Employment data disappoints in November

According to World Bank's modelled ILO estimates, only 17 countries are worse than India on LPR

Headline data on employment in November 2021 is mildly encouraging but the details underlying it are quite disappointing. The encouraging signs are that the unemployment rate declined from 7.8 per cent in October to 7 per cent in November; the employment rate rose by a whisker — from 37.28 per cent to 37.34 per cent. This translated into employment increasing by 1.4 million, from 400.8 million to 402.1 million in November 2021.

The first disappointment is that the labour participation rate (LPR) has slipped: from 40.41 per cent in October to 40.15 per cent in November. This is the second consecutive month of a fall in the LPR. Cumulatively, the LPR has fallen by 0.51 percentage points over October and November 2021. This makes it a significant fall compared to average changes seen in other months, if we exclude the months of economic shock such as the lockdown.

The fall of October and November seems to suggest that the recovery in the LPR from its recent drop to 39.6 per cent in June 2021 following the second wave of the Covid-19 pandemic has run out of steam. And, a secular decline may set in again. This is what had happened after the recovery from the first wave of the Covid-19 pandemic. LPR crashed from nearly 43 per cent before the first wave of Covid-19 to about 36 per cent. It recovered quickly to 41 per cent and then lost steam. Then, it started sliding slowly to hover just above 40 per cent before the second wave dragged it below that during the quarter ended June 2021. The LPR recovered steadily in the second quarter of the fiscal to reach 40.7 per cent by September 2021. But then it slid back to 40.4 per cent in October and then to 40.2 per cent in November.

The two pandemic shocks have lowered the LPR structurally. And, the declining trend has continued at the lowered levels. India now has an LPR that is close to 40 per cent compared to about 43 per cent before the pandemic.

India’s LPR is much lower than global levels. According to the World Bank, the modelled ILO estimate for the world in 2020 was 58.6 per cent (data.worldbank.org/indicator/SL.TLF.CACT.ZS). The same model places India’s LPR at 46 per cent. India is a large country and its low LPR drags down the world LPR as well. Implicitly, most other countries have a much higher LPR than the world average. According to the World Bank’s modelled ILO estimates, there are only 17 countries worse than India on LPR. Most of these are West Asian countries such as Jordan, Yemen, Iraq, Iran, Egypt, Syria and Lebanon, and also those such as Algeria and Senegal. Some of these are oil-rich and others are, unfortunately, mired in civil strife. India neither has the privileges of oil-rich countries nor the civil disturbances that would keep the LPR low. Yet, it suffers an LPR that is as low as seen in these countries.

CMIE’s definition of employment and, therefore, of LPR is more stringent than what is recommended by the ILO. This definition informs that the LPR in India is much worse than what the international comparisons tell us. It is, therefore, a matter of greater concern than illustrated by an international comparison. Worse still, the LPR has been falling. The data for October and November tells us that it continues to fall even after the recent shocks that shaved off several percentage points off the LPR.

The second disappointment in the November data is also related to a structural damage in the trend seen in the employment data. Employment is falling in urban areas at a faster pace than in rural areas. As a result, the share of urban employment has been falling. During 2016-17 through 2018-19, urban employment accounted for 32 per cent of total employment in India. In 2019-20, the year just before the pandemic struck India, the share of urban employment dropped to 31.6 per cent. In 2020-21, it fell to 31.3 per cent. And, in November 2021, its share fell further to 31.2 per cent. In the first half of 2021-22, the share of urban employment was down to 31 per cent. There was an improvement in October to 31.5 per cent, but the rate has slid back to 31.2 per cent in November 2021 indicating continuing weakness in urban jobs.

Urban jobs arguably provide better wages and have a greater share of what are called the organised sectors. Their decline implies a decline in the overall quality of jobs in India.

In November 2021, while India generated 1.4 million additional jobs, its urban regions saw employment fall by 0.9 million. This was compensated by a 2.3 million increase in rural jobs.

A third and related disappointment in the November employment data is the fall in salaried jobs and a fall in the count of entrepreneurs. Salaried jobs fell by 6.8 million. Entrepreneurs declined by 3.5 million. These were compensated by an 11.2 million increase in employment among daily-wage labourers and small traders. This again points to a deterioration in the quality of employment. Salaried jobs, at 77.2 million in November 2021, were 9.7 per cent lower than in November 2019.

Of all the disappointments in the employment data, the continuing fall in the LPR should be considered the most worrisome.

The writer is MD & CEO, CMIE P Ltd