State governments that are giving up on employment exchanges should inform themselves about the work of last year’s Nobel Prize winner, Peter Diamond. Diamond demonstrates why employment exchanges are an important and necessary labour market institution.

With some application of mind, it should be possible for the Centre and States to mitigate the unemployment and unemployability crisis, by devising means to match demand and supply. An exchange not only provides information to employers and job-seekers, but can also act as a counselling and training centre for the latter, readying them for the demands of the workplace.

There is an obvious matching problem in the economy — how does a youngster in Hissar find a job in Delhi? Or, how does an employer in Thane find a perfect potential employee from Nashik? This matching problem is amplified in India because of our skewed geography of work; we only have 35 cities with more than a million people (China has 250), besides 6 lakh villages (2 lakh of them have less than 200 people). In the short run, India needs to take people to jobs. This function calls for employment exchanges.

We have 1,200 employment exchanges, which last year provided 3 lakh jobs to the 40 million people registered. Every year, about 40 lakh new job seekers register with employment exchanges across the country, but most do not receive any job offers or interviews.

The causes of the poor performance of employment exchanges are: governments, States and Centre, are not recruiting; a Supreme Court judgment put an end to their role as a monopoly institution; unemployability is a bigger problem than unemployment per se , which means that matching demand and supply has to evolve as a important role of exchanges; and the private sector’s participation has introduced a different approach to providing the service.

India’s skill crisis — more than 58 per cent of our youth suffer some degree of unemployability — is emerging as a binding constraint on India’s growth. This is a large challenge because, besides the labour supply flow (10 lakh kids will join the labour force every month for the next 20 years), we have to worry about stock — the 200 million people who are already in the labour force, trapped with low skills and productivity. The issue is to revamp employment exchange to address these challenges.


Public-private partnerships for employment exchanges were put on the agenda in a Budget speech more than three years ago. But like most government plans, this project is mired in Centre-State differences. The Centre feels that employment exchanges suffer from a technology deficit, while State governments view the issue as one of governance and performance management, and have concluded that they are better off shutting them down.

The Centre may have misdiagnosed the problem, because fixing employment exchanges requires a lot more than technology. They need to be run with a service mentality, with proper management systems in place, strong employer linkages and a deep understanding of vocational training.

State governments, too, are wrong in believing the employment exchanges can be closed down, because job seekers need a physically accessible lighthouse for career services information and delivery.

The traditional notion of employment exchanges with a binary outcome — you either get a job or don’t — does not apply to the current situation. They do nothing, except for registering job seekers; they do not have easily accessible and well-organised databases, and are not proactive.

However, most exchanges are situated in easily accessible locations, have decent infrastructure (though not properly maintained), and awareness of the exchange among candidates is high. Policymakers can use the existing infrastructure, so that neither the government nor the private party invests too much in hardware (infrastructure and other capital intensive requirements), but instead diverts resources to software (people, processes, technology, output).


Employment exchanges need to transform themselves at two levels: governance and services. We need to reform their governance through PPPs and re-create them as career centres which would offer five services: counselling, assessments, training, apprenticeships and jobs.

Assessments are important to judge the job seekers’ strengths, weaknesses and aptitudes. This would help counsellors match existing skills with the job seekers’ aspirations. Providing skill development programmes at the career centres will improve the workplace productivity of job seekers. Apprenticeship is important because ‘learning by doing’ and ‘learning while earning’ are wonderful vehicles for skill development, but India only has three lakh apprentices (much smaller countries such as Germany and Japan have six and 10 million, respectively).

Finally, employment exchanges need to become credible clearing houses for job seekers and employers. The PPP contracts should not only incentivise them for their performances, but rank or rate them by performance so industry, parents and students can make informed decisions.

Some States have started moving forward. Karnataka has taken the lead by converting nine of its 29 exchanges into institutions with private partners that offer assessments, counselling, training and jobs.

Many of these have demonstrated results over the short period. They also provide training to candidates, and the courses imparted (these include English, soft skills, finance, IT hardware, and sales) are based on local demand from employers. They convert the process of finding jobs from the episodic job melas to an ongoing one.

India’s demographic dividend will become a demographic disaster if our 3Es (education, employability and employment) are poorly managed. While the reform of universities and schools can take a long time, the reform of our skills system and employment exchanges is do-able, urgent, and in the hands of State governments. Any takers?

(The author is Vice-President of Teamlease-IIJT.)