Unemployment rate falls to lowest since 2018; job markets recover from pandemic

Job markets have recovered, the unemployment rate is down, and the share of agriculture in jobs is declining, economic statistics that should bring cheer to the government ahead of the national election in 2024 — that’s the gist of jobs data released on Friday.

When the National Sample Survey Office (NSSO) released GDP numbers for 2021-22 last May, it became clear that the Indian economy had crossed pre-pandemic levels in terms of overall incomes after the 6.8% contraction in 2020-21. The question that was still unanswered back then was whether the pandemic had left permanent scars on the labour market. Headline numbers from the 2021-22 Periodic Labour Force Survey (PLFS) report released by the NSO on February 24 suggest that even the labour markets have recovered from the pandemic. Two key statistics support this conclusion. The unemployment rate has fallen further in the 2021-22 PLFS round and, more importantly, the increase in the employment share of agriculture seen in the 2020-21 round has been reversed.

To be sure, the latest PLFS results are not exactly surprising, as the quarterly PLFS bulletins – unlike the annual report they only cover urban labour markets – have been suggesting an improvement in labour market indicators. While the statistics quoted above are unambiguous in signifying improvement, the fine print of the data does point out persisting faultlines that reflect an unequal recovery in labour markets.

In popular perception, the unemployment rate is taken as the biggest metric of distress or lack of it in labour markets. On this count, the Narendra Modi government will draw a lot of cheer from the latest PLFS report, which covers the period from July 2021 to June 2022. At 4.1%, the annual unemployment rate in 2021-22 was the lowest it has ever been since the first PLFS report for 2017-18 was released. When the first PLFS was released in May 2019, it showed the 2017-18 unemployment rate to be at a four-decade high of 6.1%. While the government insists that PLFS reports – they are the official source of employment-unemployment statistics in India – are not exactly comparable with the Employment Unemployment Surveys released by the NSSO earlier, unemployment rates have been lower than the current level in past EUS reports.

Another statistic which will cheer the government is that the decline in the unemployment rate is not driven by a large number of people dropping out of the job market. Labour Force Participation Rate (LFPR), which measures the share of the working-age population working or looking for work, has fallen only marginally between 2020-21 and 2021-22 and is still higher than the levels seen in pre-pandemic PLFS rounds.

While the pandemic’s disruption on income levels was seen in terms of 6.8% GDP contraction in 2020-21, the most important statistical evidence of its impact on labour markets was seen in a perverse increase in the employment share of agriculture in overall employment. This number increased from 42.5% in 2018-19 to 45.6% in 2019-20 (the last quarter of the survey was affected by the stringent first lockdown of the pandemic) and further to 46.5% in 2020-21. The anecdotal explanation of this statistic was simple. As the lockdown forced urban workers to go back to their villages, they had no other option but to work (or face disguised unemployment) on their farms. The 2021-22 PLFS report suggests that some migrants who came back to their villages have gone back to the cities again, with agriculture’s share decreasing to 45.5%, just below the level seen in 2019-20, but still higher than in 2017-18 and 2018-19.

Once again, while the PLFS offers documentary proof of this development, economists have been pointing to this trend for some time. “As lockdowns ended, urban jobs came back. Workers who had gone home in the pandemic period returned to the big urban centres…By end 2022, the return of labour to urban India was almost complete, as was the growth stimulus that had come from it”, HSBC economists Pranjul Bhandari and Aayushi Chaudhary wrote in a research note dated February 16.

Do these statistics imply that labour markets have never been better since 2017-18 in India? With a year to go for the 2024 general elections, this is as much a political question as it is of concern to the economists.

An HT analysis of the fine print of the numbers suggests that India’s labour market might have shed their quantitative scars but it does show some qualitative bruising. The share of unpaid family workers (a category of self-employment) continued to increase in 2021-22, reaching 17.5%, which is 4.2 percentage points more than what it was in 2018-19, the last annual PLFS round without the pandemic’s impact. Similarly, while the 2021-22 round shows a small increase in the share of regular wage and salaried workers, this number is still lower than what it was in the pre-pandemic period.

The numbers in the latest PLFS report seem to justify the government’s economic approach of calibrated withdrawal from the distress mitigation welfare policies such as provision of free food grains and higher spending on MGNREGS. Whether or not this strategy will achieve its political objectives in 2024 will depend on two key factors: the extent of headwinds, which the global slowdown and dissipation of domestic pent-up demand generates for the Indian economy, and the performance of this year’s monsoon, which will be key to the fortunes of the rural economy in the run-up to the 2024 elections.