Rising jobs challenge: Unemployment rate remains elevated, LPR worsens

The unemployment rate remained elevated in the week ended March 11. It has been rising steadily and the labour participation rate, which has not been improving, actually worsened in the last week. The unemployment rate was 7 per cent and the LPR was 42.6 per cent during the week.
 
It is unsettling that the higher unemployment rate comes at a lower LPR. Our challenge on the employment front is just getting tougher.
 
What is our employment challenge? The Prime Minister is often reminded that during his pre-election campaigns he had promised to provide jobs to 20 million people if he were to be elected. Mr. Modi is not known to set modest targets.
 
The promise of 20 million jobs was in line with this reputation in the sense that it is not within the realm of the ordinary to provide so many jobs. But, it is not really a modest target compared to the challenge the country faces today.
 
The ask on the jobs front is much bigger. By sheer demographics, about 2 million people get added every month to the stock of those above the age of 14 years. These are the people who could potentially join the labour force to seek employment. But, India has a low labour participation rate by world standards. It is about 43 per cent while the global standard is around 60 per cent. By this low standard about 10 million additional people should be looking for jobs in a year.
 
However, this is not the case. Santosh Mehrotra, using Labour Bureau's statistics, has pointed out in this paper (January 13, 2018) that between 2004-05 and 2015-16 only two million joined the labour force in a year on an average. Going by the Labour Bureau's statistics we had 23 million unemployed in 2015-16.
 
So, if Mr. Modi had succeeded in providing 20 million jobs a year he would have solved the problem that he was presented. And then, solving the problem of a couple of million that were added every year would have been easy.
 
But, the problem is bigger than presented to Mr. Modi in 2013. According to estimations made by CMIE, the unemployed in March 2016 were 38 million and not just 23 million as seen in the Labour Bureau's data. While that is almost twice the official estimate it is in reality only half the problem.
 
In March 2016 while there were 38 million people who were unemployed, there were another 40 million who were marginally unemployed. This requires a little explanation.
 
The 38 million unemployed were those who were actively looking for jobs. They were willing to work but did not have a job and were actively looking for a job. An additional 40 million were also willing to work and did not have a job. However, these were not actively looking for a job. They were not applying for jobs, visiting job-sites, interviewing or enquiring about jobs. Nevertheless, they were willing to work if a job became available to them. So, we call them the marginally unemployed.
 
This stock of unemployed and marginally unemployed is so large (nearly 80 million) that it automatically acts as a deterrent to an expansion of the labour force. This was the situation in much of 2016. The unemployment rate was 9 per cent and the greater unemployment rate (which includes the marginally unemployed) was 17 per cent.
 
Demonetisation led to a very sharp fall in the count of the unemployed and the marginally unemployed. The count of employment did not change significantly but, the count of unemployed fell very sharply.
 
The count of unemployed fell from a peak of 44 million in May 2016 to a low of 16 million in April 2017. And, the count of marginally unemployed fell from a peak of 45 million in August 2016 to 7 million in May 2017. Whereas the count of employed which peaked at 414 million in October 2016 fell to a low of 401 million in November 2016. The count of unemployed fell by 28 million, that of the marginally unemployed fell by 38 million, but the count of employed fell by only 13 million.
 
In February 2018, 407 million were employed; 26 million were unemployed and 11million were marginally unemployed.
 
The challenge is to bring back the population that left the labour force after demonetisation -- that had stopped looking for jobs and so had stopped calling itself unemployed or marginally unemployed and to steer the economy such that it provides them respectable jobs.
 
Twenty million jobs are not enough. If the ask was 80 million in 2016 then it will be more than that by 2019. What will the politicians promise us around this time? More importantly, what will be the strategy of the new government to ensure that our demographic dividend does not turn into a demographic disaster?

Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.