 ) which considers migration on the footing of expected income topic to a low chance is rather applicable as there is really small mobility from the informal to the formal sector.

Wagess and features of Indian the Labour Market

In India the labor market being extremely imperfect, rewards are non determined by the demand-supply mechanism. The ‘dual ‘ labor market with increasing informal labor exists to cut down rewards costs, save periphery benefits and societal security cyberspace. Regular workers are being replaced by insouciant labor.

There has been a lifting pay inequality with a limited demand for entirely skilled labour skill-biased technological alteration. Table 5 and Table 6 reflect the prevailing inequality in rewards in different sectors: –

Table 5: Wage Inequality by Sectors in India

Average pay ( in rupees )

Employment Share ( % )

Gini Index

Public Sector




Private formal sector




Informal sector




Beginning: Das ( 2012 )

The pay inequality across the three sectors shows that the informal sector earns below subsistence rewards and is largely engaged in low-productive activities. They are paid less than tierce of the formal sector pay. The GINI index bespeaking the grade of inequality is rather high for the informal sector but the formal sector witnesses the highest inequality due to the presence of informal workers in the formal apparatus ( Table 3.2 )

The Indian labor market has non been able to accomplish structural transmutation with the outgrowth of a double labor market. The transmutation can be illustrated by the undermentioned function-

Tt= degree Fahrenheit ( Mt, At, vitamin E )

Where Tt= Number of workers transferred from agribusiness to Manufacturing sector at time’t ‘

Mt= Number of workers in the fabrication sector at time’t ‘

At= Number of workers in the Agricultural sector at time’t ‘

e= the size of the informal sector

The above map explains the failure of transmutation in India. The informal sector being portion of the map is a cardinal displacement in the economic discourse.


A serious reappraisal of the province demands to be done to convey about a structural transmutation of the economic system from a traditional to a modern, industrial one. An enhanced labor market is required to finish this procedure, where demand and supply of labor is non constrained by other societal, political and cultural factors.

Capital come ining the markets of developing states should non be allowed to impact the kineticss of another market, the labor market. With an outgrowth of a public assistance province in several parts of the universe, the province should non try to curtail the size of the formal sector and convey the informal sector under a new model promoting an organized and formalised labour force.

The inequalities in footings of rewards and working conditions must be addressed when pay derived functions account for a important portion. The pay derived functions are the premier ground why employers and houses encourage contractual and insouciant labor to convey down pay costs, and other societal security steps to convey down fringy costs and be competitory.

The province must present a mechanism to include the part of the informal sector to the national income accounting. This exercising would assist explicate the paradox of a idle economic growing. The growing initiated under a new moving ridge in most of the development and under-developed states has failed to convey about a structural alteration as workers continue to prosecute in self-employment instead than regular, pay employment.