2021 gets off to a good start

by Mahesh Vyas

In January 2021 India recorded a significant fall in the unemployment rate and an equally impressive increase in the employment rate. The unemployment rate fell to 6.5 per cent from 9.1 per cent in December 2020 and the employment rate rose to 37.9 per cent from 36.9 per cent. These are big positive changes.

The number of people employed increased from 388.8 million in December 2020 to 400.7 million in January 2021. This is a big increase. Nearly 12 million additional people found employment during January. This is big because month-over-month variations in employment rarely crossed the 5 million mark before the lockdown. The increase in January was twice this max variation. Also, after the initial months of sharp fall and rise in employment during the lockdown, the recovery process had slowed down and then stalled even before the recovery was complete. Employment declined in each of the three months October through December 2020. The recovery in January 2021 is therefore a welcome relief.

January 2021 more than recovered the loss of employment of the past three months. Since the lockdown, employment peaked at 397.7 million in September 2020. Then it lost nearly 9 million jobs by December 2020. The nearly 12 million increase in employment in January more than offsets this loss. Employment in January 2021 at 400.7 million is in fact, the highest since the lockdown began in March 2020.

The increase in employment in January has reduced the count of unemployed to 27.9 million. These are the unemployed who are willing to work and who are actively looking for employment. This is an exceptionally low number. On an average 33 million persons who were willing to work and were looking for work were unemployed in 2019-20. This is now down to less than 28 million.

This fall in the count of the unemployed in January 2021 shows up in a fall in the unemployment rate in the same month. The unemployment rate has been volatile in the past six months as it has ranged from a low of 6.5 per cent in November 2020 to a high of 9.1 per cent in December 2020. The average unemployment rate during this six-month period has been somewhat high at about 7.4 per cent.

This volatility of the unemployment rate is a reflection of very high volatility in the month-on-month variation in the count of the unemployed. A very large number of people move in and out of being unemployed from one month to the next. In half of the months from 2016 to 2019, nearly two million persons moved in or out of the count of unemployed. Given that there are, on average, about 30 million unemployed persons, that is a very high level of volatility. The month-to-month variation in the count of unemployed has been between +7 per cent and -7 per cent in half the months from 2016 to 2019.

Volatility was much higher during the lockdown. But, volatility during these times was the result of an external shock. The high monthly volatility of unemployment in normal times reflects the high proportion of informal employment in India. A person could be employed on one day and not on the next or vice versa. Most employed persons in India do not have regular jobs. Their employment on any given day depends upon the state of the economy, upon the local environment, business conditions at large and a fair degree of luck.

The two most recent months December 2020 and January 2021 have seen an unusual jump in this volatility. In December 2020, India added 11.3 million unemployed persons. In January 2021, India saw the count of unemployed decline by 10.7 million. These are extraordinary variations. Perhaps, the sharp rise in the unemployed in December 2020 was extraordinary. And, in January 2021 India has reverted to its normal count of the unemployed, which seems to average at about 28 million. This is the average count of the unemployed since September 2020, save for the month of December when it shot up to 38 million.

CMIE’s Consumer Pyramids Household Survey captures two levels of unemployed. A person is considered to be unemployed only if such a person is willing to work but does not have any employment. CMIE distinguishes such people into those who are actively looking for work and those who are not. The unemployed and the unemployment rate computed by CMIE are based on the count of the unemployed who are willing to work and are actively looking for employment. These were 27.9 million in January 2021. Besides, there were another 12.1 million who were also unemployed and willing to work but, they were not actively looking for work. CMIE does not consider these in its computation of the unemployment rate.

The total unemployed who were willing to work but did not have any employment in January 2021 was 40 million. While this is a large number, it is the lowest in over two years.

Employment in India is still lower than it was before the lockdown, but there are lesser unemployed people willing to work as well. The recovery is still incomplete but, we made good progress in January 2021.

References
1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001041005005000000&repnum=112880&frequency=M&colno=1