What Is Tamil Nadu’s Labour Shortage Really About?

What Is Tamil Nadu’s Labour Shortage Really About?

by Muthuraman - Thursday, May 17, 2018 05:09 PM IST
What Is Tamil Nadu’s Labour Shortage Really About?Indian labourers in a factory (Manjunath Kiran/AFP/Getty Images)
  • ‘Acute labour shortage’ is a common refrain heard from all sectors of the Tamil Nadu economy.

    About 40 per cent of the state’s labour force comprises cultivators and agricultural labourers.

    Extraneous factors like alcoholism, freebies and MNREGA are nibbling away at the availability of the state’s workforce.

Acute labour shortage is a common refrain heard from all sectors of the Tamil Nadu (TN) economy – from industrialists, construction companies, cultivators, retailers, restaurant owners – and the issue has taken such large proportions so as to affect fresh investments into the state. At the first brush, it stretches one’s belief to hear about a labour shortage in a state with a population of over 7.7 crore.

To put in perspective, TN would be among the top 20 populous countries in the world if it were a separate country. So where are all these people? And is this problem unique to TN? Are other industrialised states like Maharashtra, Gujarat and Karnataka also facing the same issue? An analysis of the composition of TN’s population, along with key reasons for the shortage at sectoral and policy levels, throw up some interesting insights.

Composition of the Population

As a first step, let us take a closer look at the composition of TN’s population. The total population of TN as on 2016 is estimated to be about 7.7 crore. Of this, about two crore are children below 15 years of age, and about 50 lakh are above 60 years of age, leaving them out of the labour market. That is about 32 per cent of the state’s population, which compares favourably with the national average of 34 per cent.

Of the remaining 5.2 crore (aged 15-59, comprising men and women equally split), about 1.75 crore are women who voluntarily do not enter the labour market.

This again compares slightly favourably with the national average, where over two-thirds of the female population do not enter the labour market. That leaves the size of the “worker” population in TN at about 3.45 crore or 45 per cent of the state’s population. The corresponding figure for all India is about 40 per cent, the difference arising on account of slower population growth in TN (and hence lower share of <15 years) and slightly higher women participation in the TN workforce.

Source: Census Data&nbsp;
Source: Census Data 

So, in spite of having a larger share of the population as workforce, why does TN face an acute labour shortage, which is not very commonly observed in other states?

Before we hazard a guess on the reasons, a closer look at the composition of the workforce is necessary.

Composition of the Workforce

Of the 3.45 crore large workforce in TN, 40 lakh are cultivators (i.e., with own land) and one crore are agricultural labourers (including farm labour, fisheries and animal husbandry), together accounting for 40 per cent of the state’s labour force.

Of the remaining approximately two crore large workforce, the top three sectors are ‘Micro, Small and Medium Enterprises’ (MSMEs), construction sector and retailing, all three being almost entirely unorganised. As of date, about 65 lakh are employed in MSMEs, 40 lakh are employed as construction labourers and about 30 lakh are employed in the retailing sector. These numbers are based on TN government data for the first two, and industry estimates for the last.

As per Census data, about 15 lakh are employed in the public sector, and a minuscule 10 lakh are employed in the organised private sector. The all-India figures (two crore and 1.7 crore respectively in public and organised private sectors) compare well with the reported numbers in TN, based on its share of the population to that of the country.

The official data of unemployed labour is about eight lakh, and the remaining 30-35 lakh are spread across various sectors including self-employed (plumbers, carpenters,maids, drivers, masons, cooks), migrant labour and others.

(Government data)
(Government data)

Based on historical data, as well as peer states’ comparison, there is an active movement of the workforce from agricultural labour towards MSMEs, construction, retail and self-employment, as evidenced by share of agricultural labour to total workforce vis-à-vis the national average.

This is a positive development for the long-term growth of the state. However, certain extraneous factors that are unique to TN are impacting this transition, thereby resulting in labour shortage.

