Opinion
There is more to India's mystery of raised employment post-pandemic
Summary
- The dramatic increase picked up by PLFS, even though GDP growth has been unspectacular, calls for deeper analysis. Might more people working with fewer work hours explain it?
In the post-pandemic years, a macroeconomic puzzle has emerged in India and elsewhere. Economies have expanded, but not spectacularly, and retail inflation in nearly every country has remained high. At the same time, employment has surged and unemployment rates are at historic lows.
How can this puzzle be solved? Let us look at the facts for India first. In October, India’s retail inflation was at a four-month low of 4.8%. This is likely to be a temporary respite. The Reserve Bank of India (RBI) forecasts retail inflation to average 5.4% in 2024-25. That would make it four straight years of higher inflation than RBI’s target of 4%.
While inflation remains on the higher side, economic growth, though robust, has not been in double digits since the pandemic and was muted before that, but India’s employment rate has increased, according to Periodic Labour Force Surveys (PLFS) data. The worker-population ratio (WPR), measured by ‘usual status,’ for 15+ years increased to 56 per 100 in 2022-23 from 46.8 in 2017-18. The WPR for women rose to nearly 36 from 22, driven by more rural women taking up farm work. For men too, the WPR increased to 76 from around 72 over this period. The unemployment rate has also halved to just above 3%.
The higher WPR means about 100 million more Indians found work between 2017-18 and 2022-23, on top of those who were already employed. The exact numbers differ—a bit higher or lower—depending on the population projections used, but this is a vast increase in employment—four Australias or two times South Korea’s entire population.
Many new workers are women and are working on farms. However, the level of employment in the regular wage sector also rose during this period by about 13 million or so, albeit it recorded a decline in its share by about 2 percentage points in total employment to about 21% in 2022-23.
Higher inflation put a strain on family budgets, prompting more people, especially women, to take up paid work. However, with economic growth over that period not particularly high, how is it that employers have work to offer to more people, not only farm work, but also in urban areas? There are two possibilities. While employment has risen, it could be that the inflation-adjusted hourly wage rate declined. A reduction in the real hourly wage would lead to a fall in real incomes even when people work the same hours. Alternatively, while more people have work, they are working fewer hours on average. In that case, even with a higher real wage rate, total real earnings may not rise much or even decline.
Akshit Arora notes (shorturl.at/iAIJ8) that since 2017-18, the monthly real earnings of casual workers have increased for males and females, and for self-employed men. Self-employed women, many of whom work as farm labour, saw a decline in real wages; so did regular-wage workers, both men and women, who saw a marginal decline relative to pre-pandemic levels.
What’s driving the decline in real earnings in some categories of workers—the number of hours worked or real hourly wage rate?
According to the PFLS reports, since 2017-18, working hours on average have fallen for both men and women in rural and urban India in all types of work—self-employment, casual labour and regular wage. Workers are now working between 5% to 20% or so, fewer hours, depending on gender and location. The largest decline in average hours worked has been for self-employed urban women, while the least decline was for urban men in casual work.
Since more people are in work now post-pandemic, the hours worked of those already employed pre-pandemic would have fallen more, allowing the unemployed to take up work.
The Indian case—higher employment with lower hours worked—seems similar to the situation in European countries, which have seen a similar phenomenon post-pandemic, according to a European Central Bank report (shorturl.at/pyGMR). In contrast, in the US, average hours worked held stable in the aftermath of the pandemic, but unemployment rose.
Unlike in Europe, however, the real hourly wage rate on average increased for all categories of Indian workers between 2017-18 and 2022-23. The most significant increase is for women working as casual labour, but they also have the lowest wage rate among all workers. This means that the decline in real earnings for some workers is a result of fewer hours worked, not due to a decline in real wage rate. What is driving this fall in average hours worked even as more people are finding jobs?
Are workers who were working longer in the pre-pandemic years willingly cutting down on working hours since the real wage rate has increased, allowing for more leisure time? Or are employers taking on more people but providing everyone with less work so that their reliance on existing workers can reduce? That would help them cap nominal wage growth going ahead.
If men continue to work fewer hours, would that make space for more women to continue with paid work? Would more families become duel-earners, with a husband spending fewer hours in paid work but increasing time spent on household work? If that were to happen, it would allow a structural upward shift in women’s employment.
India has seen a significant rise in employment for both women and men since the pandemic started. While that is good news, a lot is going on under the surface that needs deeper analysis.
