This Labour Market Indicator Is Defying All Hope Of A Recovery
Male or female, urban or rural — Participation in labour markets in India, already low, has declined across categories.
Economic activity is showing signs of a return to pre-pandemic levels. Yet, labour markets remain scarred if data by the Centre for Monitoring Indian Economy is anything to go by.
Male or female, urban or rural —participation in labour markets in India, already low, has declined across categories.
The labour force participation rate was at 40.22% in the period between May-August 2021, according to latest data by the CMIE. It has remained at about 40% since the start of the pandemic, compared to about 43% before it. This is the lowest the labour force participation rate has been since 2016, when data was first compiled.
Labour force participation rate is the ratio of those who are either employed or are unemployed but willing to work and actively looking for a job as a percentage of the population of more than 15 years of age.
This data, published in four-month periods thrice every year, is available up to August 2021. However, the decline in labour participation remains unchanged even after that.
Labour participation rate fell from 40.41% in October to 40.15% in November, according to a research note by Mahesh Vyas, managing director of CMIE. The labour participation rate fell by 0.51 percentage points over October and November, a significant change compared to average changes seen in other months, excluding the months of economic shock such as the lockdown, Vyas wrote.
According to Vyas, the two pandemic shocks have lowered the labour force participation rate structurally.
Labour force participation is almost three percentage points below what it was pre-pandemic according to data by the CMIE, said Radhicka Kapoor, senior visiting fellow at ICRIER.
The decline may be because of the 'discouraged labour effect' wherein a part of the workforce is willing to work but can't find employment opportunities and eventually drops out of the labour force.Radhicka Kapoor, Senior Visiting Fellow, ICRIER
Labour force participation rate as per official government data has also declined but not by as much. This data is last available for January-March 2021 for urban areas only.
The all-India labour force participation rate in urban areas eased to 47.5% in January-March 2021 compared to 48.1% from January-March 2020, according to the Periodic Labour Force Survey for January-March 2021.
While differences between the PLFS and the CMIE's surveys are not reconcilable because of differences in definition and sampling, both show a declining post-pandemic trend in labour force participation, Kapoor said.
Amit Basole, who heads the Centre for Sustainable Employment at Azim Premji University, said that demand in the economy is still low and incomes have not gone back to pre-pandemic levels. Private investment has also not picked up. As such, the decline in labour participation rates is not entirely unexpected and there is no reason to expect a full bounce back, he said.
Amit Vadera, business head at TeamLease Services, said that even as labour markets have opened up, technology has taken precedence across businesses. Resources have not kept pace with this transformation. For instance, some businesses now need people with different skill sets, he said.
The trend is common across emerging economies.
Lower labour force participation has been seen across many emerging market economies, according to a bulletin by the Bank for International Settlements published on Oct. 27, 2021.
In Brazil, Mexico and South Africa, participation rates initially dropped by between 4 and 12 percentage points, the paper titled, "Labour markets and inflation in the wake of the pandemic" said. More generally, employment in the informal sector fell more than in the formal sector across many emerging market economies. This stands in contrast to the sector’s typical role as a buffer during downturns, it added.
Where Is The Fall?
The decline in labour force participation is broad-based.
In urban areas, it has declined to 37.5% in May-August 2021, compared to 40.8% in the same period in 2019.
In rural areas as well, it declined to 41.6%, compared to 43.9% in the same duration.
In case of men, the labour force participation rate declined to 67.1% between May-August 2021, from 71.3% between May-August 2019.
Female labour participation declined to 9.4% from 11% in the same duration.
Disparities persist even within these categories.
Income is not depressed for everyone and what part of the low income group is the harder hit is hard to identify, said Basole. Existing research indicates that women and younger people in the workforce have been harder hit in the pandemic.
Apart from the decline in labour force participation, employment trends indicate that informalisation persists and a larger share of the workforce is self-employed, alongside an increase in employment in agriculture.Amit Basole, Centre for Sustainable Employment, Azim Premji University
Sectors like agriculture and construction are low productivity sectors, said Vadera, emphasising the need to boost productivity. The need to re-skill labour is greater than ever before, he said.
Unemployment Rate Improving
While labour force participation rates have been stagnant at lower levels, unemployment has fallen.
Unemployment eased to 7% in November 2021, compared to 7.75% in October, according to CMIE data. It was at 7.23% in November 2019 before the pandemic's onset.
Unemployment rates don't usually remain too high in developing economies such as India simply because people in such economies can't afford to remain unemployed for too long, Kapoor explained. "As such, the labour participation rate is a more telling metric of labour market conditions."
(Corrects an earlier version that misspelt Radhicka Kapoor's first name.)