State of unemployment in India

In News

• Recent data from the Centre for Monitoring Indian Economy (CMIE) shows that India’s labour force participation rate (LFPR) has fallen to just 40% from an already low 47% in 2016. 

Key Findings

• The world over, LFPR is around 60%. In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.
• More than half of India’s population in the working-age group (15 years and older) is deciding to sit out of the job market, but also that this proportion of people is increasing.
• Reasons for low LFPR in India: 
  • Poor level of female LFPR: The main reason for India’s LFPR being low is the abysmally low level of female LFPR.
    • As of December 2021, while the male LFPR was 67.4%, the female LFPR was as low as 9.4%. 
    • In other words, less than one in 10 working-age women in India are even demanding work. 
    • One sources data from the World Bank, India’s female labour force participation rate is around 25% when the global average is 47%.
  • Lack of Motivation: People are not motivated enough to find new jobs which can boost their morale.
• Reasons for few women demanding work:
  • Working conditions: 
    • Such as law and order, efficient public transportation, violence against women, societal norms etc — being far from conducive for women to seek work.
  • Job opportunities: 
    • Adequate job opportunities for women are very minimal when compared to men’s.
  • Methodological Error: 
    • The other has to do with correctly measuring women’s contribution to the economy. 
    • Academics have pointed out methodological issues in formally capturing women’s contribution to the economy since a lot of women in India are exclusively involved within their own homes (caring for their family) of their own volition. 

Labour Force ParticipationRate (LFPR)

• The LFPR essentially is the percentage of the working-age (15 years or older) population that is asking for a job.
• It represents the demand for jobs in an economy. 
• It includes those who are employed and those who are unemployed. 
• The Unemployment Rate (UER) is the number of unemployed (category 2) as a proportion of the labour force.

Significance of LFPR

• Advanced than Unemployment Rate (UER): LFPR gives a better picture of the Unemployment prevailing in the country. Merely looking at the UER will under-report the stress of unemployment in India.
• Shows lack of “good” work: LFPR shows how people in the working-age get disheartened from not finding work.

Employment Rate (ER)

• Definition: The ER refers to the total number of employed people as a percentage of the working-age population.
• Significance: By using the working-age population as the base and looking at the number of people with jobs (instead of those without them), the ER captures the fall in LFPR to better represent the stress in the labour market.

Image Courtesy: IE

Growing Working Age Population and Shrinking Jobs: 

• If one looks at the ER data, it becomes clear that while India’s working-age population has been increasing each year, the percentage of people with jobs has been coming down sharply.
• Looking at the absolute numbers makes the stress even more clear. In December 2021, India had 107.9 crore people in the working age group and of these, only 40.4 crore had a job (an ER of 37.4%). 
• Compare this with December 2016 when India had 95.9 crore in the working-age group and 41.2 crore with jobs (ER 43%). 
• In five years, while the total working-age population has gone up by 12 crore, the number of people with jobs has gone down by 80 lakh.

Reasons for Deterioration in the Employment

• Opting out of work: The sharp fall in the LFPR suggests that despite India’s young population, many have simply opted out of the labour force, perhaps feeling let down by the absence of remunerative, productive jobs. 
• Women face more issues: The situation is even more dire for women who had a considerably lower participation rate to begin with. India’s female labour force participation is not only lower than the global average, but also lower than countries like Bangladesh.
• Less Jobs: Post-pandemic, people unable to find jobs remain high among those looking for jobs. Also, the unemployment rate is higher among the younger and more educated. 
• More Informal Sector Jobs: While there are signs of increasing formalisation as indicated by the EPFO data, a substantial share of the labour force continues to remain employed in the informal sector, lacking a safety net.

Way Ahead

• When LFPR is falling as steadily and as sharply as it has done in India’s case, it is better to track another variable: the Employment Rate (ER).
• The labour intensive manufacturing sector can not only absorb the millions entering the labour force each year, but also those moving out of agriculture.
• Gender stereotypes of work have to be removed to bring women at par with working men professionals. 

Source: IE