Labour market scene worsens in June, unemployment at 7.9% from 7.2% in May

Labour market conditions deteriorated during June 2019. The unemployment rate rose to 7.9 per cent in June 2019. It was lower at 7.2 per cent a month ago, in May. And it was much lower at 5.8 per cent a year ago in June 2018. The unemployment rate in June 2019 was, in fact, the highest in 33 months i.e. since September 2016. The June 2019 unemployment rate also confirms a steadily rising trend in the unemployment rate seen since July 2017.

The unemployment rate had risen sharply initially during the month of June 2019. During the week ended June 9, the unemployment rate was at its peak at 9 per cent. But, it has climbed down steadily since then. It was 8.5 per cent in the second week and then it fell further down to 7.4 per cent and finally to 7 per cent in the last week.

The delayed monsoon could have played a role in the initial rise in the unemployment rate in June. The southwest monsoon finally hit the Kerala coast on June 8, seven days late compared to its usual expected date of onset. Total rainfall precipitation in June was 36.4 per cent below normal.

The delayed arrival of the monsoon and its poor precipitation seems to have impacted both, labour participation and unemployment rate in rural India.

Rural labour participation rate which had risen from 43.7 per cent in April to 43.8 per cent in May, fell marginally to 43.7 per cent in June 2019. And in spite of this fall in the labour participation rate in June, the unemployment rate in rural India rose to 7.7 per cent during the month.

Progress of the monsoon during the remaining months of the season will play an important role in determining conditions of the labour markets in India till the kharif harvesting season is over, i.e. till around October.

In June, however, the fall in labour force participation rate in rural India was offset by an increase in the ratio in urban India. Urban labour participation rate has risen steadily from 40.3 per cent in April to 40.6 per cent in May to 41 per cent in June. 

As a result, the overall labour force participation rate inched up to 42.8 per cent in June from 42.7 per cent in May and 42.5 per cent in April.

The increase in the unemployment rate in June is partly the result of this increase in the labour participation rate. While labour did move into the labour markets, the markets could not absorb them entirely.

This is evident in the employment rate (also called the worker participation rate). The employment rate was 39.4 per cent in June 2019. 

This is the lowest employment rate we have recorded since we began measuring employment / unemployment statistics in January 2016. A similarly low employment rate was also recorded just two months ago in April 2019.

The employment rate is perhaps, the most important labour market statistic. It is the proportion of the working age population that is employed. In June 2019, only 39.4 per cent of these were employed. Another 7.9 per cent were looking for jobs but were unable to find any. The former is too low and the latter is too high.

Both these numbers also show that the employment and unemployment situation in India continues to deteriorate. 

As of the first quarter of 2019-20, the employment rate was 39.6 per cent. This is the lowest quarterly employment rate at least since 2016. This ratio had improved smartly during the March 2019 quarter to 39.9 per cent from 39.7 per cent in the previous quarter. But, this increase could not be sustained and the ratio fell to its lowest level in the June 2019 quarter. 

The employment rate has been falling steadily since the June 2016 quarter when it was 43 per cent. Over the past three years, the employment rate has declined by 3 percentage points. This also implies a fall in total employment.

The fall in employment has had an impact upon the labour force participation rate which has fallen even more sharply than the employment rate. The labour force participation rate was 47.3 per cent in June 2016. It was 42.8 per cent in June 2019. 

This steady deterioration in the employment conditions in India can be stemmed or reversed only if the investment climate improves. India however, seems to show no signs of any improvement on this front. CMIE's CapEx database indicates that new investment proposals were 19 per cent lower in 2018-19 over a year ago. New investment proposals turned out to be much worse during the first quarter of 2019-20.

Given that the monsoon predictions this year are not great, the continuing fall in investment enthusiasm does not augur very well for employment prospects in the near future.

 The author is the MD & CEO of CMIE

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