Our labour force survey shows a structural crisis of employment

Estimates of employment and unemployment from the third annual round of the Periodic Labour Force Survey (PLFS) of India’s National Statistical Office (NSO) were released earlier this week. These numbers for July 2019-June 2020 are the third in this series, after 2017-18 and 2018-19. The 2017-18 estimates had shown a sharp rise in unemployment compared to findings of the NSO’s employment-unemployment surveys until 2011-12. This, together with a 15-million decline in the number of workers between 2011-12 and 2017-18, had pointed to the precarious nature of our labour market and a worsening of the employment structure.

Preliminary results of the PLFS-3 (2019-20) suggest that the situation has worsened. These estimates are for a period when the economy was seeing a sharp slowdown in growth and decline in real wages. On the internationally-comparable weekly status estimates, even though the unemployment rate shows no change at 8.8%, the number of unemployed increased by 4 million from 2018-19. While useful, unemployment rates are only one indicator of the functioning of a labour market. In any case, in an economy with a large proportion of the population living in poverty, unemployment is a luxury that very few can afford. That’s why official unemployment estimates aren’t an appropriate metric to assess the extent of joblessness in the economy. A better indicator is the number of hours worked, which showed a sharp decline across population groups, confirming a lack of employment opportunities even for those who got some work.

The weakening of economic activity forced many to seek distress employment, resulting in a 43-million rise in total employment numbers in 2019-20 from the year earlier. Since this came at a time when the economy was slowing, interpreting the number otherwise would amount to misreading it. Beyond the headline numbers, the employment estimates point to a bigger worry: a worsening of India’s employment structure. An important characteristic of economies witnessing rapid growth is their changing structure of employment, with a shift of workers away from low-productivity sectors such as agriculture to others. While India has witnessed a decline in agriculture’s share of overall employment since the 1970s, it was only after 2004-05 that the absolute number of workers started falling. This fall was fairly rapid and continued until 2017-18. In 2018-19, the number of workers in agriculture was unchanged from the year before. But the 2019-20 estimates now report a sharp 32 million rise. In other words, agriculture absorbed almost three-fourths of the increase in workers that year. This marks the first time in five decades that the share of workers in agriculture rose, reversing the structural transformation of our economy underway since 2004-05. This is a serious matter of concern.

An increase in distress employment usually shows up in higher employment of women, children and the elderly, as households push the reserve labour force into the active labour market to maintain their real incomes. This phenomenon led to a large increase in employment even during the period from 1999-00 to 2004-05, when too the economy was going through a similar crisis. The change in India’s employment structure this time looks similar, with higher female employment at the bottom end of the pyramid, along with a shift of workers back to agriculture. A majority of workers turned to self- employment as regular employment declined. That the count of workers declined in manufacturing and construction, which are among the largest non-farm sectors, is clear evidence of job losses there. It also implies that agriculture is tasked with absorbing those rendered jobless in other sectors, as also new entrants to our job market. But with agriculture itself in distress, amid falling farm incomes due to an unfavourable shift in the terms of trade, the sector is incapable of offering refuge to those left without jobs elsewhere.

The PLFS estimates are an early warning of a structural crisis. That the first three of 2019-20’s four quarters were unaffected by our covid lockdown also means that a structural retrogression in the economy was underway before the pandemic. The situation would have worsened after the second covid wave. Economic activity may recover once a significant proportion of the population is vaccinated. But this retrogression is unlikely to be reversed without the kind of economic growth that’s accompanied by the creation of productive and remunerative jobs.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi