Covid-19 crisis: Unemployment rate remains high at 24.3% amid lockdown

The week ended May 24 re­corded an unemployment rate of 24.3 per cent. This is a shade higher than the 24.0 per cent unemployment rate recorded in the preceding week. It is also a tad higher than the average unemployment rate of 24.2 per cent seen in the past eight weeks — those of the lockdown. The unemployment rate therefore continues to remain very high at over 24 per cent during the lockdown.

The labour participation rate (LPR) was 38.7 per cent in the week ended May 24. This was lower than the 38.8 per cent recorded in the preceding week. This fall in the labour participation rate comes after three weeks of continuous increases.

While the unemployment rate has been reasonably stable around 24 per cent during the lockdown, the labour participation rate trend seems to tell a story of some interesting changes in the labour markets.

The unemployment rate has risen from 8.8 per cent in March to 23.5 per cent in April and seems to have remained stable at the elevated rate of around 24 per cent in May.

The labour participation rate, on the other hand, which had dropped 6.3 percentage points — from 41.9 per cent in March to 35.6 per cent in April, seems to be regaining a substantial part of the lost ground in May. The LPR has been rising almost consistently week-after-week in the month. It reached 38.8 per cent as of the week ended May 17 indicating a recovery of nearly half the lost ground of April. The small fall in the latest week does not take away this evidently rising trend.

So it seems that a fairly large chunk of labour that had technically left the labour market in April is returning.

CMIE’s Consumer Pyramids Hou­se­hold Survey provides us with an interes­ting insight here. In April, the labour fo­rce had shrunk by 68 million — from 437 million in 2019-20 to 369 million in April. These 68 million had stopped actively looking for jobs. Interestingly, they had not stopped being interested in jobs. This is evident from the fact that the greater labour force increased by 9 million from 449 million in 2019-20 to 458 million in April.

The greater labour force is a count of the number of people who are willing to work. Some of these could be actively looking for a job and some may not. The greater labour force therefore includes three kinds of people — those who are employed; unemployed, willing to work and actively looking for a job; and those who are unemployed, willing to work but are not actively looking for a job. The labour force includes only the first two.

What happened in April is as follows. The count of employed shrunk by 122 million. If we give up being pedantic, we can say that 122 million lost their jobs. But all of them did not keep looking for jobs after they lost it. The count of unemployed who were looking for jobs in­creased by only 53 million. What happened to the remaining?

The data suggests that they were also willing to work but did not actively try to look for jobs. These people possibly need a job but are apparently so discouraged by the large-scale loss of employment around them that they consider it completely futile to actively look for jobs. The numbers of such people swelled by 77 million — from 12 million in 2019-20 to 89 million in April. These are the potentially unemployed but technically not considered unemployed.

Since these people are willing to work, they can easily join the labour force and start looking for jobs if employment conditions improve even marginally.

The weekly estimates of May seem to suggest that there is a migration of labour from the “willing but not looking for jobs” category to the “willing and looking for jobs category”. The discouraged workers seem to be coming back to look for jobs. This is good news.

Interestingly, the weekly data also suggests that this influx into the labour markets is succeeding in finding jobs.

The evidence to this is in the stable unemployment rate even in the face of a rising labour participation rate.

A stable unemployment rate and a rising labour participation rate im­ply an increase in the employment rate. This has indeed increased from an average of 27 per cent through most of April to 29 per cent through most of May. This two percentage point increase implies that about 20 million people may have been added to the count of those who are employed. Implicitly, the loss of 122 million in April may have narrowed down to 102 million in May.

If 20 million jobs have indeed been repaired, we have made significant progress. But the remaining challenge is five times larger at 102 million.

The author is managing director & CEO, Centre for Monitoring Indian Economy Private Limited

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