Photo: Mint
Photo: Mint

Opinion | NSSO’s unemployment spike needs more nuanced reading

The govt should focus on identifying real issues, so that an appropriate policy response is possible

The National Democratic Alliance (NDA) government has shot itself in the foot by needlessly delaying the release of the National Sample Survey Office’s (NSSO) latest estimates of unemployment, news that was leaked to a business paper last week. The data showed the unemployment rate at a 45-year peak of 6.1% in 2017-18.

Governments in democracies need to learn a simple lesson: when the economic numbers are unflattering, you need a plausible explanation and a response, not a denial of their existence. We do have an unemployment problem, and this is not something that happened all of a sudden in the last four or five years. If there was no jobs crisis, the United Progressive Alliance (UPA) would not have launched a boondoggle such as the Mahatma Gandhi National Rural Employment Guarantee Act, and the NDA would not have tom-tommed a Micro Units Development and Refinance Agency or Mudra scheme to finance pakora entrepreneurship.

We have had a jobs crisis since 1947. In the four and a half decades till 1991, we had overprotective labour laws that discouraged additional employment. After 1991, we liberalized the capital markets, but not the land and labour markets. Since capital was easier to come by, the bias against employing labour got accentuated. Today, the growth-jobs link is broken, with employment elasticities falling to less than 0.2 (12th plan estimate), and further to 0.1 now (State Of Working India 2018, Azim Premji University). This means even 10% GDP growth will give us only 1% lift in jobs.

There was a brief period from 2009-10 to 2011-12 when jobs growth suddenly spiked to 6.1% annually, but this growth was built on artificial steroids: a huge monetary and fiscal stimulus after the Lehman crisis, and heavy subsidisation of petro-fuels at an average of around 1% of GDP. When this steroid infusion ended in 2012, and fiscal priorities shifted towards lower deficits, jobs growth just collapsed.

It is, of course, possible to blame demonetization for the continuing weak growth in jobs, but this is also misleading. The job-depleting effects of demonetization lasted all of nine months, but it was followed by the goods and services tax (GST), which forced formalization and greater tax compliance. In other words, while the UPA period was built on steroids, the NDA period has been marked by sustained deflationary policies, with additional speed-breakers in the twin balance sheet problem.

The sharp spike in the NSSO’s unemployment rate, from 2.2% in 2011-12 to 6.1% in 2017-18, is misleading, for we are comparing a peak steroid-driven performance year with one in which both demonetization and GST combined to depress jobs growth in the informal sector. Plus, we are seeing the after-effects of a prolonged period of farm distress and weak rural wage growth, which has forced people to leave the farm and seek wage incomes. Staying on the farm would have disguised unemployment; now it is out in the open.

If we see the jobs problem as more of a wage crisis in an aspirational India, it would imply that even when lower-wage jobs are available, many unemployed people may prefer to stay out of the job market for longer than they would have earlier. The rise in open unemployment may be indicative of a degree of returning optimism in the job market. This is because unemployment rates are related to economic outlook. If people think the economy is sinking, many of the unemployed may temporarily drop out of the job market. Paradoxically, this may sometimes show as an actual dip in the unemployment rate.

In January-April 2017, for example, Centre for Monitoring Indian Economy’s (CMIE) four-monthly data on Unemployment In India showed that 1.5 million jobs were lost post-demonetization, but the unemployment rate actually crashed from 6.79% to 4.71%, and further to 3.91% in May-August 2017, when GST too kicked in. The reason can be surmised. More people may have stopped looking for work when conditions looked bleak. The size of the unemployed labour force temporarily contracted, thus showing an artificial drop in the unemployment rate. Conversely, it is possible to speculate that as economic optimism returns, more people may start looking for jobs, and this may create a temporary spike in the formal unemployment rate. It is worth noting that the CMIE study’s unemployment rate peaked in May-August 2016 at 9.23%, when a good monsoon had improved the jobs climate, a figure that is far higher than its May-August 2018 figure of 5.67%, when total employment was actually falling.

It is not the unemployment rate that is necessarily the problem, though it may be one indicator of an underlying wages problem. The government would be foolish to deny a jobs and wages problem, and its response should focus on identifying the real issues clearly, so that an appropriate policy response is possible. If it disagrees with the data, it should have put in place a better data collection system than what the CMIE is capable of. The one thing the government does not lack is resources to measure jobs and joblessness better than anyone else. Without sound data, no policy response will be adequate to meet the burgeoning employment crisis.

R. Jagannathan is editorial director, ‘Swarajya’ magazine

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