Recovery in Employment

Recovery in Employment

Subject – Economy

Context – recovery in employment may lag the recovery in GDP

Concept –

• IMF has been in the news for unveiling its second World Economic Outlook (WEO).
  • Twice every year — April and October — the IMF comes out with its WEO.
  • The WEO reports are significant because they are based on a wide set of assumptions about a whole host of parameters — such as the international price of crude oil — and set the benchmark for all economies to compare and contrast.
• On the whole, the IMF’s central message was that the global economic recovery momentum had weakened a tad, thanks largely to the pandemic-induced supply disruptions across the planet.
• But more than just the marginal headline numbers for global growth, it is increasing inequality among nations that the IMF was most concerned about.
• “The dangerous divergence in economic prospects across countries remains a major concern. Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9 per cent in 2024. By contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5 per cent below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards,” it stated.
• There are two key reasons for the economic divergences: One, large disparities in vaccine access and, two, the difference in policy support (or the help provided by the respective governments).

• But possibly the most important takeaway from the WEO this time is about the employment growth likely to lag the output recovery

• “Employment around the world remains below its pre-pandemic levels, reflecting a mix of negative output gaps, worker fears of on-the-job infection in contact-intensive occupations, childcare constraints, labor demand changes as automation picks up in some sectors, replacement income through furlough schemes or unemployment benefits helping to cushion income losses, and frictions in job searches and matching,” states the IMF in WEO.
• Within this overall theme, what is particularly worrisome is that this gap between recovery in output and employment is likely to be larger in emerging markets and developing economies than in advanced economies.
• Further, young and low-skilled workers are likely to be worse off than prime-age and high-skilled workers, respectively.
• But in the context of what the IMF said about recovery in unemployment lagging output recovery, it matters to understand why we may not know about the unemployment distress in a large part of India. That’s because, as it is often said, 90% of India’s jobs are in the so-called informal sector. More often than not, data on this part of the economy is quite patchy and inadequate.
  • The terms unorganised/ informal sector are used interchangeably in the Indian context. The informal sector/unorganised sector consists of enterprises which are own account enterprises and operated by own account workers or unorganised enterprises employing hired workers. They are essentially proprietary and partnership enterprises.
  • The share of informal/unorganised sector GVA to the total is more than 50%.

• There are sectors such as Agriculture and allied industries where almost all the sector’s GVA is produced by those working in the informal sector.
• Then there are sectors such as Manufacturing where less than 23 per cent of the total GVA comes from the informal sector.
• The informal worker is defined as “a worker with no written contract, paid leave, health benefits or social security”.
• The organised sector refers to firms that are registered. Typically, it is expected that organised sector firms will provide formal employment.
• The below table shows the break-up as of 2017-18. (Source: Computed from NSS 68th unit level data on employment unemployment, 2011-12 and Periodic Labour Force Survey, 2017-18)

• It is clear that the bulk of India’s employment is both in the unorganised sector and is of an informal nature.
• What this data shows is that if the informal/unorganised sector recovers at a slower pace than the formal sector, then the recovery in employment (relative to the recovery in output) will be even slower in India.