Foundamental | India’s blue-collar workers paradox pt 1 (and is it a business opportunity?)

India’s blue-collar workers paradox pt 1 (and is it a business opportunity?)

September 26, 2024

This crucial sector is facing a challenge: an alarming shortage of skilled labor threatens to derail India's ambitious economic goals.

Fabio Bronzin

India’s blue-collar workers paradox pt 1 (and is it a business opportunity?)

The booming demand for blue-collar workers

India's blue-collar workforce, a staggering 450 million strong, forms the backbone of the nation's economy. From plumbers to electricians, construction workers to assembly line operators, these individuals are the unsung heroes powering India's growth. However, this crucial sector is facing a challenge: an alarming shortage of skilled labor threatens to derail India's ambitious economic goals.

In recent years, there has been a remarkable resurgence in the demand for blue-collar jobs, marking a significant shift in India's employment landscape. These roles, traditionally associated with manual labor and skilled trades, are experiencing renewed interest. Industry experts predict that by 2030, a whopping 70% of the 90 million new jobs anticipated in India will fall under the blue-collar category.

This surge in demand is particularly evident in sectors like infrastructure, which saw a staggering 62% rise in job postings between August 2022 and August 2023. However, the same period only witnessed a meager 5% increase in job seeker interest, highlighting a glaring disconnect between job supply and demand.

The largest sectors for blue-collar employment continue to be manufacturing, construction, and retail. Indeed, the Indian government's ambitious infrastructure projects and initiatives like "Make in India" have significantly boosted the construction and manufacturing sectors. Massive investments in highways, railways, and smart cities have created a substantial demand for construction workers, electricians, and other skilled laborers. Moreover, global companies are increasingly adopting a "China+1" strategy, diversifying their manufacturing bases beyond China. India, with its large workforce and improving business environment, has emerged as a preferred alternative. This shift has led to a surge in manufacturing jobs as more companies set up or expand their operations in India.

But there's also a new player in town - electronics manufacturing. This sector is set to explode, with projections indicating a 5 to 6 million increase in jobs by 2026. Why such a dramatic rise? It's likely due to India's push to become a global electronics manufacturing hub, coupled with government initiatives and the growing demand for electronic (and more in general, manufactured) goods both domestically and internationally.

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A widening gap

Despite the booming demand, employers across sectors are grappling with a massive problem: the recruitment and retention of skilled blue-collar workers. Finding individuals with the right skills, qualifications, and attitude is proving to be a Herculean task.

The scale of this problem is staggering. According to recent data, India is facing a shortage of about 150 million skilled workers, up from 138 million in 2020. Key sectors bearing the brunt of this shortage include auto and auto components (35 million), building and construction (33 million), textiles & clothing (26 million), transportation & logistics (18 million), retail (17 million), and healthcare (13 million), among others.

The impact of this skills gap is far-reaching and affects various industries differently. Let's take a closer look at some key sectors.

The construction industry, vital for building physical infrastructure, accounts for more than half of the investment required for setting up facilities like ports, power projects, roads, and bridges. Despite generating a substantial proportion of jobs in the country, the sector is crying out for more welders, construction machine operators, fitters, riggers, and bricklayers. This shortage is severely impacting major players in the industry. For instance, Larsen & Toubro (leading engineering and construction company) recently revealed that it faces a staggering deficit of 25,000 to 30,000 laborers across the group. The company employs over 400,000 laborers skilled in trades like carpentry and masonry across its projects at any given time. In general, the situation is so dire that real estate and construction companies are expected to increase their gig workforce by 11.5% compared to 8.5% in the manufacturing industry.

The manufacturing sector is another area where the skills gap is acutely felt. A survey by workforce and HR management service provider Ultimate Kronos Group, covering more than 300 manufacturers, found that 76% of organizations reported skilled labor shortages hurting their profitability in 2023 – with 35% defining the impact as "severe." About 28% of the organizations witness production delays on the frontline at least once every two weeks due to these shortages. Even sunrise sectors like solar module manufacturing are feeling the pinch. With capacity expected to reach 95 GW by the end of 2025, it's estimated that about 30,000 skill-certified workers will be needed for this sector by the end of FY24. However, the supply is projected to be only about 10,000 skilled personnel.

The food and e-commerce delivery industries, which are expanding at nearly 20% per year, exemplify this crisis. Despite hiring efforts of approximately 500,000 blue-collar workers per month, these sectors can only meet 80% of their needs. The transportation and logistics sector is particularly affected, with trucks sitting idle due to a shortage of drivers.

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The root(s) of the problem

At the heart of this crisis lies a fundamental issue: despite having a sizable workforce, the vast majority of India's blue-collar workers are unskilled or under-skilled. For example, according to recent studies, a staggering 81% of the workforce in the construction sector is unskilled. Only 4.4 million out of 71 million workers in this sector are considered core skilled employees, with an additional 6.9 million vocationally trained workers.

This skills deficit is not unique to construction. Across industries, there's a glaring mismatch between the skills possessed by job seekers and those required by employers. The World Economic Forum estimates that India will need to educate or train almost 400 million people by 2030 to keep pace with its changing economy.

