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How the Pandemic Has Turned India's Unemployment Problem From Bad to Worse

Jun 5, 2021 2:54 PM 4 min read

Of all the things that the pandemic did a number on, the most intensely impacted were jobs. 

The International Labour Organisation (ILO) estimates that the crisis in the labour and employment market caused by the pandemic may not be entirely offset before 2023 at the earliest. 

Closer to home, the most widely-accepted employment data in India, compiled by the Centre for Monitoring Indian Economy (CMIE), revealed that the unemployment rate in India stood at 12.4% (30-day moving average).

Although this figure may not sound as severe as the one exactly a year ago (23.75%), it can't be denied that unemployment has been a looming problem for the country even before the pandemic's impacts were fully pronounced. 

Let's see how this situation has worsened particularly over the last year. 

The Labour Force is Weak

The migrant crisis last year was the most sordid outcome of the immediate loss of urban jobs. Many people who migrated to their hometowns after the first wave hit were yet to find employment when the more precarious Second Wave struck.

Agreed, the lockdowns imposed during the Second Wave weren't as stringent. Still, the explosive healthcare crisis has demoralised the economy to such an extent where the labour force's participation is far from normal levels.

Speaking of labour participation in the economy, this is the figure which gives us an idea about how many people are actually a part of the national labour force. That is:

National labour force = (How many people are actively job hunting) + (How many are currently employed) 

Labour participation (%) = (National labour force / total working age population) x 100

Whereas the unemployment rate measures the percentage of unemployed people within the national labour force (and not the total working age population). 

Labour participation is, in fact, advocated by some as a more reliable metric to study the job market than the plain unemployment rate which has often been criticised for not showing true joblessness numbers. 

To understand, imagine a country with only 100 working age people. If labour participation is 40% and unemployment rate is 20%, it implies that 20% x 40% x 100 = 8 people are unemployed. But let’s not forget the 100 - (40% x 100) = 60 people who are not participating in the job market. Hence, ultimately out of 100 working people, 60 + 8 = 68 people are jobless! 

In March 2021, labour participation was 40.2%, down from 42.7% in 2019-20.

Picture a situation with dwindling labour force participation on account of the threat of infection. Pair it with a high unemployment rate owing to increased lay-offs and unavailability of work during lockdowns. That is the reality of India's job scenario at the moment. People aren't ready to come out of their homes yet. And for those who do come out, there aren't enough jobs around.


How Did We Get Here?

Yes, the pandemic is definitely to blame. To a large extent. For most of the informal sector where working-from-home isn't an option, lack of mobility enforced by the lockdowns has stymied employment prospects. With capital expenditure limited on account of business lows, there is also limited room for infrastructure development and the associated job creation.

But was it all because of the pandemic?

Between 2012 and 2018, total employment in India had come down in absolute numbers, as per studies. Discounting the fact that there is still no official unemployment data released annually in India, the annual unemployment rate (UER) determined by various agencies remained at 6-8% levels, a 45-year high.

The COVID-19 pandemic has certainly aggravated the problem of unemployment. In fact, one of the more industrialised states like Haryana was grappling so hard with its 26% UER (highest in the country) that in March this year, it was led to introduce a 75% reservation in private jobs for its state locals. 


The Manufacturing Defect

The "Make in India" initiative, in spirit, was aimed to strengthen the manufacturing sector and expand it so that it could absorb the surplus labour from other sectors like agriculture. Sectors from where the workers wouldn't need extra or excess re-skilling (or higher education) to be absorbed into manufacturing jobs. 

Much to our disappointment, the manufacturing sector has lost almost half of its workforce within the last five years. A sector that contributes nearly 17% to India's GDP now employs fewer than 27 million people or less than a fourth of our population. On the contrary, agricultural employment has shot up, achieving the opposite of Make in India goals.


Temporary Setback? Or Is it?

As per reports, India now has a higher UER than its neighbours (Sri Lanka, Bangladesh and Pakistan). 

The ideal solution to unemployment is job-creation and sustained long-term policy solutions to combat macro-level job losses. But, for the immediate term, the focus perhaps should be on offering stimulus to unemployed families in the lower-income group and preventing their slippage into poverty at all costs while also facilitating spending, albeit modest.  

The unemployment allowance offered under the MGNREGA would be a good model to create similar allowances for the urban unemployed masses. There is also a need to create a uniform and centralised scheme of unemployment insurance in India. The existing insurance schemes are immensely inadequate and often overlap with other schemes creating processing troubles for the insurance seekers. 

Let the pandemic serve as a motivation to shore up unemployment benefits at an institutional level so that our people are better equipped to face imminent job losses in the future. 

(PS: Want to know more about India's unemployment rate? Take a quick quiz here!)


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