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Jobless growth: the pandemic has revealed India’s crisis of unemployment

The current model of economic growth prioritises capital over labour and is unlikely to resolve the unemployment crisis.

COVID-19 infections are once again on the rise with daily infections crossing 60,000 per day last week. This is considerably higher compared to the reported infections during the same period last year when the numbers were less than 500 per day. What is obvious is that the pandemic is far from over despite the availability of vaccines. However, unlike last year, the response this time has been muted with no nationwide lockdown. One of the reasons for the differing responses is the lesson from the unintended consequences on the economy of the strict lockdown last year. While aggregate estimates on the growth rate of GDP showed a sharp contraction in economic activity (the economy shrunk by 24 per cent in the April-June quarter of 2020) the impact on lives and livelihoods is still unfolding even though the sharp contractionary phase seems behind us.

The extent of the loss of lives and livelihoods is becoming clear only now, with detailed data from the Periodic Labour Force Surveys (PLFS) — the latest round of which is for the April-June quarter of 2020. This is the first official report on the estimates for the quarter, which witnessed the worst impact with the lockdown in force until the middle of May. Visuals of thousands of migrants walking back to their villages are still fresh in the mind. While many have returned to urban areas in the absence of jobs in rural areas, many did not. The PLFS, which captures the employment-unemployment situation in urban areas, provides some clues to what happened.

The estimates from PLFS are broadly in line with estimates available from other privately conducted surveys, notably the unemployment surveys of the Centre for Monitoring Indian Economy (CMIE). According to the PLFS April-June 2020 round, the urban unemployment rate for the population above the age of 15 was 20.8 per cent, which is close to the monthly average for the same quarter from CMIE at 19.9 per cent. The CMIE data, however, does suggest a sharp decline in June compared to April and May. Similar to the CMIE data, the PLFS data also shows a sharp rise in the unemployment rate which more than doubled compared to the unemployment rate in the preceding quarter of January-March 2020 at 9.1 per cent and 8.8 per cent in the same quarter (April-June) of 2019. While one in five persons above the age of 15 was unemployed during April-June 2020, the unemployment rate among the 15-29-year-olds was 34.7 per cent — every third person in the 15-29 age group was unemployed during the same period.

These are staggering numbers, but not surprising. While the lockdown certainly contributed to the worsening of the employment situation, particularly in urban areas, the fact that the economy was already going through severe distress as far as jobs are concerned is no longer surprising. Between 2016-17 and 2019-20, growth decelerated to 4 per cent, less than half the 8.3 per cent rate in 2016-17. The fact that the economy has not been creating jobs predates the economic shocks of demonetisation and the hasty roll-out of GST. The PLFS data from earlier rounds have already shown the extent of the rise in unemployment compared to the employment-unemployment surveys of 2011-12. The unemployment rates in urban areas for all categories increased by almost three times between 2011-12 and 2017-18. On an internationally comparable basis, the unemployment rate among the 15-24-year-olds in 2017-18 was 28.5 per cent, which makes the youth unemployment rate in India amongst the highest in the world, excluding small countries and conflict-ridden countries. Since then, it has only worsened or remained at that level.

The worsening situation is partly a result of the long-term neglect of the employment issue in policy circles. It is also a result of policy decisions such as demonetisation and GST implementation, which affected the informal/unorganised sector adversely. It is these enterprises in the unorganised sector that are the drivers of employment creation. Since 2016-17, most of these sectors have suffered as a result of policy choices. The decline in the number of workers by 15 million between 2011-12 and 2017-18 is only a partial reflection of the jobs crisis. The decline in jobs was accompanied by a decline in the quality of employment, with an increase in precarious jobs and a decline in access to social security for a majority of workers. The deceleration in the growth rate of economic activities also meant that real wages of casual workers in rural areas by January 2021 have declined compared to two years ago. Regular salaried workers were already suffering from a decline in real wages at 1.7 per cent per annum between 2011-12 and 2017-18. More recent data after the pandemic is not available but sectoral surveys do suggest that the decline in real earnings of regular salaried workers has continued. The lockdown only aggravated an already fragile employment situation.

Since the PLFS is also a longitudinal panel data, it is possible to examine what happened to different categories of households during the April-June 2020 quarter compared to the pre-lockdown January-March 2020 quarter. While the lockdown affected all workers, the most vulnerable were casual wage workers. Among casual wage workers employed during the January-March quarter, 50 per cent joined the ranks of unemployed and another 10 per cent exited the labour force. Only one out of three casual workers in urban areas could hold on to their job with another 5 per cent moving into the self-employed category. The regular salaried workers fared better but even among them 10 per cent lost jobs and another 5 per cent moved out of the labour force. Among those who were fortunate to retain their jobs, most suffered declines in earnings.

More recent data from the PLFS is awaited, but estimates from the CMIE data suggest that the unemployment rate has fallen 7 per cent for the 15 and above age population in recent months. While this may suggest that the economy is returning to the pre-pandemic levels, the rate is still very high. This level of unemployment is not just a symptom of the “jobless” model of economic growth that has been followed in the last two decades, but is also a recipe for political and social instability. The pandemic and the subsequent crisis in the employment-unemployment situation has only highlighted the fragile situation of the labour market. The real crisis of unemployment and jobless growth is a bigger pandemic that is unlikely to be resolved with the current model of economic growth which prioritises capital over labour.

This article first appeared in the print edition on March 29, 2021 under the title ‘A bigger pandemic’. The writer teaches economics at JNU

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