Labour Market Policies for Equitable Economic Growth and Job Creation

Employment is more than just a means of livelihood—it is the foundation of economic development, social stability, and human dignity. As countries strive to accelerate growth and reduce inequality, the role of labour market policies becomes central to the discussion on inclusive development. These policies, when thoughtfully designed and implemented, can create jobs, improve job quality, and ensure that economic growth translates into broad-based prosperity.

In a world grappling with multiple transitions—from the rise of the gig economy to the challenges of automation, from global health crises to demographic shifts—the need for responsive, resilient, and equitable labour policies has never been greater. For developing countries like India, with a young and growing workforce, the opportunity is immense—but so are the challenges. Without the right interventions, millions risk being left out of the formal economy, perpetuating cycles of poverty and informality.

Understanding Labour Market Policies

Labour market policies refer to the set of government strategies aimed at improving the functioning of labour markets. These are generally categorised as:

• Active labour market policies (ALMPs): Designed to increase employability and facilitate employment, such as job training, placement programmes, and wage subsidies.
• Passive labour market policies: Provide financial assistance through mechanisms like unemployment benefits and pensions to ensure income security.

These policies play a key role in shaping employment patterns, influencing wages, and protecting worker rights. As the nature of work evolves, so must the mechanisms that govern it.

Key Challenges in the Labour Market

Modern labour markets, especially in developing countries like India, face numerous structural and emerging challenges. Despite the demographic advantage of a young population, translating this into productive employment remains a critical policy challenge.

• High youth and female unemployment: According to the Periodic Labour Force Survey (PLFS) 2022-23, India’s youth unemployment rate (age 15–29) stands at 12.4%, with educated youth facing even higher rates. Meanwhile, female labour force participation, though slightly improved, remains low at 37%, reflecting persistent socio-cultural and structural barriers.
  
• Informality and lack of protections: According to the ILO India Employment Report 2022, over 90% of India’s workforce is employed in the informal sector, lacking access to formal contracts, health insurance, or retirement benefits. This significantly reduces income security and resilience during economic shocks. 
  
• Skills mismatch: A study by NITI Aayog and MSDE revealed that only 47% of India’s youth are employable as per industry standards, indicating a stark gap between educational outcomes and job market needs. Many graduates are either under-skilled for high-productivity jobs or overqualified for available roles, leading to underemployment.
  
• Urban-rural job divide: The PLFS shows that urban unemployment (6.6%) is significantly higher than in rural areas (3.2%), not because there are more jobs in villages, but because urban jobs demand higher skills and are harder to access without migration. Meanwhile, rural employment continues to be dominated by agriculture, with limited opportunities for value-added or formal sector jobs.
  
• Technological disruption: Automation and AI are expected to displace nearly 69% of jobs in India’s IT and BPO sector over the next few years unless there’s significant investment in reskilling and digital readiness. Similar trends are seen in manufacturing and logistics, putting low- and mid-skilled jobs at risk.

Essential Labour Market Policy Interventions

To address these challenges, a multidimensional approach is needed:

• Active Labour Market Policies (ALMPs):
  Job training programmes, wage subsidies, and job-matching services can significantly improve employability. For instance, Pradhan Mantri Kaushal Vikas Yojana (PMKVY) aims to train over 10 million youth in market-relevant skills.
• Passive Labour Market Policies:
  While short-term in impact, unemployment benefits and insurance schemes offer a safety net during economic shocks, especially critical in times like the COVID-19 pandemic.
• Skill Development Initiatives:
  National programmes like Skill India Mission focus on upskilling workers across sectors. However, more emphasis is needed on soft skills, digital readiness, and lifelong learning.
• Labour Code Reforms:
  India’s recent simplification of labour laws into four labour codes aims to make compliance easier for businesses while ensuring social security for workers. However, their success will depend on effective implementation and stakeholder consensus.
• Inclusive Employment Policies:
  Gender-sensitive recruitment practices, protections for gig and platform workers, and incentives for hiring people with disabilities are essential for equitable participation.

