India’s falling unemployment rate in 2019-20

India’s falling unemployment rate in 2019-20

Subject: Economy

Context:

• The latest annual report of the Periodic Labour Force Survey (PLFS) has surprised everyone by claiming that the unemployment rate fell in a year when India’s GDP growth was at its weakest

Concept:

Major unemployment trend in India

1. The proportion of people in the working-age who seek to participate in the economy is considerably lower than other economies.
2. The extremely low LFPR for women in India.
3. Despite a low LFPR, India’s unemployment rate has been quite high.
4. In 2019-20, India’s LFPR improved, and, the unemployment rate. So the LFPR went up, albeit marginally, and the unemployment rate went down

Table 1: LFPR is increasing while unemployment rate falls

The PLFS

• The PLFS is an annual survey conducted by the National Statistical Office.
• It was started in 2017 and it essentially maps the state of employment in the country.
• It collects data on several variables such as the level of unemployment, the types of employment and their respective shares, the wages earned from different types of jobs, the number of hours worked etc.
• Earlier this job was done by Employment-Unemployment Surveys, which were conducted once in five years.

Calculation Methods

There are two ways and they differ in terms of the reference period.

The Usual Status (US),

• The survey ascertains whether a person had been employed for enough days in 365 days preceding the survey.
• The Usual Status is the only one that is showing a reversal in the unemployment trend
• The NSO unemployment number most routinely quoted is the one based on Usual Status.

The Current Weekly Status (CWS),

• The survey tries to figure out whether a person was adequately employed in the seven days preceding the survey.
• But this approach is not comparable with either the global norm (say the one followed by International Labour Organization) or the private sector practice (such as the surveys done by the Centre for Monitoring Indian Economy or CMIE).
• The CWS is closer to the global norm. The CWS method shows that unemployment didn’t really fall
• The CWS is also more relevant because it is this approach that the NSO uses for understanding quarterly changes in unemployment. So if we start looking at the unemployment rate and LFPR trends compiled using the CWS approach, the emerging picture is more in sync with either the data from CMIE or indeed all the other indicators of the broader

Reason

• The rise in LFPR and the apparent fall in the unemployment rate are explained: “by the rise in distress”.
• The annual report one finds that increased labour force participation rate is happening because work opportunities have shrunk and incomes have fallen.
• People are being forced to take up self-employment often of the kind designated as “helper in household enterprise” even as the relative share of wage (or salaried) employment falls.

Table 2: Unemployment rate differs dramatically between US and CWS methods

Table 3: CWS data shows a completely different picture

Source: PLFS 2019-20