A step backward

In developing countries like India, the headline numbers for unemployment must be treated with caution. It is well understood by development economists that, unlike in wealthier countries, unemployment in economies where a large proportion of the population live below or close to the poverty line is, in fact, a luxury. It is the facts about labour movement across sectors —along with average wages in various sectors — that are more revealing about the state of the labour force. That is why countries like India typically have low unemployment numbers. This is the context within which.....
In developing countries like India, the headline numbers for unemployment must be treated with caution. It is well understood by development economists that, unlike in wealthier countries, unemployment in economies where a large proportion of the population live below or close to the poverty line is, in fact, a luxury. It is the facts about labour movement across sectors —along with average wages in various sectors — that are more revealing about the state of the labour force. That is why countries like India typically have low unemployment numbers. This is the context within which the recent release of the periodic labour force survey (PLFS) should be examined. There has been some relief that the PLFS’s stated unemployment rate has declined by a percentage point to 4.8 per cent in 2019-20. The previous number, in the first PLFS in 2017-18, had been the highest recorded for over four decades.

However, the good news stops here.  In fact, the next round of the PLFS may reveal more bad news than good about employment conditions in India. For one, even the headline number that is being used is inappropriate for developing countries. Economists have long argued that in a country wracked by under-employment, it is better in labour force surveys to ask respondents whether they have been employed for a particular week rather than at any point in the previous year. The PLFS does both, and under the former, and more relevant category, the unemployment rate is unchanged, at almost 9 per cent, since 2017-18, which seems much closer to the truth, given other indicators. In fact, even more recent indicators, after the second wave, are more disturbing about the trend-line of unemployment. The Centre for Monitoring Indian Economy (CMIE) has said that its own survey suggests that unemployment in India rose to 8.3 per cent in August 2021, an increase of over a percentage point from 7 per cent in July. While some of this might be seasonal excess agricultural unemployment thanks to a poor monsoon, what is more worrying is that even the industrial sector has apparently lost jobs, continuing a trend since the pandemic hit, which the CMIE says has cost 10 million jobs in manufacturing alone.

A close look at the PLFS data is disquieting since the implication of the sectoral trends is that there has been a decline in good-quality employment opportunities since the last PLFS and workers have been forced into less remunerative and less secure jobs. The share of regular salaried workers has been declining for some years, reflecting problems with the much-touted formalisation of the economy. The proportion of the non-agricultural workforce working in the informal sector rose to almost 70 per cent. There has also been a sharp rise of 2.6 percentage points in the proportion of people working in household enterprises who receive no compensation. Women are working more, apparently — but not necessarily out of choice, since most of the increase is as unpaid family workers in agriculture. These facts are worrying enough, but the most problematic data point is surely that there has been a more than three percentage point increase in the share of workers in agriculture — the first time that this has happened in the modern statistical era. By all accounts, therefore, the PLFS indicates that India — far from modernising and formalising its economy — seems to be moving backwards in terms of the employment available. This is a severe indictment indeed.



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