The brutal truth about unemployment

In January 2017, I had conjectured that the fall in unemployment in the quarter gone by reflects a fall in labour participation. Demonetisation is believed to have led to a loss of jobs on a large scale, as also the loss of hope of obtaining employment for a large number of people. And, it hit very hard the vulnerable sections - those with insecure jobs, those with limited education, women and those who were unemployed but hopeful of gaining employment.

Statistical profile of the employment/unemployment status of the now-available September-December 2016 period, or the demonetisation period, bears this out.

Consumer sentiment and unemployment measures reported every week are derived from the CMIE Consumer Pyramids Household Survey (CPHS), which surveys about 160,000 households over a four month period (a Wave) at the rate of about 10,000 households per week. There are three Waves in a year. We compare the results of the September-December 2016 Wave with the results of the preceding (May-August 2016) Wave to understand what happened around demonetisation.

The number of people employed increased by four million from 403 million to 407 million in the September-December 2016 period, and this is explained by the busy kharif harvest season and the festivals during the period.

However, the number of unemployed fell by a much sharper 11 million from 41 million to 30 million during this period. Together the number of employed and the number of unemployed make up the labour force, so a sharper fall in the number of unemployed than the rise in the number of employed simply means that the labour force shrunk during the period. The seven million simply left the labour force.

It means that a number of those with insecure jobs lost employment and a number of those who did not have jobs but were looking for employment simply gave up hope of finding employment and therefore moved out of the labour force itself.

With the labour force shrinking, the unemployment rate fell from 9.2 per cent during May-August 2016 to 6.9 per cent in September-December 2016.

Now, while the number of unemployed fell by 11 million, the number of people who were earlier unemployed but willing to work fell by an even sharper 14 million. As a result, a total of 25 million people who had earlier stated that they were willing to work now reported that there were not even willing work! This is a huge exodus from the greater labour force in the September-December 2016 period.

Why did so many people just leave the labour force? Wasn't it better to remain in the search for jobs? Part of the reason can be found in the distribution by education.

The CPHS provides four options to a person of 15 years or more on the employment/unemployment status. A person could be either (a) employed, or (b) unemployed but willing to work and actively looking for a job, or (c) unemployed willing to work but not actively looking for a job or (d) unemployed not willing to work and not looking for any job.

The first two, (a) and (b) make the labour force. The last option (d) comprises students, home makers, retired people and other similar people who choose not to take up any employment. In the third option (c) we capture those who are at the edge of the labour force. This includes people who could join the labour force if the labour markets improved.

While the labour force shrunk by 7 million during September-December 2016, the labour force of the section which had no education shrunk by 18 million. Of the 25 million who changed their status from willing to work to unwilling to work, 20 million had reported no education.

The second explanation is in the fact that males did not suffer any fall in employment or labour force. The entire brunt was borne by women. Men gained 6 million jobs while women lost 2 million jobs; the male labour force remained intact while the female labour force took the entire hit of the fall in labour force.

Demonetisation hit the most vulnerable sections very hard and it kept the rest unscathed. This is the brutal truth.

SENTIMENT RISES

Sentiment gauge



UNEMPLOYMENT DECLINES



Unemployment gauge



Every Tuesday, Business Standard brings you CMIE’s Consumer Sentiments Index and Unemployment Rate, the only weekly estimates of such data. The sample size is bigger than that surveyed by the National Sample Survey Organisation. To read earlier reports on the weekly numbers, click on the dates:
November 21, November 28, December 4, December 11, December 18, December 25, January 1, January 8, January 15 , January 22, January 29, February 4 , February 12, February 19, February 27, March 5, March 13  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.