When the unemployment rate fails

by Mahesh Vyas

Measuring the unemployment rate during a countrywide lockdown is like measuring water in the ocean. Water, water everywhere / nor any drop to drink. That was from The Rime of the Ancient Mariner by Samuel Taylor Coleridge in 1798.

Today, people are stuck in their homes surrounded by empty factories, warehouses, offices and shops everywhere. There are empty job seats everywhere, not any to gain.

What is the employment status of people who are stuck at home for an extended period of time? Are they unemployed? To answer that question, we need to assemble the official definition of the unemployed from its components. A person is classified as unemployed if such a person does not have any employment but is willing to be employed and is actively looking for employment.

There are three elements in being classified as unemployed, all of which must be satisfied. You should not have any employment, obviously. And, you should be willing to be employed. And, you should be actively looking for employment.

In the current lockdown, save for non-essential services, what is the status of the rest who employed till a few days ago but, are now effectively locked at home. Are they without any employment? Yes. They have had no employment for the past one week or so unless they are allowed to and can work from home. Most people do not have the latter option.

Are these people willing to be employed? Arguably, Yes. Are they actively looking for employment? No. They cannot.

Therefore, most people who were employed till about a week ago or so, are not employed today because of the lockdown. And, they cannot be classified as unemployed as well because they are not looking for jobs. Some of them would go back to their old jobs after the lockdown. Their status is unclear. If there is reasonable certainty of such a person returning to the old job, there is a case to classify such a person as employed with or without pay but, with no work. This would be underemployment or, disguised unemployment.

Hypothetically, if this situation were to continue for the entire month of April, what would the unemployment rate in April be? Zero, or close to that. Because no one who did not have a job was actively looking for one. Almost everyone in this group will have simply moved out of the labour force.

In times of extreme stress, the unemployment rate fails to give us meaningful signals. As it did following demonetisation and GST.

The concept of the unemployment rate was developed in response to a situation where there were people who were looking for work but were unable to find any. It measures the degree to which a mismatch exists between jobs on offer and jobs on demand. Such a concept works well in an economy where institutions such as enterprises and government provide formal jobs and households provide the corresponding labour.

In India, institutions are not the biggest providers of jobs. Most jobs are informal in the unorganised sectors. During times such as the current lockdown, they lose jobs and have no hope of finding any. So, they just leave the labour markets.

The unemployment rate in India mostly reflects a mismatch between the demand for jobs among the relatively educated people and the availability of jobs for them typically in modern institutions. It does not reflect correctly, the state of the daily wage workers and the self-employed.

Consider those waves of human beings desperately trying to get home after losing jobs in cities when the country was suddenly, overnight, placed under a lockdown. As they trudge back home, a job is the last thing they are thinking about. They need food and shelter for the family. The money in their pockets is useless at the moment. It cannot buy transportation back home. It cannot buy food or shelter.

If we were to ask them, whether they were looking for jobs, they’d probably want to kill us. The question is irrelevant. And therefore, the unemployment rate is irrelevant.

The migrants know that they will eke out something for a living back home in their villages. They know there are no jobs. But, there is safety. In many cases there is a standing crop of wheat, maize, gram and potato. They need to get to those crops before they rot as they would mostly likely in the next two weeks.

This is economic distress. But, this will not show up in the unemployment rate. It will show up in a fall in the labour participation rate and in the employment rate. And for India, these should be the important lead labour market indicators.

The Consumer Pyramids Household Survey was suspended during the week ended March 29 because of the lockdown.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.7 -2.4
Consumer Sentiments Index
Base September-December 2015
46.3 -0.4
Consumer Expectations Index
Base September-December 2015
48.7 -0.6
Current Economic Conditions Index
Base September-December 2015
42.5 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.25 5.55 3.91 0.68
Completed projects 0.85 1.66 1.73 0.24
Stalled projects 0.41 0.61 0.76 0.11
Revived projects 0.43 0.83 0.42 0.59
Implementation stalled projects 0.91 0.13 9.78 0.08
Updated on: 27 Sep 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 19 Dec 19 Mar 20 Jun 20
All listed Companies
 Income -2.3 -1.7 -4.9 -28.1
 Expenses -3.1 -2.2 -1.8 -28.4
 Net profit -1.3 -10.8 -47.5 -41.1
 PAT margin (%) 5.3 5.1 2.4 5.3
 Count of Cos. 4,452 4,431 4,247 4,117
Non-financial Companies
 Income -6.3 -5.5 -8.9 -38.4
 Expenses -6.7 -6.4 -4.9 -38.4
 Net profit -13.8 -13.8 -48.5 -60.2
 PAT margin (%) 5.7 5.7 3.4 4.2
 Net fixed assets 10.4 12.9
 Current assets 4.9 3.0
 Current liabilities 5.0 4.8
 Borrowings 8.3 14.7
 Reserves & surplus 5.7 2.1
 Count of Cos. 3,328 3,307 3,201 3,102
Numbers are net of P&E
Updated on: 27 Sep 2020 3:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.3 0.9
 Expenses 9.9 13.5 1.3
 Net profit -40.3 22.2 -14.4
 PAT margin (%) 2.0 2.4 5.1
 Assets 10.9 9.3 9.8
 Net worth 7.5 8.6 6.4
 RONW (%) 3.5 4.3 7.1
 Count of Cos. 27,645 26,682 3,100
Non-financial Companies
 Income 8.7 13.8 -2.7
 Expenses 8.8 14.0 -1.9
 Net profit -9.0 23.4 -21.4
 PAT margin (%) 2.7 3.2 5.7
 Net fixed assets 7.1 5.3 15.3
 Net worth 6.1 8.5 3.7
 RONW (%) 5.7 6.9 9.3
 Debt / Equity (times) 1.0 0.9 0.7
 Interest cover (times) 2.1 2.4 3.4
 Net working capital cycle (days) 77 70 52
 Count of Cos. 22,442 21,605 2,329
Numbers are net of P&E
Updated on: 27 Sep 2020 12:32PM