Can unicorns solve the country’s youth unemployment problem?

Synopsis: Unicorns can make some impact and lessen youth unemployment, especially in urban India, but they can’t solve the country’s problem of job scarcity.

Introduction

In August 2021, India’s unemployment rate stood at 8.32%, worse than July’s rate of 6.96%, but similar to the rates recorded in August 2020 and August 2019, which were at 8.35% and 8.19%, respectively.

The trouble is that these broad numbers hide some major issues.

What are the hidden issues with the unemployment data?

There are two major issues:

i). India’s labour participation rate has been falling over the years. It was at 40.52% in August 2021. In August 2016, it had stood at 47.26%.

The labour participation rate is the size of India’s labour force as a proportion of the population aged 15 or above.

As per the CMIE formula, the labour force consists of people who are aged 15 years or more and are employed, or are unemployed and actively looking for a job. Hence, to be counted as unemployed, just being unemployed isn’t enough.

What does a falling labour participation rate indicate?

It shows that many individuals have stopped looking for a job and have simply dropped out of the labour force after not having been able to find one.

So, if the unemployment rate improves, it does so in the context of a labour force which isn’t as big as it possibly could be.

ii). Youth unemployment rate has risen: The country’s youth unemployment rate has risen rapidly in the last four years, from 15.66% in 2016-17 to 28.26% in 2020-21.

Youth: Individuals in the age-group of 15-29 are categorized as youth.

Employment situation has grown worse: The unemployment rate in August 2021 stood at 32.03%, which means almost every third youth in the country is unemployed. The rate for those in the 30-34 and 35-39 age brackets stood at 1.57% and 0.76%, respectively, which is as good as no unemployment.

The reason behind this phenomenon is that the state enrolment pays significantly better than the private sector at the lower and middle levels. Abhijit Banerjee and Esther Duflo observed in their 2019 book that in the poorest countries, public sector workers earn more than double the average wage in the private sector and people may spend most of their working lives studying for those exams.

Why unicorns cannot solve the problem of unemployment?

Lower salaries than govt sector jobs: They are in a position to generate low-skilled and semi-skilled jobs, which the country badly requires but these jobs are not going to offer salaries anywhere near the kind that various arms of the government offer.

Huge demand for jobs. The CMIE data shows that the number of individuals who crossed the age of 15 from 2016-17 to 2020-21 was around 19.1 million per year, on an average. Even if half of them enter labour force, it will amount to demand of some 10 million jobs a year. And that is a big number.

Hence, unicorns can make some impact and lessen youth unemployment, especially in urban India, but they can’t solve the country’s problem of job scarcity.

Source: This post is based on the article “Can unicorns solve the country’s youth unemployment problem?” published in Livemint on 15th September 2021.