Why unemployment rate does not show the joblessness that journalists see

Unemployment rate was 5.7% in Nov and 6% in Dec, lower than Oct's 6.3%

The unemployment rate, as measured by the BSE-CMIE initiative, remained low during November and December 2016. At 5.7 per cent in November and 6 per cent in December, the rates were lower than October’s 6.3 per cent and much lower than the January-September average of 9 per cent.
 
This fall in unemployment during November and December is counter-intuitive and does not tally with the numerous reports filed by journalists after the government’s demonetisation move.
 
It is counter-intuitive because demonetisation was expected to raise unemployment. There simply wasn’t enough cash in the market to make payments to agricultural and daily wage labourers. As demand fell in line with the fall in liquidity following demonetisation, the demand for labour also fell, and it was logical to expect this to show up in the unemployment rate.
 
The media, particularly print, sent out reporters to agricultural mandis and industrial hubs to get a ground-level understanding of the effects of demonetisation. These reporters systematically reported huge job losses as businesses had shrunk and cash had disappeared. Reports of job losses were mostly of large numbers of migrant labourers leaving industrial hubs to return to their homelands in the face of reduced employment and earnings.
 
However, the unemployment rate reported from CMIE’s large household survey does not show any increase in unemployment following demonetisation.
 
How do we reconcile these two conflicting observations – reporters finding shrivelled businesses and absent labour, and households not reporting increase in the proportion of unemployed persons?
 
Journalists honestly reported what they found, but they had set out in the first place looking to find what they later reported. Nobody expects reporters to do random sampling. And so, there is by design, but not necessarily evil design, a bias in what the media reports in such cases. Yet, I believe that there is truth in the reportage. Migrant labour has indeed gone back home. These reports provide a good story and many unique insights, but they should not be confused with statistical measurement of an economic phenomenon.
 
CMIE's Consumer Pyramids survey is based on a scientifically selected sample of 160,000 households, rural and urban. These are surveyed over a four-month period such that 40,000 households are surveyed every month. This provides the employment/unemployment status of about 522,000 individuals who are of 15 years of age or more.
 
The sample of 40,000 households surveyed during November is the same as in July 2016. They reported an unemployment rate of 8.5 per cent in July and a much lower, 5.7 per cent, in November 2016. Similarly, households surveyed during August 2016 reported an unemployment rate of 9.5 per cent, against 6 per cent in December.
 
There are two possible explanations for this apparent disconnect. The first and most important is the cue by reporters that migrant labour is returning home. Evidently, the shock of demonetisation hit migrant labourers first. These workers are engaged by enterprises depending upon the needs of the day. They face the greatest risks to their livelihood and are the first to suffer during a bandh, a riot or a natural calamity. It is not surprising that they were the first to suffer when demonetisation hit enterprises.
 
If these migrant labourers have returned to their original residences, their residences in the place of work are most likely locked. If these households are part of the CMIE household survey, they are reported as a non-response. They could not participate in the survey because they had simply left the homes they lived in when they were employed. They do not necessarily show up in the places where they migrated, either, because the joint probability is negligible.
 
Another explanation of disconnect between data and reportage is that migrant labourers live in chummaries that often do not constitute households but rather informal hostel or lodging arrangements. Some even live on the work premises. These workers escape inclusion in a sample of households.
 
It is possible then that the labour retrenchments are limited for the present to migrant labour and not to regular employees. But, this could change if liquidity remains constrained for longer.

CONSUMER SENTIMENT UP IN THE LAST WEEK OF 2016



Sentiment gauge



AND UNEMPLOYMENT RATE ALSO CAME DOWN



Unemployment gauge



Every Tuesday, Business Standard brings you CMIE’s Consumer Sentiments Index and Unemployment Rate, the only weekly estimates of such data. The sample size is bigger than that surveyed by the National Sample Survey Organisation. To read earlier reports on the weekly numbers, click on the dates:
November 21, November 28, December 4, December 11, December 18, December 25
Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.