Monday, Oct 03, 2022

The grim reality hidden by recent decline in unemployment rates

Radhicka Kapoor writes: It shows a deterioration in quality of employment and rising underemployment

Job seekers at the Delhi Job Mela in 2019 (Express Photo by Tashi Tobgyal)

A quick look at the recently released Periodic Labour Force Survey (PLFS) reveals a decline in the unemployment rate from 5.8 per cent in 2018-19 to 4.8 per cent in 2019-20. This fall in the unemployment rate from the 45 year high of 6.1 per cent as reported in the first PLFS (2017-18) is indeed a respite. However, these statistics need to be interpreted with caution. They are based on the “usual status” approach wherein the activity status of a person is captured for a reference period of 365 days preceding the date of survey. Those who are reported as unemployed by this approach are those who are chronically unemployed. In developing countries, where casual and intermittent work and part-time and temporary jobs are widespread, employment estimates based on this approach tend to include the under-employed workforce. Consequently, unemployment rates derived from the usual status approach give a misleading picture of the extent of labour underutilisation and the employment challenge faced by the economy. In PLFS (2019-20), we observe that the unemployment rate based on the weekly status (which corresponds to the activity status of a person for a reference week) is not only higher than the usual status measure, but has also remained unchanged at 8.8 per cent compared to 2018-19. The divergence in these statistics only reinforces the need for anchoring the policy discourse in India on weekly status measures and not the usual status measures.

Significantly, even beyond the issue of using the weekly status measures, the lower unemployment rate (based on usual status approach) appears to be a consequence of economic distress and lack of gainful employment opportunities which have pushed jobseekers into low productivity and low paying work, thereby intensifying the challenge of under-employment.

To begin with, an examination of the composition of the workforce by employment type shows that the share of self-employment in total employment has increased to 53.5 per cent, up from 52.1 per cent as reported in the previous two PLFS rounds (2017-18 and 2018-19). Self-employed workers comprise three broad categories — own-account workers (those who run their enterprise without hiring any labour); employers (those who run their enterprise by hiring labour) and unpaid family workers/helpers in household enterprises. The third group comprises those who are engaged in their household enterprises, working full or part time, but do not receive any regular salary or wages in return for the work performed. It is this latter category, considered as poor quality employment, that has witnessed an increase in its share in total employment from 13.3 per cent (2018-19) to 15.9 per cent (2019-20) and contributed to the falling unemployment rate. The increase in this category of workers is reflective of rising underemployment. As the number of members working in household enterprises rises, each worker simply works for less time than before and a large section of the workforce is underemployed. The share of the other two categories of self-employed workers, that is, own account workers and employers has declined. The share of regular salaried workers, which had been steadily rising in India until the PLFS 2018-19 and is considered as a more stable and secure form of employment, is now showing a decline. Significantly, even amongst regular salaried workers, those who are not eligible for any social security benefits has increased from 51.9 per cent to 54.2 per cent suggesting that formalisation would have been adversely impacted.

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Interestingly a sectoral breakdown of the workforce shows that the share of the workforce engaged in agriculture has risen to 45.6 per cent (2019-20) from 42.5 per cent (2018-19). This increase is significant as it is the first time that the share of agriculture in total employment (in percentage terms) has increased since the NSS surveys started. This is indicative of a stalled structural transformation process, one which had picked up pace after 2004-05 with both the share and absolute numbers of workers engaged in agriculture declining with a concomitant rise in the non-agricultural sector. However, as non-agricultural sectors have failed to create jobs at a rapid pace in recent times, many jobseekers have been pushed back into the agricultural sector resulting in its emergence as an “employer of last resort”.

Two trends that point to a deterioration in quality of employment merit attention vis-à-vis the sectoral composition. First, in the non-agriculture sector, the share of those engaged in informal enterprises increased from 68.4 per cent in 2018-19 to 69.5 per cent in 2019-20. Second, within the agricultural sector, much of the increase is coming through the category of unpaid family helpers. Their share in agricultural employment has increased (from 25.7 per cent to 29.7 per cent), while that of own account workers and employers has declined (48.4 per cent to 44.5 per cent) between the two rounds. Significantly, the share of rural women engaged in agriculture has increased substantially from 71.1 per cent (2018-19) to 75.7 per cent (2019-20)and these women are increasingly being employed in the category of unpaid family workers.

It is worth noting that India has been witnessing a rapid decline in female Labour Force Participation Rate (LFPR) since 2004-05. This trend has been partly attributed to the withdrawal of women from the workforce as a consequence of an “income effect” — an increase in their family’s income. The PLFS 2019-20, however, shows a sharp increase in the female LFPR by 5.5 percentage points. Much of this is driven by the increased LFPR of rural women. This rise coupled with their increasing engagement as unpaid family workers (and not better forms of employment such as regular salaried work) appears to mark a reversal of the trend of reduction in distress participation of women in the workforce.

These metrics suggest that the decline in unemployment rate based on the usual status approach masks a deterioration in the quality of employment and rising underemployment, challenges which are only likely to have intensified post Covid.


This column first appeared in the print edition on August 9, 2021 under the title ‘The job gap’. The writer is a senior visiting fellow at ICRIER

First published on: 09-08-2021 at 03:08:44 am
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