Labour conditions worsening. Expect job losses in August

In August, barring an exceptional spike in one week, the labour participation rate has been slipping

Weekly data for August indicate a substantial worsening of labour conditions during the month. All the three fast frequency measures — labour participation rate, unemployment rate and employment rate — have deteriorated.

While each of the last three months saw an increase in employment after the precipitous fall of April 2020, August could see a fall in employment.

Labour participation rate (LPR) fell to 39.5 per cent during the week ended August 30. This is the lowest LPR since mid-June. Before the lockdown that began in April, the LPR was in the 42-43 per cent range. The average LPR during 2019-20 was 42.7 per cent. This fell dramatically to 35.6 per cent in April. But, it had been improving steadily since. In May it recovered a fair bit to 38.2 per cent and then further to 40.3 per cent in June. Fatigue had set in by late June. This weakness persisted and was evident in the July data, which showed a much milder recovery but, nevertheless, the LPR climbed a bit to 40.7 per cent.

In August, barring an exceptional spike in one week, the LPR has been slipping. The 30-day moving average as of August 30 was 40.7 per cent. It is likely that the August LPR would be a tad lower than its July level, or could remain at the same level. It is unlikely that it will improve from its level of July.

It is also unlikely that the unemployment rate will fall from July’s 7.5 per cent level. The weekly unemployment rates have been somewhat volatile in August. The first two weeks saw elevated unemployment rates of 8.7 per cent and 9.1 per cent. The rate fell to 7.5 per cent in the third week but it climbed back to 8.1 per cent in the week ended August 30. This yields an average of 8.3 per cent. The 30-day moving average as of August 30 was 8.3 per cent as well.

These fast-frequency unemployment rates are systematically higher than the 7.4 per cent rate registered in July 2020. It is, therefore, likely that August will have ended with the double whammy of a lower labour participation rate and higher unemployment rate.

This implies a fall in the employment rate. The employment rate is the most important labour market indicator for a country like India. It is more important than the unemployment rate. The unemployment rate is a proportion of the people willing to be employed who are unable to find employment. This ratio depends upon the denominator, which is the number of people willing to work. The unemployment rate is unable to tell us anything about changes in this denominator. The problem in India is that very few people are willing to work.

According to the ILO modelled estimates, world employment rate was 57 per cent in 2019. India’s employment rate, according to the same source, was 47 per cent. The only significant countries outside West Asia that were worse than India were the battered economies of Turkey, Italy, Greece and South Africa.

According to CMIE’s CPHS, India’s employment ratio in 2019-20 was much worse than the ILO’s estimates. It was 39.4 per cent. ILO’s estimates rely on official data and these are very relaxed in defining employment. CMIE estimates are tighter, less arbitrary and intuitively appealing.

The employment rate tells us about the proportion of working age population that is actually employed. This proportion fell to 36.3 per cent in the week ended August 30. This is the lowest employment rate in the preceding ten weeks. During these ten weeks, the average employment rate was 37.7 per cent within a range of 36.9 and 38.4 per cent. The fall to 36.3 per cent in the last week of August is worrying. It raises the spectre of fatigue in the recovery process. We have raised concerns about this in June when the employment rate’s recovery stopped progressing. Now we worry that it may be slipping.

The 30-day moving average of the employment rate has been sliding almost steadily since early August. By August 30, it had reached 37.3 per cent. If the month closes around this level, it would mean a fall in employment in August compared to the level in July.

Monthly estimates are more robust than the average of weekly estimates because these are adjusted for non-response. If the distribution of non-responses is spread evenly geographically, as is mostly expected, then the average of weekly estimates is a fair indicator of the monthly estimate. In such a case we could see a fall of 3.5 million jobs in August compared to July. This would be the first fall in employment since May and it would increase the gap between the average employment in 2019-20 to over 14 million.

The writer is MD and CEO, CMIE P Ltd