Slowdown impact : Joblessness in India may cross 8%

A 30-day moving average of the unemployment rate during most of the first week of March 2020 was over 8 per cent, even though the ended with an unemployment rate of 7.71 per cent, Mahesh Vyas, managing director and CEO of one of India’s top consulting firms, Centre for Monitoring Indian Economy (CMIE), has said.

In a recent analysis of the unemployment situation, the top expert says, “The unemployment rate has been rising steadily for over two years now”, and while till recently it looked like it would settle at a shade below 8 per cent, it seems that “the rate could rise to more than 8 per cent.”

Suggesting that it is possible to say there is “a limit to the increase in the unemployment rate”, however, he adds, what is particularly alarming is, “After a point, people get so discouraged by not finding jobs that they exit the labour markets”, leading to “a rather incongruous impact of a fall in the unemployment rate.”

According to Vyas, “If people who cannot find jobs stop looking for jobs, they are quitting the labour markets and in doing so, they are reducing the count of the unemployed and thereby reducing the unemployment rate.” However he says, this type of decline in the unemployment rate “is not a good sign.”

In fact, he says, “It is worse than an increasing unemployment rate. This is what has been happening in India. The labour participation rate has been falling. And, given the poor prospects of growth, this is likely to continue to happen.”

“The labour participation rate in February was 42.6 per cent”, Vyas says, adding, “In the last week of the month it had dropped to 42 per cent. The 30-day moving average labour participation rate has been falling since February 20. In the first week of March 2020 it was 42.14 per cent.”

Worrisome, during 2019, there was increase in number of persons employed in farming, which is risky business, requiring additional government support

Further, notes Vyas, “There is an additional reason why the labour participation rate may decline. This is because the quality of employment is deteriorating. The emerging composition of employment indicates a decline in good quality jobs and an increase in risky employment choices.”

Thus, “During 2019, there was a big increase, of 8 million, in the count of self-employed entrepreneurs. At the same time, salaried jobs declined by 1 million. A salaried job is arguably, the most preferred kind of employment. When these jobs decline, labour has few choices.”

What is also worrisome, Vyas says, is that during 2019, there was also an increase in the number of farmers, pointing out, “Farming is risky business which has required additional support from the central government and several state governments. Farming is not the first choice for employment of any young graduate. It can be either disguised unemployment or a compulsion.”

Then, he says, “New risks have emerged in the form of the Covid-19 virus. This threatens to shutdown economic activity in many pockets of the world. This could disrupt some supply chains in India and it has started to impact tourism and hospitality industries which are significant providers of employment.”