India’s unemployment challenge can’t be tackled by doles as usual

Source– The post is based on the article “India’s unemployment challenge can’t be tackled by doles as usual” published in the “mint” on 14th September 2023.

Syllabus: GS3 – Indian Economy – Employment

News– The article explains the issues of higher unemployment rate among the youth population.

What does the statistics say about the employment scenario in the country?

According to this PLFS data, there has been a consistent improvement in the employment situation from 2017 to 2021. Both labour-force participation and work-force participation have increased during this period.

If we contrast the data with the previous five-year survey on employment and unemployment conducted in 2011-12, the situation in 2021-22 appears markedly improved.

But, Indian unemployment rates are higher than they were in 2011-12. The gap was particularly pronounced in 2017-18 but has since narrowed.

Unemployment rates are higher in all categories. In the case of rural males, unemployment has doubled since 2011-12.

What is the conventional explanation for higher unemployment rates?

India’s demonetization of high-value currency notes in November 2016, and GST introduction in 2017, had a lasting impact on the economy, especially its informal sector. This is believed to contribute to the high unemployment rate.

Both demonetization and the COVID-19 pandemic led to significant reverse migration from urban to rural areas. It resulted in increased reliance on agriculture.

Why do the conventional explanations for higher unemployment rates do not seem to be appropriate?

Neither of these explanations is supported by the available data.

The number of people identifying as “self-employed” is higher now than in the past.

Economists recognize three categories of self-employed workers: own-account workers , employers, and workers in household enterprises. Own-account workers and employers can be considered proxies for informal sector enterprises.

In 2011-12, 52.2% of workers described themselves as self-employed. By 2021-22, this figure had increased to 55.8%.

Considering the increase in the population between 2011-12 and 2021-22, the data suggests a significant rise in the number of informal businesses.

The Periodic Labour Force Survey provides information on the average monthly earnings of self-employed workers.  These figures indicate an increase between 2017 and 2022.

This suggests that the severe adverse impact of demonetization and GST on employment is unlikely to be the primary cause of the rise in India’s unemployment rate.

The argument of reverse migration also does not hold up under scrutiny. In 2021, a special exercise within the PLFS assessed the impact on migration.

The results indicated that the migration rate in 2020-21 was nearly the same as that in the National Sample Survey’s 64th round in 2007-08.

Additionally, the proportion of workers in “usual status” describing themselves as primarily engaged in agriculture had decreased between 2011-12 and 2021-22.

What are the possible reasons behind higher unemployment rates in India?

Higher educational level among youth– Youth unemployment has increased significantly from 2011-12 to 2021-22, nearly doubling during this period.

As educational attainment improves, more educated individuals are less inclined to accept unskilled jobs.

Expansion of social security measures- The government has increased the distribution of food under the National Food Security Act.

This reduces the pressure on individuals to immediately seek employment. It allows them more time to “search for work,” which contributes to the increase in the unemployment rate.

Additionally, direct cash transfers to farmer households and certain vulnerable population groups have also served as support mechanisms.

Therefore, the rise in unemployment can be attributed to structural changes in the economy.