Slicing the unemployed by class

In 2019-20, the poorest households accounted for 9.8% of all the households and only 3.2% of all the unemployed

We found earlier that the unemployed do not necessarily hangout at tea stalls. They are likely to be studying or occupied as being home-makers. We now try and locate the unemployed by their income class. Are they poor or middle class or are they the relatively richer classes? CMIE’s Consumer Pyramids Household Survey (CPHS) enables such an exercise as it links every individual who is measured for employment status with a household and CPHS also provides data on the income of the households.

For the sake of convenience we divide households into five income classes. The class division is not by percentiles as is the norm in academic work but by tangibly rounded values of annual household incomes. At the bottom of the income pyramid are households that earn less than Rs.100,000 a year. The next group earns between Rs.100,000 and Rs.200,000 a year. Note that the median household income during pre-pandemic year, 2019-20 was Rs.187,410 and it was Rs.170,500 in 2020-21. We can therefore, call this group as the lower middle class. The third group of households earns between Rs.200,000 and Rs.500,000 a year. This could be the middle income class. The fourth earns between Rs.500,000 and Rs.1 million a year and could be classified as the upper middle class. The richest group of households earn more than Rs.1 million in a year.

In 2019-20, the poorest households accounted for 9.8 per cent of all the households and only 3.2 per cent of all the unemployed. In 2020-21 and the first half of 2021-22 they accounted for 16.6 per cent of all households but still accounted for only 3.5 per cent of all the unemployed. The poorest households are not the ones that report large scale unemployment. The default explanation of this is that the poor cannot afford to remain unemployed and so are largely employed. But, this is not true. Sure, this group has the lowest unemployment rate at about 4.1 per cent before the pandemic during September-December 2019 and at 4.8 per cent during September-December 2021. But, it also has the lowest labour participation rate at 38.1 per cent and 31.3 per cent, respectively in the same periods. The employment rate was 36.5 per cent and 29.8 per cent, similarly. These are the lowest rates among all the income groups.

Evidently, the poorest households suffer the worst employment conditions. They also suffer the worst wages conditions. The average wage income of a poor household at about Rs. 53,000 is less than half the average wage income of all households. Poor households suffer the double whammy of low employment rate and low wage rate. But, this is not where most of the unemployed reside.

A little over a third of the unemployed reside in the lower middle income households. These households accounted for about 45 per cent of all households. The labour participation rate and the employment rate in this group is better than the poorest households but it is lower than all other income groups. The data seems to suggest that a significant portion of this income group migrated to lower income groups during 2021-22.  As this transition played out, the share of this class in the total unemployed increased from 33 per cent during September-December 2019 to 39.5 per cent during May-August 2021 before scaling back to 35.7 per cent in September-December 2021. 

Bulk of the unemployed population is situated in the middle class households, those that earn between Rs.200,000 and Rs.500,000 in a year. These households accounted for half of the total households and also half of the unemployed. This income class displays the best labour participation rate among non-rich household groups.  The average LPR of this group was 43 per cent when the overall average LPR was 40.8 per cent. This income group houses the largest number of unemployed and also experiences an elevated unemployment rate of over 9 per cent.

The average wage income of a household of the middle income group is a little less than Rs.200,000 a year. Note that wage income is only a part of the total income of households. India’s biggest challenge on the employment front is to provide jobs that yield about Rs.200,000 a year to about 16 million unemployed of the middle class households. 

It is somewhat compelling here to juxtapose the fact that the CPHS database also tells us that the consumer sentiments are improving the most among the middle classes.

The richer households suffer the least pain of unemployment. They account for about half a per cent of all households and contain a similar proportion of all unemployed. Their average LPR at 46.3 per cent is the highest among all income groups. Their unemployment rate had shot up the most among all income groups but has since declined. It was over 15 per cent during the first wave of the pandemic. But, in 2021, the rate has averaged at 5.2 per cent. The employment rate has been mostly over 40 per cent. But, during September-December 2021, it shot up to 45 per cent. This is much higher than the employment rate of the other income groups which range between 30 and 40 per cent.

However, even India’s best case at 45 per cent is much worse than the world average of 54 per cent.