Covid mismanagement worsened unemployment problem

The Covid-19 pandemic has only worsened what was already a joblessness crisis in early 2020. The third annual labour force survey (2019-20) by the National Sample Survey Office (NSSO), covering the period till June 30, 2020, told a grim story. Earlier, the NSSO had in 2017-18 reported that open unemployment had reached a 45-year high and youth unemployment had tripled between 2011-12 and 2017-18 to over 18 per cent. Thereafter, poor economic management had resulted in economic growth slowing for each quarter for nine quarters up to March 2020 – a situation only compounded by the pandemic and its economic aftermath.

What the 2020 annual Periodic Labour Force Survey data reveals is that the situation remains grim. The slight rise over the three years from 2017-18 on in labour force participation rates (LFPR) and workforce participation (WPR) rates (measured as a share in the population of working age i.e. 15 years and over) may be seen as a positive development. But India’s LFPR at 40.9 per cent (2019-20, a rise from 38.1 per cent two years earlier) is miles short of the world average of 60.8 per cent in 2019 (which had fallen to 58.6 per cent in 2020). But a rise in the WPR and the LFPR, according to the PLFS, at a time when the economy was slowing over 2017-18 to 2019-20, does need to be explained.

In a slowing economy, distress is increasing as working age population numbers rise without jobs. When it follows pre-existing falling trends in employment and wages, the pressure on household resources becomes overbearing.

Also read: The great Indian jobs crisis

We had estimated earlier that wages for casual and regular workers stagnated or fell until 2012-2019, thanks to slow job growth relative to the 5 million or so joining the labour force each year. What we saw in 2019-20 (compared to 2018-19) is that while the male LFPR and WPR remained roughly the same, it is females that are finding some work. There is very little change in the male LFPR or WPR over 2017-20.

There is mainly one force at work here pushing up LFPR and WPR of women. The WPR and LFPR increases are distress driven. While WPR and LFPR may have increased slightly, it is accompanied by several distressing trends that undermine what appear to be positive developments. First, the 2019-20 data shows the share of agriculture in the total workforce, which was consistently declining for two decades, stopped falling; in fact, it has reversed, as the reverse migration from cities in 2020 showed clearly. The share of agriculture increasing in the workforce is a retrogressive step in a developing economy attempting a structural transformation. At the same time, manufacturing share in employment, which had fallen between 2011-12 and 2017-18, fell in 2019-20 again, notwithstanding the ‘Make in India’ programme. Construction employment share also fell.

Second, women dropped out of regular work, and became self employed. Self employment is in any case more precarious than regular work. But worse, the entry of many women was driven by distress. This is demonstrated by the fact that the share of women who are unpaid family helpers in the household enterprise increased sharply from 2018-19 to 2019-20. That means women were engaged in economic activity (that shows up in an increase in WPR/LFPR), but it is unpaid work.

Third, precariousness and informality increased from 2018-19 to 2019-20, reversing an ever-so-slight trend that had set in between 2011-12 and 2017-18, that the share of regular workers who had no social security was falling. Those in regular work without any social security increased from 49.6 per cent of all non-farm regular workers to 54.2 per cent between 2018-19 to 2019-20. This is consistent with the fact that the share of those engaged in proprietary and partnership enterprises – informal sector enterprises – increased over the same period.

Fourth, for all types of workers that had work – regular, self employed casual wage workers – the average number of hours actually worked in a week fell sharply in the April-June 2020 quarter (the lockdown period), when the economy contracted by 23.7 per cent (compared to the same quarter in 2019). Naturally, earnings fell for all households.

Thus, on every reasonable measure of the quality of work, there was a perceptible decline – only to be expected as the economy, already slowing for three years, went into the worst contraction in a year since independence in 1947. It was also the largest economic contraction for any G20 country.

Finally, if anyone is still thinking that the fall in the unemployment rate between 2018-19 and 2019-20 from 5.8 per cent to 4.8 per cent by usual status is a positive development, think again. By the current weekly status, which is close to the international standard for measuring unemployment, there is no improvement in the unemployment rate between 2017-18 (8.9 per cent) to 2018-19 (8.8 per cent) to 2019-20 (8.8 per cent). These rates remain the worst in the last 48 years since measurement began.

The contraction of India’s economy by 6.6 per cent was the worst for any G20 country during 2020 and much worse than the contraction in the world economy (-3.1 per cent).

To the 200 million already in agriculture (who only contribute 15 per cent to India’s GDP) in 2020, another 32 million were added as that number reverse-migrated to villages to escape from the Covid – this addition was just between 2018-19 and 2019-20 (PLFS). It reversed a trend in place for 15 years, i.e., since 2004, non-farm job growth had pulled enough workers out of agriculture to reduce the absolute number of farm workers between 2005-19.

The government cannot claim that unemployment always existed. First, this government inherited only 10 million unemployed; the number is now nearly 40 million. It inherited only 2.1 per cent unemployed; why was it 6.1 per cent in 2018? The previous government was creating 7.5 million new non-farm jobs and reduced the absolute number of workers dependent on agriculture — a defining characteristic of structural change India must go through. Non-farm job growth fell to merely 2.9 million per annum between 2013 and 2019. The employment rate (or share of the working population in the total population, which is constantly rising) has fallen from nearly 43 per cent in 2016 (already low by global standards) to 37 per cent in just four years (CMIE). Also, despite ‘Make in India’, manufacturing jobs, another feature of structural change in a developing economy, fell by nearly half from 51 to 27 million in four years.

Governments can take actions to create jobs. First, fill vacant posts of teachers in government schools and universities, for doctors and nurses, for police and judges. Second, immediately initiate an urban employment guarantee programme in small cities. Third, allocate more funds to state governments for capex, so they can create local infrastructure, which is more labour-intensive than Centre’s capex on national infrastructure. Fourth, the Centre needs to come up with a horizontal strategy for labour-intensive manufacturing, focused on MSMEs, to supplement its Performance-linked Incentives for capital-intensive ones. Finally, more spending on development of India’s 6500 manufacturing clusters will support jobs in MSMEs, which suffered during Covid.

(The writer is a visiting professor at Centre for Development Studies, University of Bath, UK)