Employment falls in October

by Mahesh Vyas

By mid-October, fast frequency indicators had signalled stagnation or a worsening of the labour markets in the month. We had reported on October 19 that the three key labour market ratios labour force participation rate, unemployment rate and employment rate had shown a slightly worsening trend until the third week ending in October. All the three ratios till then were a shade worse than their respective levels in September.

The fourth week that ended in October turned out to be better. Labour participation rate increased smartly and although the unemployment rate went up, it wasn’t high enough to stop the most important indicator, the employment rate, from registering a gain. The week ended November 1 continued on similar lines elevated labour participation rate and unemployment rate but still, a healthier employment rate. These improvements in the two most recent weeks moderated the impact of the initially declining trend on October’s labour data. But, they did not change the overall results of the month too much.

Provisional estimates for the month of October released on November 1 confirm that the period of smart recovery of May, June and July has run its course. August, September and October do not show any significant further recovery. And, the rebound so far falls short of reclaiming levels that prevailed before the lockdown.

October was a festival month and a kharif-crop harvest month. It was also a month of much electioneering in Bihar, Madhya Pradesh and also Uttar Pradesh. None of this could help improve the demand for labour.

Labour participation rate at 40.66 per cent in October 2020 was exactly what it was in September 2020. It was much lower than the 42.9 per cent it was a year ago in October 2019. For reference, the labour participation rate had never dropped below 42 per cent before the lockdown. So, the participation rate as of October 2020 continues to remain significantly lower than the levels seen till February 2020.

The labour participation rate had dropped by 7.08 percentage points in April. Between May and July it recovered 5.04 percentage points. But, it has made negligible further recovery in the last three months. India therefore still suffers a loss of nearly two percentage points in labour participation rates compared to pre-lockdown levels.

The unemployment rate had shot up from 7.6 per cent in 2019-20 to 23.5 per cent in April 2020. This was a sharp increase of 15.9 percentage points. This was reined in entirely during May, June and July. As a result, the unemployment rate in September and October has been lower than it was in any month since April 2019. The unemployment rate fell to 6.7 per cent in September 2020. However, it rose to 7 per cent in October. This is in line with the general worsening of labour market indicators in the month.

The employment rate also deteriorated in October. It fell from 38 per cent in September to 37.8 per cent in October. This is an outcome of a combination of a stagnant labour participation rate and an increase in the unemployment rate. The employment rate had shed a massive 12.2 percentage points in April. Much of this, 10.4 percentage points, was recovered during May, June and July. But, after that, the recovery has been negligible. The employment rate in October 2020 at 37.8 per cent was 1.56 percentage points lower than it was in 2019-20.

This fall of 1.56 percentage points is not entirely extraordinary as it is likely to reflect a trend of falling employment rates independent of the lockdown. The employment rate has been falling every year since 2016-17. It fell by 1.13 percentage points in 2017-18, then by 1.46 percentage points in 2018-19 and by 0.46 percentage points in 2019-20. If this trend were to continue, 2020-21 would see another fall of about one percentage point in the employment rate even if there was no lockdown. Implicitly, during the first seven months of the year it could have seen a 55 basis points fall. The 156 basis points fall seen so far in the year is a much bigger fall than can be explained, prima facie, by the falling trend. The momentum to bridge this large gap seems to have been exhausted.

Fatigue in the recovery is best reflected in the aggregate employment data. October 2020 is the first month since the recovery began in May that has recorded a fall in employment. The fall is relatively small at 0.55 million. Yet, what is significant is that the process of recovery of jobs that was robust during May, June and July and which slowed down in August and September now has reversed into a fall in employment in October. Of the 121 million jobs lost in April, 110 million jobs came back during May, June and July. Then, August and September saw the addition of only 5 million jobs. Now, October recorded the first fall since the recovery began.

This fall in employment came when demand for employment was rising. The count of the unemployed who were willing to work increased by 12 million in October.