The jobs gloom

Increasing informal labour could affect growth

The nationwide lockdown imposed to contain the spread of Covid-19 has had a significant impact on India’s job market, and part of the losses could be enduring. The unemployment rate, according to the Centre for Monitoring Indian Economy (CMIE), went up from 7.76 per cent in February to 23.52 per cent in April. The lifting of the lockdown, though partially, resulted in a reversal, and the unemployment rate slipped to 7.43 per cent in July — lower than the level registered in February. The employment condition in rural areas was better than in urban India. The unemployment rate in rural India slipped to 6.66 per cent in July, which prompted many to argue that villages would lead the recovery.

However, the more recent data shows that this may not be the case. The unemployment rate in rural India (30-day moving average) went up from 6.6 per cent at the end of July to 7.56 per cent on August 18. One explanation for this could be that most of the employment was being created in the agriculture sector. As the sowing of monsoon crops gets completed, employment gains could reverse. While the agriculture sector is expected to do well this year, it cannot provide the required push for a sustainable recovery. The objective should be to pull people out of agriculture and not see it as a source of additional employment.

The overall condition in the labour market is a huge concern. As CMIE’s Mahesh Vyas has argued in this paper, jobs in the informal sector are back and have, in fact, increased, but formal employment has not. According to the data received, salaried jobs have declined by 18.9 million or by 22 per cent during the lockdown. Financial results for the June quarter show some sectors have reduced employee costs significantly to contain overall losses. Recovery in the informal sector and job losses in the salaried segment could alter the structure of the labour market with wider implications. It is possible that salaried jobs will not recover fully in the near term as firms contain costs. People looking for employment may have to settle for more informal arrangements, possibly at much lower wages. Thus, instead of moving towards greater formalisation, the labour market would become more informal. Differently put, more people in the labour force would be out of the social security net. Greater informality in the labour market might also affect overall productivity. Further, losses of jobs and income would affect overall demand and economic recovery.

It is likely that some of the income and job losses would reverse once all segments of the economy are allowed to function normally and economic activity increases. But that may not happen until the virus is contained meaningfully. Thus, the most immediate challenge is to contain the virus. Further, the government would need to create a more enabling environment for sustainable recovery. Gradual recovery would make job creation more difficult and India might have to settle at a lower level of economic growth in the medium term. While it is comforting that the agriculture sector is doing well, it should not cloud the overall policy objective. India will have to create more jobs in the manufacturing and services sectors to attain higher sustainable growth. There is no alternative.