Minister's Job Creation Claim Using Provident Fund Data Is Misleading, say Experts
Increasing employee provident fund subscriptions are a sign of formalisation of existing jobs, but not a definite sign of addition to the country's employment pool, say experts
Union Minister for Railways, Communications, Electronics & Information Technology Ashwini Vaishnaw recently used Employees' Provident Fund Organisation's (EPFO) payroll statistics to claim that an average of about 15-16 lakh jobs are being generated by the Union government every month. Growth in EPFO subscriptions, however, does not represent an accurate picture of employment generation in the country, our fact check has found.
Vaishnaw, speaking at a 'Rozgar Mela' (employment fair) in Ajmer, Rajasthan, said that in April, May, June, July and August, an average of 15-16 lakh jobs were generated every month in the country. The data to support his statement were available on the EPFO [Ministry of Labour & Employment] and the Ministry of Statistics websites, said Vaishnaw.
The EPFO's payroll statistics for September 2022, released in November 2022, shows that an average of 14.52 lakh net subscribers were added to the EPFO payroll every month since April 2022. Net subscribers include only existing and newly added EPFO subscribers.
The net addition to the EPFO payroll this September is nearly 15 lakh – close to the figure that Vaishnaw cited in his statement. Our fact check of Union government reports, however, uncovered the limitations of using EPFO payroll data to represent job creation. Economists we spoke to agreed, adding that such data are often markers of greater formalisation of mostly pre-existing jobs, and not necessarily of new job creation.
What is EPFO?
The EPFO is a statutory body under the Ministry of Labour & Employment. EPF is a labour ministry social security scheme created under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) that enables employees in the organised sector to save a part of their earnings for retirement.
Under the EPF scheme, employee and employer must pay an equal contribution into the fund, paid out as a lump sum amount (with interest) to the employee on retirement.
Any registered entity that has 20 or more employees is required by the Act to deduct EPF. Further, even organisations with less than 20 employees can voluntarily opt to join the scheme, per provisions of Section-1(4) of the Act (Voluntary Coverage).
Why can't new EPFO registrations be linked with job generation?
There are limitations to EPF payroll data being used to extrapolate the number of new jobs added to the economy, according to a 2017 report published by the Union government's policy think-tank Niti Aayog. "An important limitation of these datasets [EPFO, Employees' State Insurance Corporation (ESIC), National Pension Scheme (NPS)] as sources of estimates of job creation is that new entries into these datasets do not necessarily represent new jobs," the report specified.
To illustrate, PC Mohanan, former member and working chairman of the National Statistical Commission, gave FactChecker the example of an establishment with 18 workers, which hires three new workers. "If a firm employs 18 people, and then three more are hired, the organisation crosses the threshold [of 20 or more workers] for EPF registration and the employees become eligible for EPF. This, however, doesn't mean that 21 new jobs are created. Only three jobs are new and the other 18 have merely gotten registered with the system."
For context, nearly three-fourths of employment is in enterprises with less than ten workers in India, according to the 2017 Niti Aayog report, and as much as 93% of India's workforce is employed in the informal sector, per a State Bank of India report from November 2021. Thus, there is a possibility of over-counting jobs when these enterprises cross the 20-employee threshold and register with the EPFO.
"In so far as enrollment in these databases signifies the extension of safety nets to the workers, it can be viewed as formalisation of jobs," the Niti Aayog report said.
A January 2020 Supreme Court judgement has also ensured an increased level of compliance with EPFO registrations, even for contractual workers, pointed out Santosh Mehrotra, Visiting Professor at the Centre for Development, University of Bath, UK. Consequently, this has led to a spike in enrolment with the EPFO, said Mehrotra. The ruling made clear that all employees, including contract workers, who draw wages directly or indirectly from an establishment, are entitled to EPF. Again, these are not new jobs that are being created, only formalisation of existing jobs.
Mohanan added that the EPFO covers only a limited sector of the formal sector as well, as apart from informal workers and workers in enterprises with less than 20 employees, most self-employed workers are also not registered with the EPF.
EPFO data inconsistent and subject to constant revision
FactChecker had reported on a similar claim made by the labour ministry in May 2022. At the time, we had found that one reason for the unreliability of EPFO data is the re-subscription of EPF accounts for the same person – people might switch jobs and open a fresh PF account. Also, having an EPF account does not necessarily mean that the account holder is currently employed.
Another caveat with EPFO data is that these are provisional and subject to constant monthly revision, explained Mehrotra. The Ministry of Statistics also said that the EPFO payroll subscriber data reflect a dynamic status for periods which include the months mentioned by Vaishnaw. To illustrate this, we looked at EPFO net payroll data for the months of April to August 2022, one published in October 2022 and one in November 2022.
The number of net subscribers was not consistent across the two releases for the same months. In fact, the November 2022 data showed a downward revision of the figures released in October 2022 for all five months. The variation across the two datasets ranged from -2% to -9%.FactChecker tried contacting Vaishnaw via email and phone for clarification and comment regarding his statement but did not receive a response by the time of publishing this article. We shall update the story when we receive a response.