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US June Jobs Report Says Unemployment Rate Fell to 11.1%, Nonfarm Payrolls Increased by 4.8m

Editor, TRANSFIN.
Jul 4, 2020 1:25 PM 6 min read
Editorial

The monthly US Jobs Report for June was released on Thursday, and it indicated that the country’s COVID-hit economy was recovering faster than expected.

“Nonfarm payrolls” (we’ll discuss this metric in a bit) increased by an impressive 4.8m in the last month and the unemployment rate fell to 11.1%, both numbers beating economists’ estimates.

Building on this, we may want to ask ourselves what are the ways in which the unemployment rate is measured in India, and how this process can be improved.

The US Unemployment Rate

US markets expectedly rejoiced on the report and President Donald Trump called the numbers “historic” and proof that “our economy is roaring back”.

America’s Jobs Report (or the Employment Report) is much-anticipated in many economies, given the economic clout of the US. It’s also a commendable exercise - to deliver data on the status of the economy on a regular basis for policymakers, investors, traders and the general public. Which begs the question - does the Indian Government publish such reports? (Spoiler alert: it doesn’t.)

But first...

 

What Exactly is the US Monthly Jobs Report?

The Bureau of Labour Statistics (BLS) is the principal fact-finding agency of the US government. It periodically publishes surveys and reports on crucial economic metrics like price indices, employment numbers, payrolls, workforce productivity etc.

Probably the most-awaited report by the BLS is its monthly Employment Report or Employment Situation Summary. This is usually released on the first Friday of every month (this month it was released on Thursday because of the July 4th Independence Day holiday). 

The Employment Report is basically compiled from two comprehensive surveys:

  1. The Household Survey, which surveys 60,000 households. It provides details on employment demographics.
  2. The Establishment Survey, which surveys 145,000 businesses and government agencies covering 697,000 work sites. It deals with the number of new nonfarm payroll jobs added.

 

Remember: The Jobs Report is a Survey

The monthly jobs report is the result of surveys - not actual counts. The US economy is huge, so counting the exact number of jobs or payrolls added or lost by counting the number like a census would be a tedious task, especially if it needs to be done on a monthly basis. Therefore, the BLS data is derived from sample surveys of the US workforce.

And as we all know, sampling doesn’t come without errors. This is why US Jobs Reports are usually subject to considerable revisions in subsequent months. The BLS revises its payroll survey data in each of the two months following an initial release.

 

What are Nonfarm Payrolls?

As the name suggests, “nonfarm payrolls” are a summation of payroll jobs in professions that exclude farm workers in the agricultural industry. 

In the BLS survey, some government workers, private households, proprietors and non-profit employees are also excluded. In the US economy, nonfarm employee classifications account for approximately 80% of business sectors contributing to national GDP.

 

What Do Analysts Look for in the Jobs Reports?

While there are many metrics calculated in each Jobs Report, like average hourly earnings, eage growth, revisions to past reports etc., the two headline numbers are the nonfarm payrolls and the unemployment rate.

The analysis is quite intuitive - if payrolls see a healthy increase in a particular month it indicates a growing economy; the contrary would indicate slowdown or recession. And if payrolls surge unexpectedly fast, it could point to an increase in inflation.

Sector-specific nonfarm payroll statistics also show which sectors are expanding and contracting. Expanding sectors would obviously contribute a higher number of new payrolls and contracting sectors may have low or negative contributions to the overall number.

 

Now, Coming to India...

India’s BLS-equivalent would be the National Sample Survey Office (NSSO). It, too, performs nationwide surveys to gauge employment metrics, but once every five years. Unlike the US, India does not yet have a Government-funded monthly, quarterly or even yearly nationwide employment and unemployment analytical reports.

BTW: After Independence, under the tutelage of its founder PC Mahalanobis, the NSSO used to publish annual employment surveys. But in 1968 this was changed to five-year reports.

 

Why Doesn’t India Publish Regular Jobs Reports?

We can address this lack of an organised data-gathering regime under three headings:

One: At the outset, measuring employment in India is a complicated task. The standard definition used in the US and other developed countries - that of being contractually required to work for a regular number of hours and being guaranteed a regular salary - doesn’t apply to India, where more than 80% of the workforce is employed in the informal sector.

Two: Then there’s the lack of credible and regular Government data. The NSSO surveys are stretched out. And the other official source for employment statistics - the Labour Bureau - abruptly stopped conducting surveys in 2016. Since then, there has reportedly been no Government source on employment data - an unforgivable anomaly, indeed!

Three: To add this is the abject politicisation of the process. Last year, there was widespread controversy after two members of the National Statistical Commission (NSC) resigned in protest alleging that the Government refused to release the NSSO jobs survey even after it had been cleared for release by the NSC because it showed that the unemployment rate had climbed to a 45-year-high. Monthly jobs reports are not only excellent tools to measure economic conditions but also a strong way to hold those in power accountable. And politicians aren’t known to be excited by the prospect of setting up more statutory mechanisms to hold themselves accountable (that too on a monthly basis), are they?

 

Then How Do We Measure Unemployment in India?

This information blackout has forced anyone interested in knowing how the Indian economy is faring - which ideally should be everyone - to turn to indirect and non-Government sources.

Mumbai-based Centre for Monitoring the Indian Economy (CMIE) started sampling and publishing monthly unemployment statistics in 2016. Then there’s Azim Premji University’s State Of Working India report. We also have data on subscriber additions to the Employees’ Provident Fund Organisation (EPFO) and the National Pension Scheme (NPS). And we have data coming from the Confederation of Indian Industry (CII).

Then there are anecdotal extrapolations. Like when Indian Railways received 23m applications for 90,000 jobs. Or when 7,000 candidates - mainly college graduates - applied for 13 waiter jobs at the Maharashtra Secretariat canteen. Online surveys by job sites like Monster and Naukri could also be considered.

These avenues are better than nothing. But still, not as good as the real thing, which would be Government-backed surveys.

 

Why India Needs Its Own Jobs Report, Like the US

India would benefit greatly from periodic and frequent official economic data like the US Employment Report. Especially during these uncertain times, when the coronavirus pandemic and the nationwide lockdown have inflicted a heavy toll on growth and job security. A CMIE survey said that the unemployment rate at the peak of the lockdown was a staggering 23.5%. This number may very well be accurate, but an official Government estimate would have probably painted a more reliable picture since the Government has more resources at its disposal.

What makes this situation even more frustrating is that it is uncharacteristic for India, a country that has played a pioneering role historically in statistical data collection. In fact, the NSSO was the first organisation to conduct nationally representative household surveys anywhere in the world. Nobel laureate Angus Deaton once said this about India’s statistical prowess:

Where Mahalanobis and India led, the rest of the world has followed.

Decades of unpleasant political meddling later, we’re at a situation where the data we need is either unreliable, stifled or altogether unavailable.

FIN.

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