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The unemployment rate in India is always a reason to worry. Just before the Covid crisis at the end of the 2019-20 financial year, India had around 403.5 million employed people. But, during the second wave alone, India lost around 23 million jobs across formal and informal sectors as states and Union territories imposed strict lockdowns.
The government released the latest annual report of the Periodic Labour Force Survey (PLFS). The data was for the 12 months (or four quarters) between July 2019 and June 2020. The PLFS report shows the unemployment rate is falling in a year when GDP growth hit a low.
What is the Periodic Labour Force Survey?
The PLFS is an annual survey conducted by the National Statistical Office (NSO). It was started in 2017, and it essentially maps the state of employment. In doing so, it collects data on variables such as the level of unemployment, the types of employment and their respective shares, etc.
Earlier, this job was done by Employment-Unemployment Surveys, but these were conducted once every five years.
The PLFS captures key indicators of the labour market such as the Labour Force Participation Rate (LFPR), Worker-Population Ratio (WPR) and Unemployment Rate (UR).
What are LFPR, WPR and UER?
- Labour force participation rate (LFPR) is defined as the section of the working population in the age group of 16-64 in the economy currently employed or seeking employment.
- The Worker-Population Ratio (WPR) is the proportion of the population that is working.
- The Unemployment Rate (UER) is the percentage of people in the labour force who do not get employment. The PLFS survey calculates unemployment using two methods.
- Usual Status (US): Earlier, this job was done by Employment-Unemployment Surveys, but these were conducted once every five years. The PLFS focus on US as against CWS.
- Current Weekly Status (CWS): In this, the survey tries to figure out whether a person was adequately employed in the 7 days preceding the survey. The CWS method is closer to the global norm in calculating UER.
The LFPR and UER in the past:
Over the last decade, two of the biggest worries for Indian policymakers have been the high levels of UER and the low levels of LFPR in the economy.
In the recent past, India’s LFPR has been less than 40% — far below the global norm (around 60%) or even the norm in most Asian counterparts such as China (76%) and Indonesia (69%). In other words, of every 100, only 40 come forward to seek work in India, while the comparable number elsewhere is around 60.
In the last few years, India’s UER has hovered around 6% (or higher) — far more than the global or regional norm. In other words, of those 40 who chose to participate in the economy, at least 6% did not get any job.
What does the Low LFPR and High UER imply?
A combination of low LFPR and high UER then implies two things.
- India is using a much smaller proportion of its population for productive purposes.
- The state of the economy is such that it cannot provide jobs to this relatively smaller proportion of the labour force.
Why the recent Periodic Labour Force Survey (PLFS) reports are signifying?
- The recent PLFS showed two surprising trends. One, India’s unemployment rate (UER) has declined over the survey period. Two, the Labour Force Participation Rate (LFPR) had increased.
- The results are surprising because they correspond to a period when India’s GDP growth rate is decelerated sharply.
- The survey also mentioned that the Covid-induced lockdowns further ruined the growth and employment prospects.
Implications of the Survey results
- During the pandemic, people are forced to take up self-employment even as the relative share of wage (or salaried) employment falls.
- Experts and economists have been arguing that decent jobs are still missing, and their return will depend on the revival in the economy, growth in consumption, and the pandemic situation.
Causes of unemployment in India
- The decline of Small Scale and Cottage Industries: Independent India’s preference to large scale industry and new industrial policy of the 1990s resulted in the decline of small scale industries.
- Joint Family System: It encourages disguised unemployment. In big families having large business establishments, many such persons are found who don’t do any work and depend on the joint income of the family. The joint family system is more prevalent in rural areas; hence a high degree of disguised unemployment there.
- Mobility of Labour: Labour mobility is very low in India. Because of their family loyalty, people generally avoid migrating to far-off areas of work. Factors like the diversity of language, religion, and customs also contribute to low mobility.
- Education: Although literacy rates have risen in the last few decades, there still remains a fundamental flaw in the education system in India. The degree-oriented system fails when it comes to producing human resources, skilled enough for specific job profiles in the economy.
- Agriculture: Agriculture remains the biggest employer in the country contributing to 51% of employment. But the sector contributes a meagre 12-13% to the country’s GDP. Also, the seasonal nature of employment in the sector leads to recurring cycles of unemployment for the rural population.
- Lack of skills: There has been a push towards providing employment opportunities to the people by the government by skilling them. But skill deficit still is a big issue.
- Rush for government jobs: Many educated youth-run behind government jobs due to job profile and security. This will lead to a situation where many remain unemployed due to students preparing for government jobs.
|Read more: Causes of Unemployment and solutions|
Suggestions to reduce the unemployment rate
- India should give more importance to unemployment numbers derived from CWS. This is due to the following reasons. Such as,
- As memory recall is much better in CWS
- The year-long reference period of Usual Status made more sense when the economy was predominantly agrarian. Today it is not.
- There is a number of labor-intensive manufacturing industries in India. Such as leather and footwear, food processing, furniture and home decor, textiles and apparel. Special packages, individually designed for each industry, are needed to create jobs.
- Decentralization of Industrial activities is necessary so that people of every region get employment.
- The curriculum should be changed with integrating learning and skill development. This will reduce the distance between Industry and academia.
- Incubation centres need to be promoted to cultivate original business ideas that will be financially viable.
- There is a need for a National Employment Policy (NEP) that would encompass a set of multidimensional interventions covering a whole range of social and economic issues.
- The government also has to take enough steps to remove social barriers to women’s entry. This will also increase gender sensitivity in employment.
- Concrete measures aimed at removing the social barriers for women’s entry and their continuous participation in the job market is needed.
- The government also has to make enough Public investment in sectors like health, education, police and judiciary to create many government jobs and associated employment opportunities.