Inadequate and inappropriate jobs growth

Labour markets had performed very poorly in November 2019. The labour force participation rate and the employment rate had fallen to their all-time lows. These metrics were on a mildly declining trend but the fall in November was steeper than warranted by the trend.

Weekly estimates had indicated an improvement in the labour force participation rate in December, but only to the mean value along the mildly declining trend. The December LPR did indeed recover to 42.85 per cent from the earlier month's 42.37 per cent. Similarly, the employment rate recovered from 39.2 per cent in November to 39.55 per cent in December.

These recoveries in December notwithstanding, the quarter of October-December 2019 has turned out to be the worst for the labour markets since 2016. It ended with an LPR of 42.84 per cent which was lower than the LPR in the previous quarter. Similarly, the quarter's employment rate at 39.48 per cent was the worst.

Even the unemployment rate at 7.85 per cent during the quarter was the worst since mid 2016.

Data for calendar year 2019 tell us that a jobs growth was underway during the year. It was, however, inadequate and also inappropriate.

In absolute terms, employment was rising during 2019. This rise could either be a recovery from the fall of 2018 or a sign of desperation to get some jobs, no matter how poor, in difficult times. The fall in 2018 was apparently the result of the combined effects of demonetisation in late 2016 and implementation of GST in mid 2017.

On a point-to-point basis, i.e. from one December to the next, 2018 saw a loss of 10.9 million jobs. By a similar point-to-point comparison, 2019 saw the addition of 9.6 million jobs. A more robust measure is the average monthly employment during one year compared to the next. This shows that 5.2 million jobs were lost in 2018 and 2.2 million were gained in 2019. Either ways, we see a recovery in absolute employment estimates in 2019 but, this recovery is inadequate to even fill in the losses incurred in 2018.

But, employment needs to grow to match a growing young population and not to just fill in losses of the recent past. Employment needs to grow to ensure that a larger proportion of working age people are engaged in fruitful economic activities which in turn may ensure growth without inequality. In this respect, India is losing ground steadily.

The employment rate is a measure of the proportion of working age population that are employed. According to the World Bank's modelled ILO estimate (data retrieved by World Bank in September 2019), India has an employment to population ratio of 50 per cent compared to a world average of 58 per cent. And, India ranks 144th out of 189 countries for which such data is available. This database also shows that the employment ratio in India has been falling. It fell from 57 per cent in 1991.

It is intriguing that a lesser and lesser proportion of the working-age people in India are at work. Why more than half the Indians are not at work and why is this proportion falling? This is a question that begs a serious answer. Why is this proportion so small even when the definition of being employed is extremely liberal where being employed for wages or for profit for even one hour in a week before the survey is sufficient to be called employed.

CMIE's Consumer Pyramids Household Survey deploys a more meaningful definition of being employed -- that of being employed on the day of the survey. And it finds that the employment ratio is much worse than the ILO modelled estimate. It was a shade below 43 per cent in 2016. In 2019, it was down to less than 40 per cent. What this means is that on any given day, on an average, less than 40 per cent of the working-age population of India are employed.

During the last quarter of 2019, the employment ratio was down to 39.5 per cent. This is the lowest employment ratio seen in India during any quarter.

The employment ratio is lower in urban India than it is in rural India. Urban India is where Indians migrate to in search of jobs; it is where the more qualified-to-work live; it is where more good quality jobs are available; it is where better infrastructure is available for people to get to work. Yet, employment rate in urban India has been consistently lower than it is in rural India.

Further, the employment rate has continued to fall in urban India in 2019 while it has stabilised in rural India. Most of the increase in absolute employment in 2019 has been in rural India. This is not very reassuring about the quality of jobs that have increased in absolute terms in 2019.

We will study this more in the coming weeks but, prima facie, the increase in employment in 2019 appears to be both inadequate and inappropriate.