Unemployment now in the 8-9% range

The unemployment rate breached the 9 per cent mark during the week ended August 25. It touched 9.07 per cent. This is the highest weekly unemployment rate recorded in about three years. To be precise, it is the highest unemployment rate since the first week of September 2016.

The weekly unemployment rate has hopped over values between 7.9 per cent and 9.1 per cent during the last four weeks. It seems to be finding a new level between 8 and 9 per cent. This would be a 100 basis points higher than the 7.2-7.9 per cent range it scaled during the preceding three months.

While the weekly unemployment rate was over 9 per cent during the week ended August 25, the 30-day moving average on the same day was 8.25 per cent. There is some volatility in the weekly estimates of unemployment and the 30-day moving average is a much better indicator of the true unemployment rate. This measure suggests that the unemployment rate has jumped up from around 7.5 per cent till recently to over 8 per cent in August.

Unless there is a sharp fall in the unemployment rate during the last week of August, it is likely that August 2019 would end with an unemployment rate of close to 8.5 per cent. This is not as alarming as the 9 per cent recorded in the latest week but, it would still be the highest unemployment rate recorded by India, in the past three years.

The unemployment rate has been rising steadily since July 2017. This is an outcome of the relative stabilisation of the labour participation rate since early 2018 and a fall in the employment rate. A stable labour participation rate implies that as the working-age population rises naturally steadily, a constant proportion of this keeps coming into the labour markets seeking for jobs. Thus, with a stable labour participation rate, as the working-age population rises, the labour force also keeps rising steadily.

However, this steady increase in the labour force is not met with sufficient job opportunities. As a result, the unemployment rate has been rising. The lack of sufficient job opportunities is seen in the fall in the employment rate.

The week ended August 25 saw a sudden and sharp increase in the unemployment rate in rural India. At 9.1 per cent, the rural unemployment rate was higher than the 8.9 per cent urban unemployment rate. It is not very often that the rural unemployment rate exceeds the urban rate. So, the rise in rural unemployment rate we observe in the most recent week is somewhat unusual.

This is the kharif agricultural season and labour participation in rural India has increased. The 30-day moving average labour participation rate in rural India as of August 25 was 44.4 per cent. This is just a tad higher than the rate recorded in July. At this level, rural India is witnessing the highest labour participation rate in over a year. Working-age population has been thronging into the rural labour markets in search of work in greater numbers than in the recent past.

It is this rural labour that seems to be facing greater challenges in finding jobs currently. Rains have been erratic spatially and temporally. Sowing was initially deferred because of the delayed progress of monsoon clouds over the Indian sub-continent. Sowing is still lower than it was last year but now, there is a double whammy as large tracts of sown areas are flooded because of excessive local rains. Demand dynamics for rural labour have been complicated. This is not a normal kharif season demand for labour.

Wage rates for ploughing and sowing had increased by about 7 per cent, y-o-y in June 2019. It would be interesting to see what happens to them by August. The increase in the labour participation rate could have led to a weakening of these rates by August. But, it would be instructive to juxtapose these data when the wage rates are released.

The CPHS labour statistics tell us that the increased influx of labour into the rural labour markets did not find adequate jobs. As a result, the employment rate in rural India dipped below 41 per cent in the first few weeks of August. In the past 12 months, the ratio has been below 41 per cent in 8 months. Earlier, the ratio was never below 41 per cent. Rural India, it seems, cannot absorb the labour descending upon it. If the growth in rural wage rates fall, we could be witnessing a new stress point in labour markets in India.

Urban India has not been a great absorber of labour. Its employment rate has been falling steadily. In July 2019 it reached a new low of 36.8 per cent. Therefore, any weakening of the rural labour markets could be ominous.


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