The reasons for this skills gap are multifaceted. First and foremost is the lack of formal skill training. Only 5% of India's workforce has received formal skill training, a stark contrast to countries like the UK (68%), Germany (75%), the US (52%), Japan (80%), and South Korea (96%). This disparity in training significantly impacts the quality and capability of the workforce.

"Brain drain" is another significant issue. Skilled workers are increasingly moving abroad for better pay and working conditions. For instance, the United Arab Emirates alone hosts around 3.4 million Indian migrant workers, followed by Saudi Arabia at 2.6 million, Kuwait at 1 million, Qatar at 750,000, and Oman at 700,000. In fact, there is a significant increase in demand for skilled Indian workers in the UAE: from May 2023 to April 2024, there was a 25% rise in demand compared to the previous year, particularly in sectors like construction and for specific roles such as electricians, plumbers, and technicians. Several Indian states, including Uttar Pradesh, Bihar, Kerala, Tamil Nadu, Rajasthan, and Madhya Pradesh, are becoming major sources of skilled migrant workers for the UAE. The workforce primarily consists of young adults aged 18-30, who make up 50-60% of those willing to take on labor-intensive roles in construction, factories, and warehousing.

A perhaps concerning trend is the shift back to agriculture, which represents a reversal of the structural changes needed for India's economic growth. Indeed, the agricultural workforce has surged by 60 million over the past four years, partly due to a food-welfare program that continues to support hundreds of millions of people. Last year alone, agriculture added 13 million workers, even as manufacturing jobs have stagnated, leaving factories struggling to hire. But consider this: (skilled) workers in small-scale factories in poorer states of India typically earn around 10,000 to 12,000 rupees a month (about $150), with some rural workers achieving similar incomes through a mix of farming, private jobs, and state-run employment programs.

This, in turn, has impacted intra-state migration of workers. Indeed, the migration of blue-collar workers from states like Jharkhand, Bihar, West Bengal, and Uttar Pradesh to other states has decreased by 17-20% in 2023. Some northeastern regions have experienced an even more significant decline of 30-40% in workforce migration to urban areas for employment.

The unorganized labor sector also faces a significant challenge due to the prevalence of short-term contracts through multiple contractors, forcing workers to constantly seek new projects upon completion of their current assignments.

Another factor is the increasing trend among the youth to prefer white-collar jobs over blue-collar roles, despite the growing demand for the latter. This preference is often driven by social perceptions and aspirations, leading to a mismatch between job seekers' preferences and market demands. That's because there's often a negative perception of blue-collar jobs as low-status or 'undesirable' careers among the younger generation. Additionally, young professionals entering these sectors often hold unrealistic expectations regarding the nature of the work, salary ranges, and future job opportunities.

Last, the shift to service sectors is another contributing factor. Service-oriented industries like e-commerce, IT, BPO, security, retail, and hospitality have lured skilled individuals away from manufacturing and low-paying factory jobs with more attractive remuneration packages and perceived job stability.

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The challenges of recruitment and retention

The problem isn't just about finding skilled workers; retaining them is equally challenging.

Most industries are experiencing blue-collar employee churn rates of over 15% monthly, creating a perpetual cycle of recruitment and training. This high turnover not only impacts productivity but also significantly increases operational costs for businesses. The informal nature of employment in many blue-collar sectors further complicates matters, making it difficult for employers to enforce labor regulations and ensure fair working conditions.

Moreover, the current recruitment processes for blue-collar jobs are often inefficient and outdated. Many workers still rely on informal referrals and middlemen to find employment, while local recruiting agencies and labor contractors charge hefty commissions and don't always provide opportunities in supportive work environments.

While numerous platforms (even with strong venture backing behind them) have emerged to address India's blue-collar worker shortage, many of these solutions fall short of tackling the root cause of the problem. A prime example is the proliferation of job-matching platforms that connect workers with potential employers. While these platforms improve labor market efficiency to some extent, they fundamentally fail to address the core issue: the scarcity of skilled workers.

These matchmaking solutions operate under the assumption that the primary challenge is connecting available workers with job opportunities. However, this approach glosses over the fact that many blue-collar positions require specific skills and training that a large portion of the workforce lacks. Simply connecting unskilled workers with employers does not bridge this crucial skills gap. To truly address the blue-collar worker shortage, solutions must go beyond matchmaking and focus on systematic skill development.

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The opportunity amidst the crisis (?)

The blue-collar sector in India is at a crossroads. On one hand, there's unprecedented demand and opportunity. On the other, there's a crippling shortage of skilled workers.

Some companies are already stepping up to address these challenges. For instance, L&T has set up skill centers to train people and get them to sign up for their projects. Other companies are investing in continuous training and development opportunities for current employees to enhance their skills and enable adaptation to evolving job roles and technologies.

While the current situation presents significant challenges, it also opens up enormous opportunities for innovation and entrepreneurship in the blue-collar job market. It's a complex puzzle, but one that offers immense opportunities for those willing to innovate and invest in human capital. Or does it, really?

That's for part 2.