The February data seems to suggest that there is a migration of people who had evinced no interest in working till recently to an expression of interest in joining the labour force. This migration is eloquent. It possibly holds a promise, no matter how small, of a turnaround in the economy somewhere.
Jobs did increase in February but not enough to absorb all the natural new entrants into the labour force along with those who migrated into the labour force after having chosen to remain out of it so far.
Recall that people had left the labour force after demonetisation. Labour participation fell sharply after demonetisation. It fell from 46.4 per cent in October 2016 to 42.8 per cent in July 2017. However, it seemed to have stopped falling after July 2017. So, the debilitating impact of demonetisation on labour participation seems to have lasted about eight months. Between August 2017 and February 2018, the LPR has remained within the 43-44 per cent range.
The fall in the LPR earlier reflected a lack of new jobs. This became evident because an age-wise distribution of the LPR over multiple Waves of the survey showed that the LPR fell sharply for the younger groups -- principally, age groups between 15 and 25 years. However, the LPR did not change significantly for the higher age group members.
This seems to suggest that demonetisation did not lead to a great loss of jobs but it did lead to a fall in the creation of new jobs to absorb potential accretions to the labour force. This possibly explains the absence of widespread outrage against demonetisation. Youngsters could wait for a little longer for jobs if the elders of the households had their jobs intact. Youngsters possibly were also a lot more convinced or swayed by the hopes of demonetisation ridding society of the scourge of black money. Apparently, a combination of stability of income at home and hopes of dramatic changes in society for the better kept sentiments in favour of demonetisation.
By July 2017, a new crop of youngsters will have entered the labour markets as the academic year ended in the summer months.
It is irksome that though the LPR has improved a tad in February, it has not bounced back to pre-demonetisation levels. It has merely stopped falling. It is now more than 15 months since demonetisation and the RBI has almost completed all the remonetisation. Yet, the LPR has not returned to its earlier levels.
It is possibly the same story of lack of jobs that is holding back the LPR at its low level. Lack of new jobs had triggered a fall in the LPR. Now, lack of sufficient new jobs is keeping the LPR low.
People don't find it worth the effort to look for jobs if it is generally perceived that there ain't many going around anyway. As a result, not many feel enthused to come into the labour markets. As a result, the labour market has not expanded enough as yet to regain its lost ground. In February 2018, the labour force was 434 million. This is ten million lower than the size of the labour force before demonetisation. In October 2016, the size was 444 million.
The labour market has not expanded after its contraction post demonetisation because employment has not grown enough. The number of persons employed in February 2018 is 407 million. This is the same as its level a year ago, in February 2017. However, it is lower than its level in October 2016 when it was 414 million.
While the migration of people who were not interested in working earlier, into the labour force as seen in the February data is encouraging, we need to see if this sustains. And if it does, will it lead to an increase in the unemployment rate or will the migrants be absorbed into the workforce? The key is, of course, the availability of sufficient jobs.
Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.
The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.
The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.
All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.
The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.