The great employment question: Is the job market shrinking or transforming?

Latest PLFS shows unemployment rate fell to its lowest level of 3.2% in July-June 2022-23

Krishna Raj Bharti’s eyes gleam with hope as he shows his electrician trade certificate given by a private training institute. Bharti, the first in his family to earn a diploma, is excited to join his first ‘job’ in a factory in Bawana in Delhi that manufactures electrical panels.

“I will be earning less money. Given that I have my certification and I will also learn during the job, I will be able to get a decent job by the end of next year,” said Raj Bharti, 25, who lives in Narela in North Delhi.

Youngsters like Raj Bharti are the face of India’s growing labour force. Earlier this year, India overtook China to become the most populous country in the world. However, there is still some more time for India to have the biggest labour force, as despite a rise seen in recent years close to only three out of five people in India belonging to the working age are looking for work.

The National Statistical Office’s (NSO) annual Periodic Labour Force Survey (PLFS) last month showed that the Labour Force Participation Rate (LFPR) has steadily increased over the years to 57.9 per cent in the July 2022-June 2023 period from 49.8 per cent in July 2017-June 2018.

In contrast, nearly three out of four people are looking for work in China. In developed nations, the LFPR is much higher. An increase in the labour force is generally taken as an indicator of the improving job market and a prerequisite for the robust economic growth as more and more people start actively looking for work.

Last month, Prime Minister Narendra Modi credited his government for creating jobs as he addressed more than a million new trainees passing out of the Industrial Training Institutes (ITIs) and various other skill development programmes, ready to join the labour market.  

“Employment creation in India has reached new heights. The unemployment rate in India is at its lowest level in six years. Unemployment is decreasing rapidly in both rural and urban areas of India. This means that the benefits of development are reaching both villages and cities equally," said Modi.

Unemployment rate falling?

The latest PLFS shows that the unemployment rate fell to its lowest level of 3.2 per cent in the July-June 2022-23 period from 4.1 per cent in July-June 2021-22. This is the lowest level of unemployment rate recorded in the country since the NSO started the survey in April 2017.

The unemployment rate in rural and urban areas declined to 2.4 per cent and 5.4 per cent, from 3.2 per cent and 6.3 per cent in the corresponding time period.

Santosh Mehrotra, visiting professor at the University of Bath, said that the increase in LFPR and the fall in unemployment rate is a result of the increase in self- employment due to the economic distress. Self-employment consists of unpaid household work or running a small business enterprise.

“Despite popular belief, the labour markets have not recovered in India. The quality of employment has declined continuously over the past few years, as wage employment, which is a better form of employment, is at its lowest level since the time survey started in April 2017,” he said.

Data from the annual PLFS shows that the share of people having wage employment declined to 20.9 per cent in the July-June 2022-23 period from 21.5 per cent in the July-June 2021-22 period. It was 22.8 per cent in July-June 2017-18.

On the other hand, the share of people engaged in self employment increased to 57.3 per cent in the July-June 2022-23 period from 55.8 per cent in the July-June 2021-22 period. It was 52.2 per cent in the July-JUne 2017-18.

“Though the female labour force has also increased in recent years, they [women] are getting primarily engaged in agriculture or working as unpaid household help. This is primarily a result of the distress induced in the household by the pandemic or a slowing economy. In a way, women are being forced to work to augment the household income, rather than fetching jobs based on their skills. Today, more women are engaged in agriculture than in the last five years,” said Mehrotra.

The PLFS survey shows that the share of women engaged in agriculture has increased to 64.3 per cent in 2022-23 period from 55.3 per cent in 2018-19.

Labour market

“I finished my schooling a couple of years back. For some time, I just stayed at home and tried my luck getting into a government job, but repeated failures meant that I have to start working now or else I might end up becoming overage and remaining jobless forever. And that's how I enrolled myself for the diploma,” said Raj Bharti.

Youth unemployment (people aged 15-29) has always been a politically thorny issue as young Indians face major barriers because of poverty and low levels of human capital. However, a recent report by the State Bank of India (SBI) noted that high youth unemployment recorded in PLFS survey is "wrongfully taken" as a proxy for shrinking unemployment opportunities for them, but in reality it is a reflection of a changing employment-education pattern.

“People now remain in the education system at least until the age of 23-24 years which used to be only up to 17 years earlier. As this (youth) sub-group (41 million in 2020-21 per MHRD data) is not counted in the labour force because it is still in colleges, this could be pushing up the unemployment rate in the 15-29 age bracket as a pure statistical artefact, with low denominator in terms of labour force,” said the SBI report.

The report also contested the claims of labour economists who see decline in wage employment as a sign of distress and said that people now have a choice between earning or remaining self-employed in the family enterprise.

“Credit formalisation through government initiatives like MUDRA Yojana and PMSVANidhi is helping family enterprises grow in size. Along with the government welfare programmes, primary subsistence needs like food, shelter, medical needs being taken care of, people are making a clear trade-off between earnings and working in family enterprises,” the report said.

Formalisation of economy

Though all the major institutions across the globe are upbeat about the growth prospects of the Indian economy, the World Bank earlier this year cut its India forecast for FY2024 to 6.3 per cent, 0.7 percentage points lower than its previous forecast on account of the informal sector neither becoming more productive nor shrinking along with a low female labour force participation rate.

“There is no fixed contract with my employer. I won't be getting any pay for the days I will not go to work and may have to ‘help’ others during overtime, if someone doesn't show up that day,” said Raj Bharti.

The SBI report said that the formalisation of the economy has improved significantly owing to various efforts of the government as the monthly EPFO payroll report shows that almost 6 million jobs have been formalised since FY19.

The recent payroll data from Employees’ Provident Fund Organisation (EPFO) shows a slowdown in formal job creation as the number of new EPF subscribers declined by 10.1 per cent to 5.86 million in the first half (April-September) of FY24 from 6.52 million during the same period last year.

Rituparna Chakraborty, co-founder of TeamLease Services, said that as the technology and knowledge sector which forms the bulk of the formal workforce is trying to rationalise their workforce and battle declining revenues amid muted demand, hirings have suffered a great deal this year. In many cases, even the candidates who got placement offers are yet to officially join the firms.

However, labour economist KR Shyam Sundar said that the workers covered under EPF are a miniscule fraction of the actual labour force in the country and this brings to the fore that the informal sector’s share in employment has remained nearly the same over the years and it continues to remain a challenge.

“If there is a slowdown in the pace of job creation in this miniscule fraction as well, that is a matter of concern because the huge unproductive informal sector can not sustain domestic consumption, which is bound to have a negative impact on growth,” Sundar added.

In its last article IV consultations with India last year, the International Monetary Fund (IMF) noted that labour market reforms are expected to improve labour market functioning, support formalisation, enhance female participation, and expand social security benefits for workers.

“Expansion of domestic production-linked incentive schemes to labour intensive and green sectors, state renewable purchase obligations, and agriculture and labour market reforms are expected to support sustainable and equitable growth,” the IMF had noted.

Employment will be a key election issue next year. Providing decent employment to the millions of people entering the job market annually is going to be a tough task.