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Tuesday, January 26, 2021

Optimism from economic rebound must be tempered by employment distress

While job creation typically tends to follow economic recovery, surely, by now, given that value added by almost all sectors is around 90 per cent of last year’s levels, the distress in the labour market should also be showing signs of easing.

Written by Ishan Bakshi | Updated: December 18, 2020 8:57:10 am
The number of households demanding work under MGNREGA peaked at 4.47 crore in June — an increase of 1.9 crore over the previous year.

A stronger-than-expected rebound in economic activities in recent months has raised hopes of a faster-than-previously-anticipated recovery. But if employment is the lodestar of policymaking, it is equally critical to evaluate whether the labour market is witnessing a similar rebound or not. While job creation typically tends to follow economic recovery, surely, by now, given that value added by almost all sectors is around 90 per cent of last year’s levels, the distress in the labour market should also be showing signs of easing.

In the absence of reliable and regularly available data on the labour market, it is difficult to gauge the scale of the distress and the extent to which it has receded. But piecing together information from various sources can help understand how the labour market, in particular, three segments — the formal and the informal urban labour force, and the rural labour force — have fared over the past several months.

One way to examine the state of the formal labour force is to look at EPF data. But rather than looking at monthly payroll data, monthly data on contributing employees and establishments provides a better understanding of the entire universe of formal sector workers. Data for January 2020 has been taken as the starting point simply because the disruption in economic activities, which began in the last week of March, is likely to have impacted the ability of employers to file their Electronic Challan cum Return (ECR) for February.

In January, the total number of contributing establishments and employees stood at 5.4 lakh and five crore respectively. However, in April — the first full month of the lockdown — the number of contributing firms and employees declined to 3.32 lakh and 3.84 crore respectively. In large part, this fall can be traced to difficulties faced by firms in filing their ECRs during this period. The rise in the number of contributing establishments in the months thereafter — in line with the easing of lockdown restrictions —attests to this possibility.

However, despite formal establishments returning to almost pre-COVID levels by September, the number of contributing employees was 23.26 lakh lower than in January. While anecdotal evidence suggests that some of these employees may have subsequently secured employment, though not formal in nature, these numbers suggest that the upper limit of formal job losses is likely to have been around 23.26 lakh or 4.6 per cent of the formal labour force. Data for October shows an even greater fall in contributing employees. But, given the delays in filing ECRs, it is possible that the October numbers will be revised.

By all accounts, the urban informal labour force fared even worse. While it is difficult to get precise estimates, there is some indication of the scale of the reverse migration and the extent of the distress.

Between May 1 and August 31, 4,621 Shramik trains carried 63.19 lakh passengers — stranded migrants who had lost their jobs during the lockdown — from cities back to their home states. By around mid-September, state governments pegged the number of returning migrants at 1.06 crore. This likely presents the lower bound of the reverse migration that unfolded over those months. At the other end of the spectrum, the number of migrants provided foodgrain under the Atmanirbhar Bharat scheme — pegged at 2.8 crore — perhaps represents the upper bound. Accepting these numbers implies that the total migrant exodus from urban areas is likely to have ranged between 10 to 28 per cent of the urban informal (those not contributing to EPF) labour force. (Though it is likely that some migrants may not have been part of the labour force.)

Some have argued that the increase in work demanded under MGNREGA during this period was driven by these returning migrants. This is a likely proposition. But it is equally possible that given the scale of disruption in non-farm activities, rural households may also have demanded more work under the scheme. Therefore, the increase in work demanded can be divided into two parts: Work demanded by the returning migrants and a greater number of rural households demanding work.

One indication of the former is the number of new job cards issued this year. This would represent all those who traditionally have not sought work under the scheme, but have now returned to their villages, and demanded work. As per data, 86.8 lakh new job cards were issued by September, up from 36.6 lakh over the same period last year. This increase in the number of job cards — pegged at 50 lakh — likely represents the lower bound of the migrant households demanding work under the scheme (as a job card is given at the household level, more than one adult per household could have demanded work under the scheme.)

Now, the number of households demanding work under MGNREGA peaked at 4.47 crore in June — an increase of 1.9 crore over the previous year. Excluding the migrant households, the remainder likely reflects the increase in demand from rural households who have demanded work in greater numbers than before, signalling the extent of the distress in rural areas. These would include, both, households who typically rely on MGNREGA as well as those who have not relied on the scheme in the recent past. The rise in the number of active job cards so far this year — 90 lakh higher as compared to last year — is indicative of this.

In the months thereafter, while work demanded has declined, it still remains well above last year’s levels — in August, September and October, one crore more households demanded work as compared to last year. This could also be due to two reasons: First, it is possible that some migrant households have stayed back. And second, more rural households continue to demand work than before — both signal a continuing lack of absorptive capacity in rural and urban areas despite the stronger-than-expected rebound in economic activities.

This article first appeared in the print edition on December 18, 2020 under the title ‘A shallow recovery’. Write to the author at ishan.bakshi@expressindia.com.

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