Five million potential workers may have left the labour force entirely

It appears that the recovery phase of employment is over and a decline is setting in again

Employment declined in India in November 2020. This was the second consecutive month of a contraction in the number of people employed. In October, the count of the employed had fallen by 0.1 per cent. In November, the fall was larger at 0.9 per cent. The October fall was of 0.6 million. In November, this was much larger at 3.5 million.

The recovery in employment, from the steep fall during the April lockdown, was smart initially, but it slowed down well before the recovery was completed. In fact, the recovery quickly and progressively slowed down in July, August and September. Then, it reversed in October and November. It appears that the recovery phase is over and a decline is setting in again. We see this in the employment data and this could be a reflection of the economy as a whole. This is so because unlike much of the official data that is available so far, which is almost entirely based on the organised sector, the employment data collected by CMIE’s Consumer Pyramids Household Survey is far more comprehensive as it covers the organised and unorganised sectors since it is based on all kinds of households.

At 393.6 million, employment in November 2020 was 2.4 per cent lower than it was a year ago, in November 2019. In spite of the smart recovery, employment in each of the months since March 2020 has remained significantly lower than the levels in the corresponding months of 2019. Employment has not reached the year-ago levels by any measure.

Interestingly, the number of persons who report themselves as unemployed and are also actively looking for work has also been declining. In November 2020, their count is estimated at 27.4 million. This is 2.4 million less compared to the 29.8 million who were similarly unemployed in October 2020. This is also much lesser than the average number of similarly unemployed persons in 2019-20, which was 33.3 million.

The count of the unemployed had shot up to 87 million in April and May 2020. By August 2020, in line with the smart recovery seen in employment, it fell to 35.7 million. Then, while employment began stagnating and then even declining, the count of the unemployed did not rise. On the contrary, it declined. It fell to 28.4 million in September and to 27.4 million in November 2020. This is an anomalous behaviour of labour where, even if employment does not rise, the count of the unemployed keeps declining.

Apparently, labour is getting discouraged by the lack of jobs on offer and is exiting the active labour markets where the unemployed seek work. And so, in spite of an incomplete recovery, India faces falling employment and falling unemployment. The sustained loss of jobs and also the apparent falling wage rates or income levels is discouraging workers from remaining in the labour markets.

It is not the case that people are not interested in working. At least the fall in the unemployed is not a reflection of a lack of interest. It is also not the case that labour is leaving the labour markets entirely. The count of people who are willing to work but are not actively looking for work is quite high. In November, this count was 22.5 million. These are people who are also unemployed and are willing to work but, unlike the 27.4 million unemployed counted earlier who are actively looking for jobs, these are not actively looking for work. It can be assumed that if work is available at a decent wage rate, they would take it up. It can be further assumed that if they are not looking for work although they are willing to work, it could be only because work is either not available or is available for a pittance. These people are neither uninterested in working nor are they entirely out of the labour market.

The count of these inactively unemployed, at 22.5 million in November 2020, is almost twice the average 11.6 million who were similarly unemployed in 2019-20. They numbered a similar amount even in the preceding two years. This indicates that compared to historical standards, the current count of the unemployed who are willing to work but are not actively looking for work is unusually high. Unemployed labour that wants to work is parked in large numbers just outside the labour markets.

The labour force (the sum of employed and the unemployed who are actively looking for work) has shrunk by about 16 million, but the greater labour force (which includes the labour force and the unemployed who are willing to work but are not actively looking for work) has not shrunk as much. In November 2020, the labour force was estimated at 421 million compared to 437 million in 2019-20. This 16 million fall implies a 3.6 per cent shrinkage. The greater labour force in November 2020 was 443.5 million compared to 448.4 million in 2019-20. This is smaller, at 4.9 million or 1.1 per cent.

But, the shrinking of the greater labour force indicates that around five million potential workers have left the labour force entirely. This is worrying.

The last few weeks have shown some hopes of this declining trend bottoming out in December. The labour force participation rate and the employment rate have risen in two consecutive weeks -- of November 29 and December 6, 2020. Don’t worry about the simultaneous rise in the unemployment rate.