Employment inches up in urban India

by Mahesh Vyas

Unemployment rate in India increased to 7.45 per cent in February 2023 from 7.14 per cent in January 2023. The number of unemployed persons in the labour force in India increased from 31.5 million to 33 million. While the rise in unemployment rate was accompanied with a small increase in labour participation rate, the employment rate in February remained at levels recorded in the previous month. Urban India fared better than rural India in terms of employment. Rural India experienced a significant increase in unemployment.

There was a marginal improvement in India’s labour participation rate to 39.92 per cent in February compared to 39.8 per cent in January 2023. The size of the labour force increased from 440.8 million to 442.9 million. This implies that around 2.1 million additional people wanted to work in February compared to January. Of the people who entered the labour force, only around 0.6 million were able to secure employment. The remaining 1.5 million people were rendered unemployed. This explains the increase in unemployment rate in the month of February.

The size of the workforce in India expanded from 409.3 million to 409.9 million between January and February 2023. In this period, the working age population expanded by a larger number of around 2 million. As a result, the employment rate, which is the percentage of employed persons in the working age population (aged 15 years and above), did not record any significant change in February as compared to January. It remained at 36.9 per cent.

The labour market metrics for the month of February suggest disparate regional trends. In rural India, unemployment went up as a result of a fall in employment. Furthermore, a large share of people who entered the rural labour force were unable to find work. On the contrary, the rise in employment in urban India comes as good news. This is also accompanied with a considerable fall in the number of persons in the unemployed pool in urban India.

It is interesting that the difference in unemployment rates of rural and urban India has been on a decline in the past three months. In December 2022, unemployment rate in urban India was 2.65 percentage points higher than unemployment rate in rural India. This difference fell to 2.07 percentage points in January 2023, and further to 0.7 percentage points in February. However, urban unemployment rate in India continues to be higher than rural unemployment rate.

Unemployment rate in rural India climbed from 6.48 per cent in January to 7.23 per cent in February, which is a 0.75 percentage points increase. The number of unemployed persons in rural India increased by around 2.3 million. This rise in unemployment in February comes as a surprise because rural unemployment was on a downward trajectory in the preceding four months. Between January and February 2023, the rural labour participation rate remained almost unchanged at around 40.9 per cent. There was, however, a marginal increase in the size of the labour force. The labour force in rural India expanded from 299.8 million in January to 300 million in February 2023.

While around 0.26 million people were added to the rural labour force in February, a substantial number lost employment. To be sure, the labour force comprises both unemployed and employed persons. The number of unemployed persons in the rural labour force increased by 2.28 million. Around 2.02 million fewer people were in the workforce in rural India in February compared to January. This fall in employment was also evident in the decline in rural employment rate from 38.3 per cent in January to 37.96 per cent in February.

In urban India, the fall in unemployment rate and corresponding rise in employment rate is a promising sign. The urban unemployment rate fell from 8.55 per cent in January to 7.93 per cent in February. This translates to a fall in the number of unemployed persons by around 0.73 million. In effect, the unemployed pool in the urban labour force comprised of 11.3 million people in February. In the same period, the labour participation rate in urban India inched up to about 38 per cent from 37.5 per cent. Around 1.9 million people entered the urban labour force in February.

Urban employment rate was 34.33 per cent in January 2023. It increased by a small margin of 0.63 percentage points, to 34.96 per cent in February. This is the highest employment rate recorded in urban India since September 2020. The urban workforce expanded by 2.6 million in February, resulting in close to 131.5 million employed persons in the labour force. This is a significant rise in the share of employed in the working age population in urban India. The employment data for the month of February reveal that it is the urban males who are enjoying employment gains, as opposed to urban females. The male employment rate in urban India rose by 1.46 percentage points, from 58.7 per cent in January to 60.17 per cent in February. The female employment rate, on the other hand, declined marginally from 6.36 per cent to 6.28 per cent in the same period.

The overall rise in unemployment in India in the month of February was driven by a significant rise in unemployment, specifically in rural India. The rural labour force expanded by a mere 0.26 million and around 2.3 million people became unemployed in February. Conversely, urban India fared well in terms of employment. Around 2.6 million people were added to the urban workforce suggesting that people in urban India who wanted to work were able to secure employment.