Labour statistics disappoint in October: Unemployment rate rises to 6.9%

Month records worst unemployment rate in two years

The small improvement in labour statistics seen in September turned out to be short-lived. October statistics point to a continuation of the deterioration in labour markets seen earlier.

The unemployment rate rose to 6.9 per cent in October — the worst recorded in two years. The unemployment rate has been rising almost steadily since July 2017. And, this is not the only bad news from the labour markets.

Unemployment rate is not the best measure of labour market conditions in India. A better set of measures is the labour participation rate and the employment rate.

The former is a measure of the number of persons who are employed or are unemployed and are actively looking for employment as a per cent of the total population that is of the age 15 years and above.

This can therefore be considered as a measure of the proportion of adults who are willing to work. In October 2018, only 42.4 per cent of India's adult population was willing to work. This labour participation rate was the lowest recorded since January 2016 when we began measuring labour statistics systematically.

Labour participation rate was of the order of 47-48 per cent before demonetisation. But, it fell sharply after demonetisation and it has still not recovered. We did see this proportion rise in September but that increase was negated in October.

The employment rate is a measure of the proportion of the total adult population that is economically productive by being employed in some formal or informal activity for compensation. Only 39.5 per cent of the adult population was employed in October. This is the lowest proportion of adult population that is employed.

The unemployment rate is not the best measure of labour market conditions in India

The estimated number of persons employed during October 2018 at 397 million was 2.4 per cent lower than the 407 million persons employed in October 2017. This is a sharp y-o-y fall in employment.

This sharp fall in the employment rate in October is perhaps the most worrisome measure of the labour markets.

While employment has been falling, the number of people unemployed who are actively looking for a job has been rising. As of October 2018, there were 29.5 million unemployed persons actively looking for jobs. This is much larger than the 21.6 million unemployed persons looking for jobs in October 2017.

The count of the unemployed persons actively looking for jobs has risen steadily since its low of 14 million in July 2017. In a little over a year, the number unemployed has more than doubled. This partly reflects the return of labour to the labour markets after their exodus post demonetisation.

The number of unemployed was of the order of 40 million before demonetisation hit the labour markets severely. People did not lose jobs but, jobs did not increase and the unemployed who were actively looking for jobs gave up hopes of finding jobs. These people stopped reporting that they were looking for jobs anymore. Statistically speaking, they exit the labour markets. Now, they have started coming back to the labour markets. The count of the unemployed that fell to 14 million by July 2017 is now back to nearly 30 million.

This return of labour to the labour markets indicates possibly a return of hope, although there still isn't any sign of a significant pick up in jobs on offer.

If all the people who left the labour markets after demonetisation return to the labour markets, the unemployment rate can be expected to rise further.

Given that investments continue to remain subdued, the economy does not seem to have the capacity to absorb much more labour. However, a few large openings in government seem to have raised hopes and caused the increase in the unemployment rate.

The labour markets can potentially see an influx from two sources -- demographic changes (younger people growing into the working-age population and joining the labour force) or from a migration of the working-age population that has remained outside the labour markets to enter into the labour markets.

Working-age people who are not a part of the labour force can be classified into one of two types -- those who are willing to work if a job is available (although they are not actively looking for one) and those who are not willing to work even if a job is available. The former can be considered as the marginally unemployed and the latter as voluntarily unemployed.

The count of the marginally unemployed has been reducing while that of the voluntarily unemployed has been increasing. It is likely that the increase in the unemployed seen in recent months reflects the migration of the marginally unemployed into the labour markets -- in the hope of finding jobs.

The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd