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economic outlook

Return from a precipice

by Mahesh Vyas

Several estimates obtained from CMIE’s Consumer Pyramids Household Survey (CPHS) point towards a significant improvement in employment conditions during June 2018. The month brings to a halt a continuous deterioration in employment conditions during several preceding months.

The labour force expanded by 6.7 million, employed persons increased by 4.7 million and count of the unemployed increased by 2 million.

The population subset that is relevant to employment / unemployment discussions is the one that is of 15 years of age or more. Natural growth leads to an increase of about 2 million in this population set, on an average, in a month. So, the 6.7 million increase in the labour force in June implies that a large number of people joined the labour force in June after being out of it by choice for quite some time. There was a migration from being unemployed by choice to being willing to work and being a part of the labour force.

This is a healthy sign. It indicates greater labour participation. And, the sharp increase in persons employed also indicates an increase in the employment rate - which is a ratio of the employed to the total adult population.

The LPR was higher at 42.9 per cent in June 2018 compared to 42.4 per cent in May 2018. The employment rate was also higher at 40.5 per cent compared to 40.1 per cent.

Yet, labour participation is quite low. The recovery in June is over an all-time low of 42.4 per cent in May 2018. The LPR has remained below 43 per cent now for three consecutive months. It is important that the gain registered in June is consolidated and the LPR rises further in the coming months.

Likewise, the rise of the employment rate to 40.2 per cent in June is a small improvement from a near all-time low of 40.1 per cent in May 2018.

The fall in the employment rate has been steeper and more consistent than the fall in the LPR in the past ten months.

The number of employed increased from a low of 399 million in May 2018 to 404 million in June. It has been declining since the peak of 409.5 million in November 2017. On a net basis, nearly ten million jobs were lost between November 2017 and May 2018.

The increase in persons employed during June to 404 million is therefore a relief. Yet, the total number of employed persons in June 2018 was 5.5 million less than it was in November 2017.

Employment estimates provided here include all kinds of employment in organised and unorganised sectors such as government and private jobs, contractual and regular jobs, salaried employees, casual labour and the self-employed. It includes employment in rural and urban India.

The increase in employment in June is accompanied by an increase in the count of unemployed who are willing to work. Apparently, as the number of jobs on offer in the markets increased it understandably attracted more job-seekers to the labour markets than the jobs on offer.

CPHS captures two kinds of unemployed persons - the unemployed and willing to work who are actively looking for jobs and those who are not actively looking for a job. Looking for a job includes applying for jobs, appearing for interviews, visiting job sites, making enquiries with potential job providers, or similar other efforts at trying to find a job.

In June 2018, there were 24 million unemployed who were willing to work and were actively looking for a job. This is our real backlog on jobs. There are another 12 million willing to work but not actively looking for a job. In reality, therefore, the backlog is of the order of 36 million. The backlog is arguably even larger if we include those who left the labour force since demonetisation. That could take the estimate up to 60 million jobs.

The count of unemployed actively looking for a job increased from 22 million in May 2018 to 24 million in June 2018, an increase of 2 million. And, the count of unemployed willing to work but not actively looking for a job increased from 7.8 million in May 2018 to 12.6 million in June, an increase of 4.8 million.

Because of this increase in the unemployed, the unemployment rate inched up to 5.7 per cent in June from 5.3 per cent in May. While the unemployment rate is not high, the low and falling LPR and the employment rate are worrisome.

While June does show a recovery in LPR and in employment, it is almost like a return from a precipice.