Questioning popular arguments on unemployment

Last Updated 20 May 2019, 14:14 IST

The nature and extent of unemployment has attracted particular attention in election time. But there are a lot of popular misconceptions around it that are likely to be part of future debates, irrespective the dispensation that takes office post May 23, when the results of the Lok Sabha polls are announced.

Let’s look at what they are: According to both the Centre for Monitoring Indian Economy (CMIE) and National Sample Survey Office (NSSO) estimates (not officially published but reported in the press), the rate of unemployment in 2017-18 is the highest in the last 45 years. To downplay the findings, official spokespersons have used several counter arguments like seven per cent plus GDP growth rate is not possible without employing more people and there have been some methodological changes in NSSO survey techniques on unemployment which makes the findings for 2017-18 not comparable to estimates in earlier years.

On top of these, I have heard people (including senior Union ministers) question the data by openly wondering: How is it possible that no jobs were created when thousands of kilometres of additional highways, railroads and so many bridges, airports, rural roads, houses and toilets for the poor have been built during the Modi years. They do not realize that this is not a fool-proof argument as it equates a partial picture with the whole.

For example, it is possible that workers building highways or rural houses were previously employed in high rise construction (which is going through a lull) or are agricultural labourers or laid off-factory workers now taking up construction jobs. In that case, there is no net job creation. Usually, new jobs are created in some sectors in some localities while jobs are lost in other industries and locations. So, to get the full economy-wide complete picture, one needs to do a rigorous survey across the entire country covering all kinds of formal and informal sector jobs. That is what independent government agencies like the Central Statistics Office and the NSSO are supposed to do.

Further, even when total employment rises, if the percentage addition to work force (people in working age who are either employed or actively looking for jobs) is more than the percentage rise in employment (say as a result of population growth or housewives now actively looking for jobs) the rate of employment (which is the ratio of number of employed people divided by the work force) would fall. This implies that the rate of unemployment (which is one minus the rate of employment) would go up. By the same token, paradoxically, the official unemployment rate goes down in a desperate job situation like when some frustrated people unable to find jobs over many years finally withdraw from the work force by not actively searching for jobs any more.

Some are pointing to Employees Provident Fund Organization (EPFO) data which shows a significant improvement in job creation. But, one has to remember that this too gives a very partial picture. EPFO data pertain only to organized/formal sector jobs, which accounts for some 10 per cent of total jobs. It is also possible that the particularly bad employment picture for 2017-18, as captured in the NSSO survey, could partly be due to the delayed effect of demonetisation and the uncertainties created by the introduction of GST. If so, the situation may very well improve in subsequent years.

A yet another possibility (as former RBI Governor Raghuram Rajan is arguing) is that the unsavoury job situation could be the result of the economy slowing down and growing at much less than 7 per cent. In other words, the official GDP figures are an overestimate rather than unemployment figures being an underestimate.

In addition, there are some inherent problems in data collection. For instance, a college going kid may say he is looking for job (hence see himself as part of the workforce) even though he is not yet ready for a job. For some self employed people, ‘employment’ may mean only a salaried job in a private or public sector enterprise. Such a person would declare himself ‘unemployed’. One may also deliberately give false answers so that he does not lose the benefits of subsidy given to the ‘poor’/‘unemployed’ or Below Poverty Line (BPL) card owners. All these inflate the officially recorded rate of unemployment.

I should make it clear that all of the above are pure conceptual/ logical possibilities. Whether the unemployment situation has actually worsened or is the worst in 45 years is, in the ultimate analysis, an empirical question which cannot be settled by merely enumerating logical possibilities. That is to be decided by hard data collected and analysed by credible independent agencies using sufficiently large and statistically valid representative sample. Here the government may have a point in that the survey methodology has changed (in terms of size of samples, composition of the focus groups, duration of survey, types of questions asked) which may make the 2017-18 NSSO survey findings not comparable to those of earlier surveys.

If so, the government should officially publish the 2017-18 NSSO findings at the earliest with proper explanations attached to point out the methodological issues. Delaying the data release only creates the suspicion (right or wrong) of either fudging unpalatable data or postponing it to a later date which is politically convenient. Either of these possibilities undermines the independence and credibility of official data collection agencies and their findings. Despite inevitable imperfections/errors, there is a general belief in India and abroad that India, unlike China, does not deliberately manipulate official data. The recent controversy has dented that reputation to some extent.

To conclude, contrary to popular perception, our most serious problem is underemployment rather than open unemployment. The unemployment figure in 2017-18 – considered the highest in 45 years – is only 6.1 per cent, close to what is considered ‘full employment’ in many advanced industrial economies. Our biggest concern should be that many Indians, because of their inadequate education and skills, along with a shortage of jobs in labor-intensive modern industries, manage to earn only poverty-level incomes, even when officially recorded as ‘employed’.

(The author is former Professor of Economics, IIM, Calcutta)

(Published 20 May 2019, 11:23 IST)

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