There was a time when switching jobs could only be a dream, but now people can try diverse employment positions in different parts of the world thanks to rapid globalization. This ease of movement in the job market refers to labor market mobility, which is a worldwide phenomenon that happens domestically as well as across international borders.
Geographical and Occupational Labor Mobility
Labor mobility is classified into two categories; occupational and geographical. Occupational labor mobility is characterized by changing job types, whereas the latter refers to the physical relocation for a job. If a person moves to America from an Asian country to work- that will be categorized as geographical mobility, and if a teacher starts working at a bank, this will be known as occupational labor mobility.
Labor movement is a common practice throughout the world; however, it’s not so in India, particularly when it comes to geographical labor mobility. In this article, we will discuss why that is the case in the South Asian country and how it impacts the Indian economy.
India is the fifth-largest economy globally, with an annual GDP of $2.94 trillion as of 2019. The high gross domestic product of the country translates into a larger number of employment opportunities, but even then, a significant chunk of the Indian labor force takes on menial tasks, leaving higher-paying jobs unexploited. The primary reason for the apparent under-saturation of urban job markets is the lack of rural-urban migration, among many others.
Inter-City Migration in India
Despite the deplorable working conditions and low wages in rural India, workers choose to stay in their villages instead of relocating to more developed settlements. Studies show that the rural-urban migration rate in India is remarkably low, and it barely changed (going from 4% to 5.4%) in two decades, starting from 1961 to 2001.
It seems that the working class in the Indian countryside (which primarily constitutes male adults between the ages of 25 to 49) prefers to stay in villages, as verified by a survey conducted in 2005. The 2005 India Human Development Survey reported a migration rate of the male rural-urban population to be 6.8%. As demonstrated by the studies, it is safe to say that India’s rural to urban migration is relatively low, which automatically lowers the rate of geographical labor mobility.
Wide Wage Gap but Higher Cost Of Living
Another reason for a low labor mobility rate between rural to urban settlements is the difference in cost of living. That is why workers don’t move to the cities in India despite a significant rise in average wages.
Statistics show that India has a 45% wide wage gap between villages and cities, which is much higher in comparison to the 10% pay difference in China. But even with such a narrow wage gap, the labor mobility rate in China has been starkly high over the past three decades.
The only logical explanation behind the abysmally low workforce movement in India is the high cost of living in the cities.
Detrimental Insurance Policies
The caste system in rural India is exceptionally strong, which also happens to be the basis of an informal insurance policy mechanism operating in the countryside. Those living in villages receive insurance according to their caste and sub-castes. This means individuals who get a fat chunk of money due to the caste insurance network enjoy that should they move to the city. As a result, workers continue to live and work in rural India.
Labor market mobility can benefit an economy by cutting labor costs, an essential factor in production. However, it looks like India might not be benefitting from it as it possibly can.