Some unemployment puzzles

News: India’s unemployment problem is not reflected in its unemployment rate. Its problem lies in the low employment rate and its discouraged young female labor force.

Why the unemployment rate is not India’s most important labor market indicator?

The unemployment rate was 7.9 percent in December 2021. This does not mean that the remaining 92.1 percent were employed.

The unemployment rate merely tells us the proportion of the working-age population that wants to be employed to earn some wages or profits through its work.

The unemployment rate does not take into account those who do not want to be employed and those who do not try to find work.

The problem in India is that most adults do not express a desire to work to earn wages or profits. This reluctance to work on the part of the majority of adults makes the unemployment rate a less useful indicator of the health of the economy than it is imagined to be.

Then, what is the most reliable and alternative option available?

The employment rate is a more useful indicator. It is a ratio of the employed to the total working-age population. The employment rate is a measure of success.

Where India stands in the employment rate statistics?

India’s success rate on this count is low. While the global employment rate was 55 percent in the pandemic-hit 2020 (it was 58 percent in 2019), India recorded a low of 43 per cent.

Only West Asia and North Africa by World Bank classification have a lower employment rate than India.

According to CMIE’s relatively stringent definition of employment, the employment rate in India is lower, at 38 percent.

What can be inferred from the available employment rate statistics?

First, only 38 percent of the working-age population is employed and only another 3 percent wants to work but cannot find work. It implies that 59 percent of the working-age population does not want to work.

So, India’s path to prosperity is in finding employment for not only the 3 percent who are unemployed but also for the eligible population of the remaining 59 percent of the population.

To reach global employment rate standards, India needs to employ an additional 187.5 million people.

Second, out of the 59%, 9 million women were willing to work, although they were not actively looking for work.  Therefore, there is a need to investigate why such many women are not looking for work, though they are willing to work.

Finally, the immediate challenge is to provide employment to the 7.9 percent (35 million) who were not employed and were actively looking for employment.

Source: This post is based on the article “Some unemployment puzzles” published in Business Standard on 18^th Jan 2022.