Labour supply expands by 4.5 million

The seventeenth Wave of Consumer Pyramids Household Survey conducted during May through August 2019 indicates stabilisation of labour participation rate at about 43 per cent.

At 42.85 per cent it is the same as in the 16th Wave. The 14th and 15th Waves had recorded an LPR of 42.74 per cent. Evidently, the LPR is rising in small, cautious steps.

These small changes make big differences. A stable LPR implies a greater number of people have joined the labour force. This is because the underlying population keeps increasing. An increase in the LPR means that a greater proportion of the increased population is participating in the labour markets. A greater proportion of a rising population joining the labour force is the best of both worlds.

The labour force expands by about 3.4 million even when the LPR remains stable. When the LPR expanded by just 11 basis points from 42.74 to 42.85 per cent between the 15th and 16th Waves, the labour force expanded by 4.5 million.

If all of these 4.5 million, or the 5 per cent increase in the labour force, get gainful employment, even with no change in productivity they could cause a 5 per cent real growth in GDP. Real life is not so simplistic, but the point here is to merely demonstrate that small changes in participation and gainful employment can make big difference to overall income and wealth of India.

One big challenge is that India's LPR is too low. Less than half the working age population is employed or seeking employment. It is impossible for any country to grow at anywhere close to full capacity if most people do not contribute to growth by staying out of the labour markets.

In this context, the small recent increase in the participation rate is most welcome in an atmosphere that has mostly projected much gloom and doom.

Labour seems to have overcome the deep scepticism regarding availability of jobs following the twin shocks of demonetisation and GST in 2016 and 2017. The near-precipitous fall in the participation rate during 2017 and 2018 has been arrested. We have not recovered lost ground but we have stopped losing any.

Labour participation has increased substantially among youngsters -- those in their twenties. We describe below the data that leads to this conclusion.

To eliminate seasonality, we compare the participation rate in the latest Wave of May-August 2019 against the same in May-August 2018 and in May-August 2017. Besides being exactly two-years ago and one-year ago points of observation, they are interesting in other ways as well. May-August 2017 was the last Wave of the steep fall in the LPR that began in September-December 2016. And, May-August 2018 was the first Wave of the relative stabilisation of the LPR. We study the sources of the stabilisation.

LPR of the age group 20-24 years was 38.8 per cent in May-August 2017. It rose to 42.8 per cent in May-August 2019.  Age group 25-29 saw 3.8 percentage points increase to 59.3 per cent. Other age groups have continued to record declines or very small increases.

Amongst males, the increase in LPR is across age-groups except among the very young (15-19 years) and the relatively old (60 years or more). The highest increase is in the age group 25-29 years while the fall in the relatively older people is sharp enough to bring down the overall LPR among men. Arguably, this is not a very bad outcome.

There is an increase in the participation rate of young women and is concentrated in the 20-24 age group.

The next question of course, is to find jobs for these young men and women who are joining the labour markets.

But, is the labour market full of people who cannot find jobs or does it also consist of a lot of employers who cannot find appropriately skilled labour?

Union labour minister Santosh Gangwar is reported to have stated last week that there is dearth of labour adequately skilled to meet the requirements of potential employers.

The political slugfest that ensued notwithstanding, the remark was not entirely flippant. Many employers do complain of not being able find adequately skilled labour. The minister's remark merits serious attention.

It is important to measure the labour markets more comprehensively than just a household survey to understand and solve problems related to its requirements of labour. A household survey tells us a lot about supply of labour and its characteristics but cannot tell us enough about demand for labour and its expected attributes. That requires an enterprise survey to match the household survey. India needs to systematically understand the needs of industry. Setting up skilling institutions in collaboration with industry is good but needs to be supported with solid flow of information from industry based on a large-scale enterprise survey.