Global and National Best Practices in Labour Market Policy

• Germany’s Dual System of Vocational Education and Training (VET) is globally regarded for its success in integrating education with employment. Trainees split their time between classroom learning at vocational schools and practical training at a company, typically over 2–3 years. This results in a highly skilled workforce with a smooth school-to-work transition and one of the lowest youth unemployment rates in the EU (around 5.7%).
  
• Denmark’s Flexicurity (flexibility + security) Model provides easy hiring and firing laws for employers, balanced by generous unemployment benefits and strong investment in active labour market policies like reskilling and job placement. This model ensures both economic dynamism and worker security, enabling labour mobility and social cohesion.
  
• India’s Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is one of the world’s largest public employment programmes. It legally guarantees 100 days of wage employment per year to every rural household willing to do unskilled manual work. It has helped reduce rural poverty, prevent distress migration, and act as a shock absorber during economic downturns and climate events. In FY 2022-23, over 25 crore person-days of work were generated.
  
• Launched in 2012, Rwanda’s YouthConnekt combines digital skills training, access to finance, mentorship, and civic engagement for young people aged 16–30. It has supported over 250,000 youth and helped create thousands of new jobs and youth-led enterprises. The programme has now expanded to several other African countries through the YouthConnekt Africa Hub, backed by UNDP.
  
• Singapore’s SkillsFuture is a national movement to promote lifelong learning and upskilling. All citizens aged 25 and above receive SkillsFuture Credit, which they can use to pursue approved courses in emerging sectors like AI, healthcare, and green energy. The initiative supports workforce adaptability and has trained over 500,000 individuals annually.

The Role of Data and Technology in Labour Policy

Technology can be a powerful catalyst for designing responsive, inclusive, and future-ready labour policies. It enables both macro-level planning and micro-level targeting of interventions.

• Real-Time Labour Market Intelligence – Datasets like India’s PLFS or global tools like LinkedIn’s Economic Graph offer real-time insights into sectoral employment trends, geographic shifts, and emerging occupations—enabling data-driven policy decisions.
  
• Predictive Analytics – AI-powered forecasting models help predict future skills demand, guiding the design of anticipatory skilling programmes. For example, the World Economic Forum’s Reskilling Revolution identifies high-growth job roles and skill gaps in key economies.
  
• Digital Labour Platforms – Gig and platform-based work (e.g., Urban Company, Swiggy, Zomato, Uber) has changed the nature of employment. While offering flexibility and access to work, these models raise concerns around job security, insurance, and fair wages, urging a relook at labour laws and protections for gig workers.
  
• Blockchain and Digital Credentials – Innovations like blockchain-based skill passports or verifiable digital certificates (e.g., on platforms like Credly or India’s DigiLocker) allow workers to portably showcase skills and credentials across employers and geographies, enhancing job mobility and trust in informal economies.

The Path Forward: Principles for Equitable Job Creation

To promote inclusive and sustainable job creation, policymakers should take a human-centered approach that prioritises marginalized and vulnerable groups. Supporting Micro, Small, and Medium Enterprises (MSMEs) and fostering entrepreneurship is essential, as these entities are the backbone of employment in India. Additionally, investing in green and digital jobs can help future-proof the workforce. Finally, strengthening collaboration among the government, private sector, and civil society will be crucial for achieving systemic and lasting impact.

Policymakers must recognise labour policy as a dynamic field—requiring continuous reform, real-time data, and global cooperation. The focus should not only be on job creation but on quality jobs that offer dignity, security, and opportunities for growth. As India gears up to become a $5 trillion economy, ensuring that its workforce is future-ready and fairly included is non-negotiable.

About ISPP and Its Role in Shaping Labour Policy Experts

The Indian School of Public Policy (ISPP) is committed to nurturing a new cadre of policy leaders equipped to address India’s evolving labour market challenges. With a curriculum that blends academic rigor, experiential learning, and interdisciplinary thinking, ISPP trains its scholars to apply analytical, economic, and behavioral frameworks to real-world problems.

Through case-based learning, policy labs, and mentorship from industry and government leaders, students gain hands-on experience in tackling pressing issues like youth unemployment, informality, skills gaps, and job creation in the digital economy. ISPP’s emphasis on data literacy, evidence-based policy design, and stakeholder engagement ensures its graduates are well-prepared to craft impactful labour policies that drive equitable economic growth and inclusive development.

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