India’s Falling Unemployment Rate

In News

Recently, the latest annual report of the Periodic Labour Force Survey (PLFS) has been released by the National Statistical Office (NSO).

About the Survey

• The PLFS is an annual survey conducted by the NSO.
• It was started in April 2017 and it essentially maps the state of employment in the country. 
• In doing so, it collects data on several variables such as the level of unemployment, the types of employment and their respective shares, the wages earned from different types of jobs, the number of hours worked etc.
  • Earlier this job was done by Employment-Unemployment Surveys, which were conducted once in five years.
  • Unemployment rate is defined as the percentage of persons unemployed among the persons in the labour force.
• Data Collection: There are two ways and they differ in terms of the reference period. 
  • Usual Status (US): In this approach, the survey ascertains whether a person had been employed for enough days in 365 days preceding the survey.
  • Current Weekly Status (CWS): In this, the survey tries to figure out whether a person was adequately employed in the seven days preceding the survey.
• The first annual report (July 2017-June 2018) was released in May 2019, showing unemployment at 6.1 per cent.
  • This edition created much controversy when it showed that India’s unemployment rate had touched a 45-year high.
  • The government tried to run down those findings as it was facing a national election in 2019 but eventually accepted the data after the elections.
• The second annual report (July 2018-June 2019) was released in June 2020, which showed an unemployment rate of 5.8 per cent.
• The third annual report on the PLFS was conducted by the NSO between July 2019 and June 2020.
• Unemployment in India
  • According to an estimate, between 2011-12 and 2017-18, the total employment (in absolute numbers) declined by 9 million, the first time in India’s history when the total employment itself had come down.
  • In a nutshell, India had two major concerns about unemployment.
    • Firstly, a low LFPR, which means the proportion of people in the working-age who seek to participate in the economy is considerably lower than other economies. The main culprit here is the extremely low LFPR for women in India.
    • Secondly, despite a low LFPR, India’s unemployment rate has been quite high.

Major Findings

• The unemployment rate fell to 4.8 per cent in 2019-20.
• The Covid-19 pandemic hit the economy hard in March-April 2020 and made the unemployment worse.
• According to the Centre for Monitoring of Indian Economy (CMIE), the monthly jobless rate for March 2020 was 8.75 per cent, which rose to 23.52 per cent in April 2020, then came down a little to 21.73 per cent in May and in June 2020, it was 10.18 per cent.
• The report shows that in 2019-20, India’s Labour Force Participation Rate (LFPR) improved marginally and the unemployment rate went down, meaning improved employment chances.
  • This is quite surprising as since 2019-20 saw the Indian economy’s GDP grow by just a paltry 4.2 per cent.
• Two ways have been provided to reconcile the trend of rise in LFPR and the fall in the unemployment rate.
  • First, with reference to the Usual Status-based data, both the rise in LFPR and the apparent fall in the unemployment rate can be explained by the rise in distress.
    • If one looks at the other tables in the annual report one finds that increased labour force participation rate is happening because work opportunities have shrunk and incomes have fallen.
    • People are being forced to take up self-employment, often designated as “helper in household enterprise”, even as the relative share of wage (or salaried) employment falls.
  • Second, the unemployment data based on CWS shows that unemployment did not really fall.
• Different surveys have different metrics and while the magnitude may differ across surveys, the direction remains the same.
  • The Usual Status is the only one that is showing a reversal in the unemployment trend.
• Through the year 2019-20, as the GDP growth faltered, the LFPR was falling further even as the unemployment rate worsened.
  • This is particularly true for the April to June quarter of 2020 when the Indian economy was hampered by strict lockdowns.

Suggestions

• Typically, the NSO unemployment number most routinely quoted is the one based on Usual Status.
  • However, this approach is not comparable with either the global norm (for example, the one followed by International Labour Organization or ILO) or the private sector practice (like the surveys done by the Centre for Monitoring Indian Economy or CMIE).
• It has been suggested that India should focus more on unemployment numbers derived from CWS.
  • The reason for this is that memory recall is much better in CWS.
  • Moreover, the nature of the Indian economy has changed.
    • The year-long reference period of Usual Status made more sense when the economy was predominantly agrarian but now more people are into jobs that do not follow a year-long schedule.
• The CWS is closer to the global norm and is also more relevant because it is this approach that the NSO uses for understanding quarterly changes in unemployment.
  • If the unemployment rate and LFPR trends are compiled using the CWS approach, the emerging picture will be more in sync with either the data from CMIE or indeed all the other indicators of the broader.

Source: IE