Context

India’s unemployment rate in August was 8.3 per cent. This was higher than the 7 per cent recorded in July. The month-to-month variations notwithstanding, these are all very high unemployment rates.

Why inflation gets more attention in India than unemployment?

• Periodic Labour Force Survey (PLFS) results showed the historically high unemployment rate of 6.1 per cent for 2017-18 (July to June). It was at a 45-year high.
• New norm at 7-8 per cent: Till then, India was used to recording an unemployment rate of around 3 per cent. 
• Today, an unemployment rate of 7-8 per cent seems to be the norm and such levels do not seem to matter.
• The unemployment rate is not the most important labour market indicator for a country like India.
• Why inflation gets preference: Between inflation and unemployment, the two economic indicators conjoined theoretically by the Phillips curve, it is inflation that wields political power.
• Inflation hurts almost the entire population.
• Equally importantly, high inflation rates can upset financial markets that in turn exert pressure on regulators to keep inflation in control.
• Unemployment directly impacts only the unemployed, who don’t count much.
• Worse still, society perceives being unemployed as an individual shortcoming, and not an outcome of a macroeconomic malaise.

What does low labour force participation rate (LFPR) indicate about the labour market in India?

• The unemployment rate is a measure of the economy’s inability to provide jobs only for those who seek work.
• But, in India, very often people do not look for jobs in the belief that none are available which is reflected in a low labour force participation rate (LFPR).
• India’s LFPR is at around 40 per cent when the global rate is close to 60 per cent.
• It is important that this belief in the futility of a job hunt is overcome by an explosive creation of new good quality formal jobs.

Why employment rate is a useful indicator for India

• A useful labour market metric for a country like India is the employment rate.
• This measures the proportion of the population over 14 years of age that is employed.
• The definition of employment needs to be changed, at present, engaging in some economic activity for just one hour in any of the past seven days is counted as employment.
• India’s record in providing employment to its people has been abysmally poor.
• CMIE’s definition of employment indicates that in 2016-17, only 42.8 per cent of the working-age population was employed.
•  In the year of the pandemic, it fell to 36.5 per cent.

Reverse migration in employment from manufacturing to low productivity employment

• People are moving away from factories as manufacturing jobs shrink, to farms that provide shelter largely in the form of disguised unemployment.
• It cannot be the desire of a nation to move people away from high productivity, better quality jobs in manufacturing to low productivity employment in agriculture or as gardeners or security guards in the household sector.
• Employment opportunities need to expand in areas where labour is deployed to deliver higher productivity for enterprise and higher returns to labour.

Way forward

• Increase investment: A large part of the solution to this lack of adequate jobs is in increasing investments.
• Focus on demand size: For this, the investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.

Conclusion

The government needs to come up with policies for generating employment opportunities and stemming the reverse migration from manufacturing jobs to low productivity employment.

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