India did not do very well on the employment front in August 2022. The unemployment rate shot up to 8.3 per cent, which was the highest compared to the rates in the past 12 months. This rise in the unemployment rate reflects the inability of the economy to provide adequate jobs at a time when the demand for jobs from people increased.
India’s labour force grew by 4 million to reach 430 million in August. This reflects an increase in the demand for employment. The additional demand has come from labour that was earlier on the periphery of the labour markets. These migrated into the labour market and were actively looking for employment in August. People on the periphery of the labour markets are those who are willing to work but are not actively looking for employment although they do not have any employment. These constitute a passive potential work force. In August, about six million of these are estimated to have started actively looking for employment. As a result, the labour force participation rate increased and so did the labour force.
The labour force participation rate increased from 38.95 per cent in July to 39.24 per cent in August and the labour force increased from 426 million to 430 million.
But, the labour markets disappointed the increased labour that offered its services. Instead of absorbing them into the work force, the labour market shed 2.1 million jobs. Employment shrunk from 397 million in July to 394.6 million in August.
As a result, the ranks of the unemployed swelled. They increased by 6.6 million from 29 million in July to 35.6 million in August. This is what caused the unemployment rate to rise.
Usually, this inability of the labour markets to absorb labour that is actively looking for work leads to labour getting disheartened and it starts to retreat from the labour markets. As a result, the labour force participation rate (LPR) falls. Interestingly, so does the unemployment rate (UER). We have started to see this. The 30-day moving average (30-DMA) of the LPR had peaked at 39.4 per cent as of August 19. Since then, it has been on a declining trend and by September 11 it had reached 39.1 per cent. And, the 30-DMA unemployment rate, which had peaked at 8.5 per cent on August 30, has rolled back (more than commensurately) to 7.4 per cent by September 11.
The fall in the unemployment rate in the first few days of September reflects the fall in the LPR and also some increase in employment. The increase in employment in September is evident from the fact that the employment rate has started to climb from 36 per cent as of August 31 to 36.2 per cent as of September 11. This is a welcome change and worth tracking closely. But, as of now it is important to understand the fall in employment in August.
The 2.1 million decline in employment in August is not unusual in quantum. Indian labour markets are volatile. Employment can easily drop by 5 million in a month and rise by a similar amount equally easily in another month. This is because of the nature of employment in India, which is dominated by informal arrangements. Besides the traditional structural elements of informality in employment in India, informal employment arrangements are also rising as enterprises prefer to engage labour largely through contractual arrangements, which have characteristics of informality.
In the 12 months ended August 2022, on an average, a quarter million jobs were lost per month. But, the range behind this average is huge from an addition of 8.3 million in September 2021 to a loss of 13 million in June 2022. Even if we omit these two extreme observations in our calculations, the narrowed range is still quite wide, from -5.5 million to +7 million. In this context, the 2.1 million fall in employment in August is not unusual in quantum. But, the composition of the fall is a bit worrisome.
The largest form of employment in India is of daily wage labourers & small traders, and farmers. These two account for over 60 per cent of total employment. A little less than 20 per cent are business persons. These forms of employment are dominated by informality. People move in and out of such employment fairly easily. This is what causes the phenomenon of volatility in employment.
In August 2022, agriculture shed 11 million jobs. A little over half of these were farmers. The rest were farm labourers. However, most of them seem to have found jobs in the non-farm services sectors, principally in providing non-professional personal services. This seems to be a churn of employment within the informal sectors. On a net basis, informal jobs or non-salaried jobs increased by 2.1 million in August.
The somewhat worrisome part of the fall in employment in August is that salaried jobs fell by 4.6 million. This is a substantial 5.6 per cent fall from 80.8 million in July to 76.2 million in August. This is the lowest level of salaried jobs seen in 15 months. Past patterns suggest that the salaried jobs in August 2022 were expected to fall. However, the fall was more than the expected value. Salaried jobs are expected to rise back to over-80 million in September.