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How to read the unemployment figures in India


By Kashif Islam

The delay in publishing the latest Periodic Labour Force Survey (PLFS) figures on employment has provided the opposition new ammunition to berate the government. After the self-congratulatory announcements of job increases over the past few months based on the EPFO data, it would have appeared to be an embarrassment. Moreover, with the general elections only a few months away, it made for a risky proposition.

In reality, however, the unemployment figures alone do not convey a true picture of the economy for a country like India where employment is still largely informal and social security non-existent.

Let us first look at the countries where the employment figures do matter, i.e., where they reflect the health of the economy and consequently are closely tracked and used as economic indicators. The United States and France are two good examples of such countries. These are countries with a predominantly formal work-force, and in the case of France, with generous unemployment benefits.

In the U.S., the ‘Bureau of Labor Statistics’, publishes monthly data on non-farm payroll employment. This is based on the monthly establishment survey data consisting of payroll records from nearly 142,000 non-farm public and private sector establishments spread over 689,000 individual worksites, covering about one third of total salaried workforce. For the self-employed and non-payroll workers, the U.S. Census Bureau carries out the Household survey every month.

The monthly and quarterly figures are closely tracked by policy makers, Wall Street analysts and the media. They generally correlate with the level of economic activity in the country. The most recent statistic published on 1st of February showed an unemployment rate of 4.0 percent, with a net increase of 304,000 jobs reported in January. During 2009-10, at the height of the recession, it regularly hovered around the 9% mark.

In France, there are two major sources for the employment figures. The Pôle Emploi (Employment Bureau) produces the monthly report based on the number of people registered for jobs and unemployment benefits. On the other hand, the Insee (National institute for statistics and economic study) produces a quarterly report based on a representative sample of 100,000 active people (aged 15 or above).

The two reports complement each other; the one produced by the Pôle Emploi allows for analysing different types of job seekers as it also includes people working part-time or infrequently. While the Insee report using a more extensive definition of employment (work done for any duration during a reference period) is useful for capturing trends and for international comparison. The most recent unemployment figure reported by Insee was 9.1 % for the whole of France.

The reports are far from perfect. For instance, the most recent US job estimates have been criticised for the fact that they do not account for falling mid-level jobs and stagnant wages. Another frequent reproach is that it excludes those, what the bureau calls, marginally attached to the labour force, that is anyone not having searched for a job in the past month, however willing and available for work.  This number is reported separately from the employment figures.

However, despite the limitations, the job figures, published regularly, are considered a reliable indicator of the health of the economy. They provide a measure, however imperfect, both for the electorate and the government with which to evaluate the government’s performance.

This is in sharp contrast to India. Given that there are no unemployment or other social security benefits, few Indians, except for the very rich and those voluntarily out of the work-force (such as those preparing for competitive exams), can afford to remain unemployed. In such a scenario, the unemployment figure is not the right statistic to judge the health of the economy.

In reality, most people lacking education or otherwise unable to find quality employment, go into self-employment or move into the informal sector, which dominates the Indian economy. Depending on the definition used (number of employees, nature of ownership, legal status), the informal sector accounts for 60-80 % of the total non-farm workforce. Manufacturing, trade and construction absorbing large number of the workforce are mainly informal in nature.

This lack of choice is what explains the deceptively low unemployment rates in India ranging from a high of 4-5 percent, and going as low as 2.2 % during 2011-12 under UPA-2. Figures which would be considered as indicating near full-employment in developed economies.

Instead of unemployment, the real issues in India are underemployment and low quality of employment. Underemployment results when where far too many people are engaged than are required or when people not able to find regular work at desired wages.  The vast number of people captured in the NSSO reports under the category of self-employed belong to this category.

Closely related to underemployment is poor quality of employment, characterised by low pay, poor working conditions and long working hours mainly in the informal sector. Large number of people continue to work in hazardous conditions in sectors such as mining, ship-breaking and waste-handling. Contractual labour is increasing; even large organisations have found ways to increase low-paid contractual labour at the expense of permanent staff. Perhaps, nowhere is the paucity of well-paying, secure jobs best attested than in the large number of people applying for government jobs.

The unusually high unemployment figure of 6.1 % and a fall in the labour-force participation rate as reported by the PLFS may well be the result of demonetisation, something that the government has never openly acknowledged, and for which it needs to be held accountable. But, clearly there is a long way to go before the unemployment number in itself starts conveying any useful information about the economic welfare of the Indian people.

Kashif Islam studied french at JNU and works as a freelance translator based out of Bangalore. A keen observer of society and politics, his pieces have appeared in The Hindu and The Kathmandu Post.


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