India’s employment rate still grim after unlock phases

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The covid induced lockdowns affected each and every sector, with the employment market being on the worst of receiving end. Many companies and industries downsized during the lockdown thereby rendering many unemployed in an already burdened nation. After nearly seven months of varied phases of lock down and the surge in covid pandemic the employment trend is now showing conflicting signs. The opening of the economy in truncated form, led to the return of many workers and employees to the establishments which were closed for long. But interestingly, the CMIE study makes out that there is the odd case of the labour participation rate that declined in September. This fell from 41% in August to 40.7% in September. This is odd because if the employment rate goes up and the unemployment rate goes down, it creates room for an expansion of the labour force and therefore also the labour participation rate. The labour participation rate in September was 199 basis points lower than the average labour participation rate of 42.7% in 2019-20. The CMIE findings cast doubts about the Finance Ministry’s claim about V shaped recovery which is taking place.

Notably, the labour participation rate has been falling systematically since 2016-17 when it was 46.1%. In 2017-18, the year that showed the full impact of the November 2016 demonetisation and the July 2018 introduction of GST, the LPR fell by 256 basis points. Then it slid by 77 basis points in 2018-19 and then again by 14 basis points in 2019-20. The two shocks of demonetisation and GST delivered within 8 months of each other had a lasting impact on the LPR. The lockdown, it looks like, could deliver a similar blow to it, the CMIE study feels. The LPR mentions how many of the working age population are willing to be employed. If this proportion keeps falling as it evidently is, it does not bode well for India’s growth story. It renders all stories of a revival in the economy as a myth. From a growth perspective it is important that a good proportion of the working age population is willing to work and then a good proportion of them actually gets employment. The proportion that gets employment is called the employment rate. The employment rate tells us how many of the working age population are actually employed.

For reference, according to modelled ILO estimates globally, 57.2% of the working age population is employed. By the same model India’s employment rate was 47% and South Asia was 48%. Pakistan was at 50%, Sri Lanka at 51% and Bangladesh at 57%. India has a long way to go to catch up with global standards and also with its immediate neighbours. China is way ahead at 65%. AS the CMIE sees it, the continued absence of employment as an important macro-economic indicator in policy making even after decades of decline in employment is extraordinary. Employment has failed to find a place in policy making in spite of continued political protests on lack of employment and demands for reservations. Reservation of jobs now invariably face roadblocks from the judiciary. And, reservations are a zero-sum game. It is better that India adopts employment rate targeting.

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