India’s Employment Situation Is Distressing, Says CMIE

India’s unemployment rate rose to a two-year high in February, according to the Centre for Monitoring Indian Economy.

The metric, which reflects the proportion of labour force that is unemployed, stood at 7.2 percent last month, CMIE said in a report. That’s much higher than the 5.9 percent unemployment rate in February 2018 and 5 percent in February 2017.

This comes at a time of decline in labour participation, the data showed. Labour participation rate—the proportion of working age population that is either employed or is unemployed but actively looking for a job—dropped from 43.2 percent in January 2019 to 42.7 percent in February. It stood at 43.8 percent in February 2018.

“This situation is very distressing,” said Mahesh Vyas, chief executive officer and managing director of CMIE. That’s because the unemployment rate is rising on a falling labour participation rate, he told BloombergQuint. “This means that lesser proportion of people is coming to the labour market. Even this lesser proportion is increasingly not finding jobs.”

He said though there is a reduced rush to the labour market, there can’t be a reduced rush for finding jobs. “A reduced rush is being welcomed by a higher unemployment rate. This is worst of both worlds.”

But India’s problem, according to the CMIE report, is not its unemployment rate as much as it is the employment rate—the proportion of working-age population that is employed. India’s low unemployment rate stems from a low labour participation rate, it said. “At the core of the problem is very low job opportunities.”

Also, India’s employment rate has been “sharply declining” since November 2017 when it was at 41.8 percent, the report said. In February this year, the ratio stood at 39.7 percent. The total number of employed persons in February 2019 is estimated at 400 million, which is 7.5 million lesser than February 2017, it said.

Edited excerpts from the interview:

CMIE has been tracking unemployment since 2016. How serious is the issue from the two-and-a-half years of data that you have and the one that you have been tracking?

 2018 was the worst. We did see a fall in job opportunities from November 2016 after demonetisation. So, 2017 was bad, but 2018 was worse than that. There is a steep decline in employment and the employment ratio. We are seeing large-scale discouraged unemployment which means that people who came to the labour market, tried to get a job, did not find one, tried for some more time and then gave up. When they give up, they leave the labour market and don’t call themselves unemployed; they say that they are not in the labour market, and they are not looking for jobs anymore and there ain’t any on offer anyway. That is the most distressful part. That shows up in the low and falling labour participation rate. The situation is grim.

You mentioned the dreadful phenomenon of falling labour participation rate and rising unemployment rate. Why is this happening and why is this concerning?

It is concerning because the unemployment rate is rising on a falling labour participation rate. This means that lesser people, in proportion terms, are coming to the labour markets. Even this lesser proportion coming to the labour market are increasingly not finding jobs. If there was a rush of people coming in to the labour market and then you don’t find a job, it is understandable that the jobs on offer are not keeping up with the rush of people coming to the labour markets. However, we are seeing that the rush is declining and yet we are not seeing the reduced rush finding jobs in equal measure. A reduced rush is being welcomed by a higher unemployment rate. That is worst of both worlds and is very distressing. We require to see the unemployment rate decline, and to see the labour participation rate go up, we require more hands to the oar. We require more people to work and peddle the economy into a meaningful growth rate. These people need to get better wages. We seem to be slipping on all fronts. Lesser people coming to lend their hand to the growth process and even those who are coming, are not finding enough jobs.

About the falling labour force participation— how do we juxtapose lesser people looking for jobs due to fewer job opportunities, with someone unemployed still looking for a job? Giving up would not be an option and in a real-life scenario, how do they move out of the labour force completely and just look for a new job?

A lot of people who have worked in the labour markets in India for long understand that unemployment in India is essentially a phenomenon of the relatively well-off people. This implies that the poorer people cannot afford unemployment and they are always employed, no matter how miserable the job is in which they are engaged. Unemployment is a phenomenon of the upper crust. If this is the case, we are seeing people getting enrolled into educational institutes in a larger way, there are more graduates coming out now, so the upper sections of the society have increased in number. They are not finding the jobs. But what happens to them is that they look for the jobs for some time and then get discouraged that there are not enough jobs, and they fall back. These are the people who can afford to remain unemployed. We are gathering more data on this and in a few months we will be able to get a better handle on this. But it looks like that a lot of transfer payments are helping people to remain unemployed. When you have state governments giving out doles, which could unemployment doles which the congress has promised in states like Rajasthan and MP, or it could be the kind of transfers the government of Telangana is doing. In some southern states, you are getting these transfers from the government for distressed parts. Even waiver of loans is what can help a household say that they do not have to repay the debt and have more cash in hands, meaning that they can stay unemployed. There are many reasons and we need to dig the reasons in a systematic way. Anecdotal evidence seems to suggest that there are lot of government transfers to households in many ways is dissuading the people to participate in the labour markets.

