State of Unemployment in India and Unemployed Indians

• Data from the Center for Monitoring Indian Economy (CMIE) shows that India’s labour force participation rate (LFPR) has fallen to just 40% from an already low 47% in 2016.
• This suggests not only that more than half of India’s population in the working-age group (15 years and older) is deciding to sit out of the job market, but also that this proportion of people is increasing.

Households under the MGNREGA

• In 2014-15, 4.13 crore households got work under the scheme.
• By 2019-20, just prior to the pandemic, this had risen to 5.48 crore.
• In 2020-21, at the peak of the economic distress, the number of households that worked under the scheme had risen to 7.55 crore.
• That figure declined to 7.26 crore in the subsequent year. Still it is considerably higher than the pre-pandemic level, indicating the continuing absence of alternatives.

About Labour force participation rate (LFPR)

LFPR essentially is the percentage of the working-age (15 years or older) population that is asking for a job.

• It represents the “demand” for jobs in an economy.
• It includes those who are employed and those who are unemployed.
• Unemployment Rate (UER), which is routinely quoted in the news, is nothing but the number of unemployed (category 2) as a proportion of the labour force.
• Definition of Labour: According to the CMIE, the labour force consists of persons who are of age 15 years or older, and belong to either of the following two categories:

• are employed,
• are unemployed and are willing to work and are actively looking for a job,

• There is a crucial commonality between the two categories - they both have people “demanding” jobs.

Significance of LFPR in India

Any analysis of unemployment in an economy can be done just by looking at the UER.

• But, in India, the LFPR is not only lower than in the rest of the world but also falling.
• This affects the UER because LFPR is the base (the denominator) on which UER is calculated.
• LFPR is around 60% throughout the world.
• In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.
• This shrinkage implies that merely looking at UER will under-report the stress of unemployment in India.

Under-reporting of LFPR

Suppose there are just 100 people in the working-age group but only 60 ask for jobs.

• So the LFPR is 60% - and of these 60 people, 6 did not get a job.
• This would imply a UER of 10%.
• A different scenario when the LFPR has fallen to 40% and, as such, only 40 people are demanding work.
• And of these 40, only 2 people fail to get a job.
• The UER would have fallen to 5% and it might appear that the economy is doing better on the jobs front but the truth is starkly different.
• The truth is that beyond the 2 who are unemployed, a total of 20 people have stopped demanding work.
• Typically, this happens when people in the working-age get disheartened from not finding work.

Correct Way to Assess Unemployment Stress

When LFPR is falling as steadily and as sharply as it has done in India’s case, it is better to track another variable: the Employment Rate (ER).

• The ER refers to the total number of employed people as a percentage of the working-age population.
• India’s working-age population has been increasing each year, the percentage of people with jobs has been coming down sharply.
• In December 2021, India had 107.9 crore people in the working age group and of these, only 40.4 crore had a job (an ER of 37.4%).
• Compare this with December 2016 when India had 95.9 crore in the working-age group and 41.2 crore with jobs (ER 43%).
• In five years, while the total working-age population has gone up by 12 crore, the number of people with jobs has gone down by 80 lakh.

Reasons for Low LFPR

The main reason for India’s LFPR being low is the abysmally low level of female LFPR.

• According to CMIE data, as of December 2021, while the male LFPR was 67.4%, the female LFPR was as low as 9.4%.
• In other words, less than one in 10 working-age women in India are even demanding work.
• Even if one sources data from the World Bank, India’s female labour force participation rate is around 25% when the global average is 47%.

Reason of Low Women LFPR

One reason is essentially about the working conditions - such as law and order, efficient public transportation, violence against women, societal norms etc.

• The other has to do with correctly measuring women’s contribution to the economy.
• The methodological issues in formally capturing women’s contribution to the economy.
• It is also a question of adequate job opportunities for women.

Exam Track

Prelims Takeaway

• Labour force participation rate (LFPR)
• Women LFPR - statistics
• Unemployment and Employment Rate (ER)

Mains Takeaway

Q. The declining Labour force participation rate (LFPR) becomes even worse when it combines with high unemployment rate in an economy, Examine.