Covid-19: Unemployment rate rises to 24% amid nationwide lockdown

In the week ended April 12, 2020, the unemployment rate rose to 24 per cent. This estimate is based on 10,355 responses during the week.

In the last week of March, which was the first week of a national lockdown, the unemployment rate had shot up to 23.8 per cent. This was a steep rise from an unemployment rate that ranged between 7 and 8 per cent in the preceding year. This sudden over-3x increase was sustained in the second week of the lockdown, which was the first week of April. The unemployment rate during this week was 23.4 per cent. Now, in the third week of the lockdown, the unemployment rate continues to remain high at 24 per cent.

The sustained high levels of unemployment are somewhat surprising. We had not expected the unemployment rate to rise. In the last economic shock of demonetisation, the unemployment rate had declined. The expectation was that under conditions of severe curtailment of economic activities, the unemployed would move out of the labour markets in acknowledgement of the fact that there are no jobs on offer. This is what had happened after demonetisation. At that time, an estimated 11 million unemployed left the labour markets.

Unemployed people do not continue to hang around for long in search of jobs during an economic crisis. They quit labour markets -- as discouraged labour, causing a drop in the unemployment rate.

During such a crisis, when certain types of employed lose their jobs, they do not join the ranks of the unemployed. They too, quit the labour markets. This is because India's labour force comprises mostly people employed informally in the unorganised sectors. There are no paid leaves or any job security for these workers. Their employment is conditional upon circumstances. Think of agricultural labourers, construction site workers, other daily wage workers and even small self-employed entrepreneurs.

 

At the time of demonetisation, the initial loss of employment was high. But, these jobs came back and the sustained loss was only about 3 million jobs. Later, the combination of GST with demonetisation worsened the loss of jobs.

In the current lockdown, there has been a huge exit of the employed and the unemployed from the labour markets.

The labour force participation rate has dropped sharply. In February 2020, the labour force participation rate was 41.9 per cent. This itself is very low. It remained around this level in the first three weeks of March 2020.

Then, in the last week of March when the lockdown came into force, it fell to 39.2 per cent. In the first week of April it fell sharply to 36.1 per cent and in the second week of the month it fell even further to 35.5 per cent.

This fall is along expected lines. Six per cent of the working age population has quit the labour markets. Around 42 per cent of the working age population was engaged in the labour markets before the lockdown. By the end of three weeks this ratio was down to 36 per cent. This is a much bigger fall than the fall seen after demonetisation which had led to a shrinking of the ratio by only 1.9 percentage points, compared to 6 post the lockdown.

If this shrinking of the labour force is mostly because of an exit of the unemployed, then the unemployment rate declines. This is what happened after demonetisation. But, this time, in the lockdown, the labour force has shrunk because of an exit of the unemployed and of the employed who lost their jobs, from the labour markets. The latter is evident from the greater fall in the employment ratio compared to the fall in the labour participation rate.

While the labour force participation rate has declined by about six percentage points in three weeks, the employment ratio has declined by ten percentage points. The employment ratio fell from 38-39 per cent before the lockdown to 27-28 per cent after the lockdown.

This fall again, in the employment rate in the lockdown is much steeper than the fall during the demonetisation period. The fall in the employment rate then was only 0.7 percentage points.

Finally, even after a very sharp fall in the labour force participation rate we see a big jump in unemployment. This means that although fewer people are looking for jobs today than before, many more of them are unable to find jobs. Before the lockdown, 42 per cent of the working age population was looking for jobs and 7-8 per cent were not finding jobs.

Now, only 36 per cent of the working age population is looking for jobs and yet, nearly a quarter of them cannot find jobs.

But, this is by design. The economic impact of this lockdown by design is evidently huge. Its impact on the livelihood of vulnerable sections of society is immeasurably bigger. For many of them, this is not a lockdown, it is a knockout.

The author is MD & CEO, CMIE