This paper examines the pattern of unemployment and wage growth in India for the last twenty five years. The paper uses the NSSO data on employment, unemployment and wages to examine some controversial propositions e.g. that despite economic reforms, unemployment rates increased or that the 1990s were characterized by “jobless” growth, or that the introduction of reforms in the 1990s led to a sharp deceleration in the rate of growth of agricultural wages. This examination leads to results at a wide variance with the conventional wisdom. Rather than a large slowdown as claimed by several recent studies, real wage growth in the 1990s nearly doubled its earlier pace. Unemployment rates were found to be stable for the 1990s and to have sharply come down by 2003. Employment growth did slow down in the 1990s, but this appears to have been in response to a sharp slowdown in the growth of the potential labor force i.e. the growth in the number of people in the labor force age group, 15-59 years. Thus, instead of a job scarce economy, one strong conclusion of this paper is that India is transitioning from a labor surplus economy to one with lesser surpluses and emerging labor scarcities.

This paper evaluates the performance of the Indian economy on five related dimensions: employment, wages, economic growth, inequality and absolute poverty. The findings run counter to some popular beliefs. For example, rather than a large slowdown as claimed by several recent studies, real wage growth in the 1990s nearly doubled its earlier pace. This finding contradicts the job scarcity conclusion. The two “facts”, low job growth and high wage growth, are reconciled by noting that the growth in the potential labor force declined significantly in the 1990s. Instead of a job scarce economy, one strong conclusion is that India is transitioning from a labor surplus economy to one with lesser surpluses and emerging labor scarcities.