What about wages? With a lack of jobs there comes a depression in wage rates. Can you elaborate on that?

When you have a lot of people looking for jobs, getting discouraged and going back, it means that the supply of people into the labour markets is way too high compared to the number of jobs on offer. We have not seen investment rates pick up since 2011-12, it is a very long time. If there is no increase in the investment rate, then the jobs on offer are not going to increase. We have seen stagnation in jobs on offer and some increase in the labour coming into the labour market. When this happens, the only thing to solve this equation is for wages to come down. When wages go down, then more people can get jobs at those lower wages. One has seen the excess supply of labour compared to the jobs on offer depress wages.

A leaked NSSO data, which was decried by the government, suggested that the country’s unemployment rate was at a 45-year high in 2017-18. What do you make of the controversy surrounding the authenticity of the data, with respect to the NSSO report?

It is unfortunate that the government did not release, or it stopped the release of that data. It is a valuable data and it is important that the report does get released. All that we can see from here is that the stopping of the report by the government indicates stress in the labour market to an extent that the government felt compelled to withhold that data. Although the data was signed-off by the NSC, the government thought it was too troublesome and against the narrative that it believes in, and thus withheld it. The report said the unemployment rate was at 6.1 percent. For the same period, our comparable numbers are at around 5.8 percent, which has today gone up to 7.2 percent. The situation is going from bad to worse and the government is saying that they do not believe it. If the government does not believe its own report through an agency which is under them and has for decades produced such numbers, then I think we are running away from the facts. And if we are running away from the facts, we cannot solve problems.

Your report said these figures will lead to political pressures which is a form of social unrest. Do you think there is a political necessity to depress any kind of news or reportage on employment?

It appears that the government feels that there is a need to control the narrative because it may be that it strongly believes that there is no problem. They probably believe that there are enough jobs on offer and there is no problem of unemployment in the country and the numbers put put by the NSSO and CMIE are misleading. I think they are ill-advised if they believe so. It is important for the government to recognize the problem, and also recognise that when you see farmers coming out to protest on the streets, that should be called social unrest. When the Jats, Gujjars, Marathas agitating, that is social unrest. One does not have to make it worse. One does not have to have riots on the street to recognise social unrest. If there are agitations asking for reservations, it reflects the labour market stress. If there are agitations for loan waiver, it reflects the wage depression. We have a serious problem on hand and there is social unrest on display. We don’t have to wait for this to get worse for us to take cognisance of that. We have a problem on hand, the government needs to recognise it, and actually needs to intervene to solve the problem.

Prime Minister Narendra Modi said that the informal sector gives 85-90 percent of the jobs, and a lot of the data out there is about the formal sector. Do you think there is a mismatch? Is there enough coverage of the informal sector of which there is little record?

The point made is misplaced and based on misinformation. The NSSO and CMIE surveys are household surveys. Anyone who has an informal job or is in the unorganised sector— he may be driving a truck or a cab or frying pakoras on the street— all of them live in households. Unless they are living in trees or on treetops, they are covered by NSSO and CMIE. There is no case to say that the surveys do not cover the unorganised sector. So long as the people live in households and houses, we have got them covered. This is a household survey, not an enterprise survey and that is what is wrong with the EPFO data and not with CMIE or NSSO Data.

Do you think there has been a collective failure of the political class to highlight how big an issue the jobs or the lack of it is, some of which is reflected in the CMIE data?

I think the political class has not highlighted the issue adequately. There are too many distractions away from it. It is important for the entire political class to take cognizance of this problem and apply their minds to resolving it.
Source : www.bloombergquint.com/