What the rising unemployment rate foretells

What is the Period Labour Force Survey?

The National Statistical Office (NSO) in April 2017 launched the PLFS to ensure that labour force data is available within frequent time intervals. It records the unemployment status in India and collects information and data on unemployment levels, types of unemployment, wages earned from different jobs, and hours worked. it estimates key employment and unemployment indicators such as WPR, LFPR, UR, and gender-based unemployment rate. These estimates are calculated every three months for urban areas (current weekly status or CWS) and for both urban and rural areas annually (usual status and CWS).

How are employment indicators arrived at?

WPR is the percentage of employed persons in the population. LFPR is representative of the percentage of persons in the labour force, working or seeking or available to work. UR is the percentage of people unemployed out of the total population in the labour force. For FY20, a total of 12,569 first sampling units (6,913 villages and 5,656 urban blocks) were surveyed, with 100,480 households and 418,297 persons. With the onset of the pandemic, April-June 2020 saw UR (CWS) in India increasing to 20.9% against 9.1% in the previous quarter. UR for men and women in the quarter rose to 20.8% and 21.2%.

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What has been the trend in unemployment rate?

UR declined to 4.8% in FY20 against 5.8% and 6.1 in the preceding two years, while WPR increased to 38.2% in FY20 from 35.3% and 34.7%, respectively, and LFPR improved to 40.1% in FY20 from 37.5% and 36.9%. However, April-June 2020 LFPR for men and women declined to 55.5% and 15.5% against 56.7% and 17.3% in January-March 2020.

How are GDP growth and UR connected?

Economic growth is associated with inflation and more employment. Data for India in FY20 shows that while GDP growth rate decelerated to 4%, UR also declined to 4.8%. The gross domestic product (GDP) deceleration and UR decline in FY20 could be on account of the fact that while primary and tertiary sectors grew at 3.3% and 7.2%, the secondary sector, manufacturing, fell 1.1%. It is a point worth contemplating on, as primary and tertiary sectors absorb 42.6% and 32.3% of the workforce, while the secondary sector absorbs only 25.1%.

What does the UR trend signify?

At a micro level, the UR is an indicator of poverty ratio. At macro level, a lower UR would mean more income in the hands of people, boosting aggregate demand and leading to higher economic growth. But the GDP growth rate at 4% during FY20 contradicts the signal provided in terms of declining UR. Also, a jump in UR creates a risk of the socio-economic fabric getting disrupted, which may lead to riots in the street.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.