On India’s unemployment issue: Persistent problem

News: Poor state of employment creation in India is reflected in the recurrent protests against changes in the government’s recruitment policy or delays in appointment.

The ongoing violent protests against the change in the recruitment policy for armed forces, which have led to a massive loss of public and private property, are yet another example in this context.

Has the unemployment rate declined?

Yes.

Periodic Labour Force Survey (PLFS) annual report shows that the unemployment rate declined and the workforce participation increased. But, it is important to look beyond the headline numbers.

– According to the report, the unemployment rate declined to 4.2% compared to 4.8% during the previous year, and 5.8% in 2018-19.

Since this was the period when the economy was recovering from a stringent lockdown, the labour force participation rate increased to 41.6% compared with the level of 40.1% in the previous year.

The female workforce participation rate, which has been a significant drag on labour force participation, also improved during this period.

Has the unemployment actually gone down?

No.

The improvement was not particularly on account of improved employment opportunities.

– More people joined the workforce due to the decline in household income. This is also evident in the quality of employment.

• During the period under review, the percentage of people employed in the agriculture sector increased to 46.5% as against 45.6% in the previous year. This is significantly higher than the 42.5% in 2018-19.
• Consequently, the proportion of labor employed in the manufacturing sector declined.

Among the workers earning wages and salaries, the percentage of employees not getting any social security benefit declined marginally to 53.8% compared to the previous year, but was significantly higher than the 49.6% in 2017-18.

Overall, while the share of self-employed people increased, the proportion of workers earning wages declined.

The latest quarterly PLFS report for January-March 2022, which was also released last week, did not show any material change in labour force participation with the recovery in economic activity.

What are the challenges before India?

The most pressing challenge before India will continue to be employment creation for an expanding workforce.

While the government is promoting select industries in the manufacturing sector through an incentive scheme, it would not be able to create jobs at the scale required.

Nearly half of India’s labour force is engaged in agriculture and can move only to low-skill manufacturing.

This is the exact opposite of what India’s labour market needs.

– Sustained higher growth with an increase in productivity can be attained only by moving the labour force out of agriculture.

India’s labour force participation is also significantly low and would be a drag on growth in the medium to long run.

Source: This post is based on the article “Persistent problem” published in Business Standard on 19th June 22.