Looking beyond the unemployment rate

The much-awaited results of India’s first Periodic Labour Force Survey (PLFS) have finally been released. The most widely cited statistic from this report is the unemployment rate of 6.1 per cent. This rate is based on the usual status approach which relates to the activity status of a person during the reference period of 365 days preceding the date of survey. Significantly, the unemployment rate based on the current weekly status (CWS), determined on the basis of the activity status for a person during a reference period of seven days preceding the date of survey, is higher at 8.9 per cent. Having a longer reference period, the usual status measures report a larger number of employed compared to the CWS measures. As India moves towards reporting labour force indicators at an annual and quarterly frequency, it is more appropriate to anchor the policy discourse in the CWS measure. Being inherently smoother, the usual status measures are unlikely to vary much over short time intervals and are therefore unable to capture changes in employment patterns caused by seasonal fluctuations.


Regardless of the approach we use, there is no denying the fact that unemployment rates in India are high. However, it is important not to forget that in an economy like India, the unemployment rate by itself is an inadequate metric to understand the changing employment landscape. As explained eloquently in the India Employment Report (2016), in a labour surplus dualistic economy, people have to work to survive, even if the work they find is very low-productivity and low-paying. Self-employment and casual wage employment are dominant forms of employment as they enable work-sharing arrangements. What this implies is that when the number of members working in a household increases or the number seeking casual wage employment increases, each worker simply works for less time than before and a large section of the workforce is underemployed. In such a scenario, simply having a count of the number of employed or unemployed cannot tell us much about the state of employment in the country. What we need is a conceptual understanding of the conditions of employment and how these have evolved over time. On this front, the report provides critical insights.


First, it reports the distribution of employment by the status of workers. It shows that overall the share of regular wage/salaried (RWS) workers has increased since 2011-12, suggesting an improvement in the structure of employment. In rural areas, the share of RWS workers has increased by 4 and 5 percentage points for rural males and rural females, respectively. Concomitantly, the share of self-employed has increased marginally compared to 2011-12, while the share of casual labour for both rural males and females has fallen by approximately 7 and 3 percentage points, respectively. In urban areas, the share of RWS workers has increased by 2.3 and 9.3 percentage points for males and females, respectively. This has been accompanied with a decline in the share of both self- employed and casual labour for both urban males and urban females.


Although the overall shift towards RWS employment is indeed a positive development, it needs to be viewed in conjunction with the fact that the share of RWS workers who had no job contract is as high as 71.1 per cent, an increase from 64.7 per cent in 2011-12. This points to the lack of security of tenure and vulnerable terms of employment for RWS workers. Concomitantly, two more indicators which provide insights into the quality of regular wage employment are the percentage of RWS workers who are not eligible for paid leave and those who are not eligible for social security benefits. While the former has increased from 50 per cent to 54.2 per cent, the latter has shown a decline from 55.4 per cent to 49.6 per cent.   The increase in the share of RWS workers who are eligible for social security benefits is an improvement. However, the fact that half of RWS workers continue to be deprived of social security benefits is disconcerting. That the self-employed and casual wage workers who typically have no social security still account for 75 per cent of workers suggests that we have a long way to go in improving the quality of employment. In this context, it is worth examining the viability of establishing a universal labour guarantee proposed by the International Labour Organization’s Global Commission on the Future of Work. The proposal suggests that all workers, regardless of their contractual arrangement or employment status, should enjoy fundamental workers’ rights, an “adequate living wage”, maximum limits on working hours and protection of safety and health at work. Such a guarantee, if duly implemented, especially for self-employed, would be a real breakthrough in dealing with the challenges facing the world of work.


In addition to reporting the structure of employment, the PLFS also gives the sectoral breakdown of employment. Agriculture continues to account for over 50 per cent of the workforce in rural areas, while the urban workforce continues to remain engaged in the services sector. The share of the manufacturing sector in total employment has shown no increase since 2011-12. Its share has remained flat at roughly 22 per cent of total employment in urban areas and 8 per cent in rural areas. The sluggish pace of structural transformation is indeed worrying and reiterates the need for putting in place an industrial policy, a concern increasingly being voiced by several economists. Identifying priority industries which have the ability to generate productive jobs and alleviating the bottlenecks that constrain the growth of these industries are critical for making such a  policy effective.For this purpose, it is important to use more structured methodologies to identify industries that align with the country’s endowment structure and comparative advantage.


As the incumbent government begins its new term, the findings of the PLFS need to be closely examined and analysed. The report can provide key insights and aid in outlining a clear path of action in the coming years to address the labour market challenges. The moment to act is now and this is an opportunity the government cannot afford to miss.


The writer is senior fellow, Indian Council for Research on International Economic Relations

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