Updated: Aug 2
A large population demands a large supply of goods and services, which requires a multitude of competing and collaborating value chains, which implies a need for a large pool of workers. This is why cities have more employment opportunities than do rural areas.
Another way to understand this is to look at where money comes from. It comes from other people’s pockets (Brad Lea). The higher the density of pockets, the higher the concentration of money. Densely populated areas are, thus, pockets of money.
The logic states that India should have ample employment. Why then does India have an unemployment problem? Why is India exporting labour to nations worldwide, many of which have much smaller populations (eg. small EU nations)? To find work, people migrate from small to large populations. Why is the opposite happening?
I have a few theories (not exhaustive):
1. Government hijacking of value chains
In a free market, competing and collaborating private value chains eagerly capitalize on the aggregate demand because they are incentivized by profits. Every consumer they fail to serve is a pocket they fail to earn from. Such unintentional altruism necessitates a massive demand for workers. This demand is proportional to the aggregate demand base.
In centrally planned economies, governments enter various private markets to provide basic services like transport and energy. Since they are not interested in earning from every single pocket, they don't care to serve every single pocket holder. Therefore, they don't need a large pool of workers. At the same time, they drive out private players, often unintentionally, by artificially lowering the price bar. Since private players can't access the state's coffers, many fold away under the pressure. Consequently, the industry operates suboptimally, producing less than it naturally should, generating less employment than it naturally should.
A simple example is Indian Railways. They sell tickets at such low prices that private players cannot compete. Meanwhile, rail tickets get sold out so fast that one has to book twenty to thirty days in advance. Thus, there is unmet demand in the system that can't be capitalized on. In a free market, unmet demand attracts value chains, which creates employment in proportion.
2. Commoditized education
Commoditized education produces bands of homogenous workers (engineers, MBA, etc), who all know relatively the same things and viciously compete for the same jobs, which depresses their wage potential. Their education path becomes their pathhole. Meanwhile, there are labor shortages in occupations that are not funnelled to by the assembly line. This is referred to as skill mismatch. Since humans have a large variety of needs and wants, the market needs a well-diversified set of skills. However, assembly line education produces standardized bands or sets of workers, which creates abundant labor supply in some fields and labor shortages in others.
3. Lack of leadership
This probably is the biggest cause of unemployment in India. Many on the demand side of labor cannot suck up their egos and hire people they dislike. They can't pay workers handsomely to attract and retain them, nor do they want to invest in training and development. In the US, they have several rounds of interviews for jobs that pay barely $10 an hour. All of this creates unnecessary unemployment or labor shortage (when wages are lower than the equilibrium wage, a shortage occurs), which leaders complain about.
4. Social disharmony
Social disharmony causes people to overlook avenues for commerce and collaboration because they are not in close relationships with one another. Sometimes, they can't trust one another enough to exchange goods of value. The principle is the more cohesive relationships a community has, the more people are aware of talents and skills in that community, which allows them to exchange socioeconomic value with one another and generate wealth as a result.
In areas where stakeholders complain about labor shortage, it is not surprising to find postgraduates on the streets. This happens not because the individual is devoid of skills, but because no one knows what he has to offer. Social disharmony can create poverty among massively educated people, while social cohesion can cause prosperity even among the illiterate.
4. Lack of moral development
Social harmony is a direct consequence of lack of moral development. Idolatry has divided the people among religions. Political manoeuvring has produced caste and class divisions. People are becoming more and more lonesome as morality becomes a cultural remnant, a theory. As a result, society has become a collection of unrelated individuals bound by a political and cultural hypnosis imposed by televisions and the internet. They know more people on the internet and television than they do within their own families. This breakdown of the social fabric causes poverty, as explained above.
The list is not exhaustive.