Unemployment rate during lockdown: Just like measuring water in ocean

Measuring the unemployment rate during a countrywide lockdown is like measuring water in the ocean. Water, water every where/nor any drop to drink. That was from The Rime of the Ancient Mariner by Samuel Taylor Coleridge in 1798.

Today, people are stuck in their homes surrounded by empty factories, warehouses, offices and shops everywhere. There are empty job seats everywhere, not any to gain.

Today, people are stuck in their homes surrounded by empty factories, warehouses, offices and shops everywhere. There are empty job seats everywhere, not any to gain.

What is the employment status of pe­ople who are stuck at home for an ex­tended period of time? Are they unemployed? To answer that question, we need to assemble the official definition of the unemployed from its compone­nts. A person is classified as unemplo­yed if such a person does not have any employment, but is willing to be em­ployed and is actively looking for employment.

There are three elements in being classified as unemployed, all of which must be satisfied. You should not have any employment, obviously. And, you should be willing to be employed. And, you should be actively looking for employment.

In the current lockdown, save for non-essential services, what is the status of the rest who employed till a few days ago but, are now effectively locked at home. Are they without any employment? Yes. They have had no employment for the past one week or so unless they are allowed to and can work from home. Most people do not have the latter option.

Are these people willing to be employed? Arguably, Yes. Are they actively looking for employment? No. They cannot.

Therefore, most people who were employed till about a week ago or so, are not employed today because of the lockdown. And, they cannot be classified as unemployed as well because they are not looking for jobs. Some of them would go back to their old jobs after the lockdown. Their status is unclear. If there is reasonable certainty of such a person returning to the old job, there is a case to classify such a person as employed with or without pay but, with no work. This would be underemployment or, disguised unemployment.

Hypothetically, if this situation were to continue for the entire month of April, what would the unemployment rate in April be? Zero, or close to that. Because no one who did not have a job was actively looking for one. Almost everyone in this group will have simply moved out of the labour force.

In times of extreme stress, the unemployment rate fails to give us meaningful signals. As it did following demonetisation and GST.

The concept of the unemployment rate was developed in response to a situation where there were people who were looking for work but were unable to find any. It measures the degree to which a mismatch exists between jobs on offer and jobs on demand. Such a concept works well in an economy where institutions such as enterprises and government provide formal jobs and households provide the corresponding labour.

In India, institutions are not the biggest providers of jobs. Most jobs are informal in the unorganised sectors. During times such as the current lockdown, they lose jobs and have no hope of finding any. So, they just leave the labour markets.

The unemployment rate in India mostly reflects a mismatch between the demand for jobs among the relatively educated people and the availability of jobs for them typically in modern institutions. It does not reflect correctly the state of the daily wage workers and the self-employed.

Consider those waves of human beings desperately trying to get home after losing jobs in cities when the country was suddenly, overnight, placed under a lockdown. As they trudge back home, a job is the last thing they are thinking about. They need food and shelter for the family. The money in their pockets is useless at the moment. It cannot buy transportation back home. It cannot buy food or shelter.

If we were to ask them whether they were looking for jobs, they’d probably want to kill us. The question is irrelevant. And therefore, the unemployment rate is irrelevant.

The migrants know that they will eke out something for a living back home in their villages. They know there are no jobs. But there is safety. In many cases there is a standing crop of wheat, maize, gram and potato. They need to get to those crops before they rot as they would mostly likely in the next two weeks.

This is economic distress. But this will not show up in the unemployment rate. It will show up in a fall in the labour participation rate and in the employment rate. And for India, these should be the important lead labour market indicators.

The Consumer Pyramids Household Survey was suspended during the week ended March 29 because of the lockdown.

The author is MD & CEO, Centre for Monitoring Indian Economy P Ltd