India’s new jobs report raises questions over underemployment

By Anup Roy and Ruchi Bhatia

India’s new monthly labour report doesn’t give a full picture of unemployment in the economy because of the vast amounts of informal sector jobs in the world’s most populous nation, according to a well-known economist and author.

The government began publishing the monthly Periodic Labour Force Survey from April, with the latest report on Monday showing the jobless rate fell to 5.2 per cent in July from 5.6 per cent in June.

While the new survey helps to fill a much-needed gap in labour market data, the report undercounts underemployment in the economy, said Amit Basole, a professor of economics at Azim Premji University. Underemployment refers to those jobs that don’t fully utilize the skills, education, or available work hours of a working person.

The new labour report counts anyone working at least one hour in the past week as employed, including unpaid family labour. While the definition follows International Labour Organization norms, it may not suit India, where most jobs are informal.

A lenient job definition leads to a “conservative estimate” of joblessness, said Basole. In a country of 1.4 billion people, an inaccurate reading of what constitutes a job can lead to a mismatch in policy interventions, he said.

“We need reliable indicators of underemployment,” Basole said. “Are we utilizing the labour that we have to the fullest possible extent? Unemployed people are only a part of it because there are many people who are employed, but far below their potential to work,” he added.

The government has defended its methodology, saying its data collection and reporting protocols are consistent with global practices used by institutions like the World Bank.

Aastha Gudwani, chief India economist at Barclays Plc. said in a note to clients that the government’s new PLFS data had its limitations because it was using the past week as a benchmark, and the figures weren’t comparable to previously available quarterly surveys.

Basole said the headline unemployment number is “misleading” because in a developing nation like India, people can’t afford to be unemployed for a long time and they are therefore forced to engage in informal jobs. In developed countries, people actively searching for jobs can afford to wait due to stronger social safety nets, higher levels of education and economic security.

Youth unemployment

For an economy like India’s, focusing on joblessness within specific age groups would provide a better picture of the situation than looking at the unemployment rate for the country as a whole, he said. That means a useful metric for India would be youth unemployment, he said.

The jobless rate for young people in the age group 15-29 was 14.9% in July, down from 15.3% in June, the government’s labour report showed Monday.

In the absence of reliable official labour data over the years, many economists have turned to private data provider Centre for Monitoring Indian Economy Ltd., for unemployment figures. CMIE estimates the jobless rate was 6.8% in July, with the figure rising to 35.9% for those aged 20 to 24 years. It counts someone as employed if the person has worked for at least four hours on the day of the interview, according to CMIE’s CEO and Managing Director Mahesh Vyas.

Saurabh Garg, secretary of the Statistics Ministry, said the monthly labour data is based on a survey of more than 89,000 households and efforts are underway to increase the sample size. The ministry is also publishing detailed sampling designs, survey instruments, and margins of error along with the jobs data, helping capture the “nuances of India’s labour market,” he said.