Why low unemployment rate hides the full picture

More Indians are surely employed, but the share of jobs of the poorest quality has risen sharply, suggesting that all is not well in the labour market. (Image: Pixabay)
More Indians are surely employed, but the share of jobs of the poorest quality has risen sharply, suggesting that all is not well in the labour market. (Image: Pixabay)

Summary

  • The unemployment rate has declined steadily from 6.1% in 2017-18 to 3.2% in 2022-23, boosting the government’s defence against claims of jobless growth. But look no further than the official surveys to find that the quality of jobs is far from inspiring.

Coming just months ahead of the Lok Sabha elections, the latest official jobs data released last month has given Prime Minister Narendra Modi’s government a reason for a big cheer. The unemployment rate between July 2022 and June 2023 had declined to a six-year low of 3.2%, showed the annual Periodic Labour Force Survey (PLFS). The steady decline from 6.1% in the inaugural PLFS of 2017-18 has come on the back of improvements in both urban and rural areas, and across education levels and genders.

This will most certainly help the government boost its position in the upcoming polls and respond to long-running criticism of jobless growth. But the picture goes deeper than the headline numbers. Sure, the unemployment rate has shrunk, but as many as 57.3% of the workers are now self-employed. That share has grown sharply since 52.2% six years ago.

Alongside, the shares of both casual labourers and salaried workers have declined.

Worse, the rise in the self-employed category has also been driven by those identified as “unpaid helpers in household enterprises", who made up 18.3% of the workforce in 2022-23, up from 13.6% in 2017-18. The other sub-category, “own account worker and employer", rose just 4.7 percentage points.

All this hints that despite good news in the overall rate of joblessness, the quality of jobs is not as healthy, according to several analysts. More Indians are surely employed, but the share of jobs of the poorest quality has risen sharply, suggesting that all is not well in the labour market.

Government’s bid

The National Democratic Alliance (NDA) government is known for its propensity for capital spending. That intent found renewed focus after the covid-19 pandemic. Increased capital expenditure, focused on roads and railways, was expected to have a positive multiplier effect on the economy and create jobs, primarily in the construction sector. The PLFS shows the share of workers in the construction sector has risen to 13% in 2022-23 from 12.1% in 2020-21, most remarkably for rural men to 19% from 15.6%. The share dropped for all other groups—urban men, rural women and urban women.

“Increased capex should create jobs, and construction would be an important sector," said Amit Basole, professor of economics at Azim Premji University. “However, some of the increase (in employment rates) could just be a rebound to pre-pandemic trends, which would have happened even without the government’s capex."

As manufacturing and services, which tend to create more formal jobs, remain stuck, the rise in informal employment is also a cause for worry. Around 78% of male non-agricultural workers were engaged in informal jobs in 2022-23, up from 71% six years ago. Among women, the increase has been from 54.8% to 60%. Worse, nearly 60% of salaried employees had no written contract, 47% were not eligible for paid leave, and 54% were not eligible for any specified social security benefits (however, the first two of these numbers have improved in the last two years).

People’s perception

The first PLFS report, which had shown unemployment at a four-decade high in 2017-18, had stoked controversy after it was kept away from the public eye until the 2019 election results. Back then, voters had identified unemployment as the biggest issue, according to the pre-poll survey by the Centre for the Study of Developing Societies. Yet, the Modi-led government retained power with a thumping majority. The perception, however, seems to have changed little despite the data showing a sharp decline in the unemployment rate. In the YouGov-Mint-CPR Millennial Survey held in June, nearly 40% Indians felt the country was doing worse than China on creating jobs, even as they voted favourably for governance and economic growth.

In terms of economic growth, India is in a sweet spot, with its biggest Asian rival, China, slowing down and the benefits of demographic dividend potentially attracting more investments in the country. However, the creation of high-quality jobs seems to be proving tricky especially at a time when the old farm-to-factory shift, which worked well for developed economies, may no longer work for India, say experts.

The next generation of high-quality jobs, even for women, are likely to come from the services sector. But with rapid changes in technology, it will require the education system to adapt quicker, and the labour force to show gumption for skilling and reskilling. That’s a task that will take a slew of structural reforms at the educational level as well as in the labour market.

For now, the Modi government has the latest PLFS report on its side. And for voters, despite their worries over lack of aspirational jobs, other factors may play a more pivotal role in electing the government.

This is the second part of a series that will run until May 2024, to cover the top election issues as well as the current government’s report card after nearly 10 years in power. Read the previous part on welfare versus freebies here)

 

 

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