Based on secondary research and anecdotal evidence, the following are the top reasons for the labour shortage that are unique to TN:

a) AlcoholismAbout one crore people in TN are daily consumers of liquor as per independent studies. This is about 30 per cent of the total workforce of the state. Such daily consumption has a direct impact on the ability of the person to work effectively either in an organisation or being self-employed.

The widespread availability of liquor through TASMAC with its 6,800 retail outlets, which is the highest among comparable states like Andhra (4,000 outlets), Maharashtra (6,000 outlets for a 50 per cent higher population) and Karnataka (4,000 outlets) could be attributed to such high degree of alcoholism. Government's dependence on this source of revenue has resulted in stiff growth targets for TASMAC, which in turn results in extended working hours, minimal holidays, shops in prime locations, etc. to meet these targets. The unintended consequences of this on labour availability could have a long-term adverse impact on the economy of the state.

b) Freebies – TN is among the pioneers to devise innovative freebie schemes for almost every section of the population (“from the cradle to the grave” to use a popular phrase used during elections). Ironically, these freebies are enabled by the healthy revenue collection from alcohol taxes (over Rs 30,000 crore is collected as taxes from alcohol every year by TN, by far the highest in the country). Such freebies, while intended to act as safety nets, also has the unintended consequence of reducing the motivation to seek regular employment. Top freebie schemes include canteens (that serves cooked food for approximately Rs 18 per day for all three meals), 20 kg free food grains, free home appliances, laptops, bicycles, free clothing for BPL families, etc.

c) MNREGA (Though this is not a freebie but, given the work expected for the wages paid, it resembles one.) This has resulted in labour shortage across several states. But given that already the share of agricultural labour is lower in TN than the national average, the impact of this has been severe in TN. Over 60 lakh beneficiaries availed MNREGA in TN against a total primary sector workforce of 140 lakh, a whopping 40 per cent share. Such a large share of workforce diverted from agricultural labour for at least 100 days in a year has a significant impact on the labour availability across rural TN.

The other (intended) consequence is that MNREGA has set the wage bar at much higher levels. As MNREGA assures Rs 200 per day in TN for minimal work, the expectations for farm work or other industrial casual labour is at least Rs 300 per day, and even goes up to Rs 450 per day or more during peak seasons. Cultivators and other employers who cannot afford these daily rates end up either mechanising the work or seek temporary migrant labour to get the work done.

d) High Urbanisation – TN is among the most urbanised large state in the country with over 48 per cent of the population living in urban areas (as against 31 per cent all-India average, 33 per cent in AP, 38 per cent in Karnataka, 42 per cent in Gujarat and 45 per cent in Maharashtra).

Such a high degree of urbanisation results in higher labour demand from labour-intensive sectors such as construction and retail, as well as more self-employment opportunities than their rural counterparts. However, the pace of transition from agriculture (which is entirely rural) to construction/retail/MSMEs (which are mostly urban) have not kept pace with the rate of urbanisation, leading to a shortage of labour in many urban centres across the state.

Besides the above, several other qualitative parameters such as micro-market demand-supply mismatch, the mismatch between education and job opportunities, the widespread presumption of low-esteem among youth for jobs in agri/construction sector, etc. also adds to the labour shortage.

To conclude, the labour situation in TN is very delicately poised with various segments of the economy competing for a limited pie. At the same time, extraneous (and eminently addressable) factors such as alcoholism, freebies and MNREGA are nibbling away at the availability of this workforce, resulting in large-scale inward migration of labour from far flung areas such as Bihar, UP, North East and even Nepal.

As most such migrant labours tend to be available for a short duration (18 months on an average), long-term investments cannot be made with the presumption of availability of migrant labour. There is an urgent need to do further research on this subject, and also take policy measures to address these extraneous factors.


1. All population data are extrapolated from 2011 census based on last decadal growth rates and rounded off for ease of reading

2. Minor differences arising out of minors joining workforce within family are ignored in this article. The final conclusions do not change because of this.

N Muthuraman runs Riverbridge, a boutique investment banking firm. He was formerly the director of ratings at CRISIL, India’s premier ratings firm
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