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11 Jul 2017 Mahesh Vyas

1.5 million jobs lost in first four months of 2017

About 1.5 million jobs were lost during January-April 2017. The estimated total employment during the period was 405 million compared to 406.5 million during the preceding four months, September-December 2017.

These estimates are based on consecutive Waves of CMIE’s Consumer Pyramids Household Surveys (CPHS). These are all-India household surveys over a sample size of 161,167 households that included 519,285 adults. The most recent Wave was conducted over the four month period of January through April 2017. This was the first complete Wave post demonetisation. Demonetisation began in the middle of the preceding Wave which was conducted from September through December 2017.

Capture of the employment / unemployment status of adults began with the Wave of January-April 2016. We estimated the employed force at 401 million then. This grew to 403 million during May-August 2016 and then to 406.5 million in September-December 2016. Then, it fell to 405 million.

This is the total employment in the country - including organised and unorganised sectors, and agricultural and non-agricultural sectors.

The workforce (persons greater than 14 years of age) swelled by 9.7 million to 960 million during January-April 2017. But, the number of employed did not grow, it shrank. This implies that the stock of persons to be provided with employment has increased.

While the number of employed persons has dropped, the unemployment rate has also fallen. This is odd and it merits an explanation. The unemployment rate is the ratio of the unemployed to the labour force where the labour force is the sum of the employed and the unemployed.

While the number of persons employed fell by 1.5 million, the number of people who declared themselves unemployed fell much more - by 9.6 million. As a result, the labour force fell by 11 million. This substantial fall in the denominator is responsible for the fall in the unemployment rate.

The unemployment rate during September-December 2016 was 6.8 per cent (29.6 million unemployed out of a labour force of 436 million). in January-April the rate fell to 4.7 per cent (20 million unemployed out of a labour force of 425 million).

Note that the 9.6 million fall in the unemployed count is close to the addition to the workforce. This is like saying that almost the entire new workforce of January-April 2017 did not offer themselves for employment. This is odd. Is this a seasonal phenomenon?

A longer time-series could help us de-seasonalise this to understand this phenomenon better. For now, we can make some intelligent guesses of what might be at work.

September-December is a busy season as the kharif crop is harvested during this period and most festivals fall during these months. 2016 was a good kharif crop and this could have kept employment levels high. January-April is a relatively lean season. Further, demonetisation could have had its full impact during these months while its impact during September-December was partial.

After the demonetisation of November 8, it was evident to the new labour force that there was a serious dearth of jobs. This is evident in the drop in the labour participation rate. The average labour participation rate was 46.9 per cent from January through October 2016. This average had a narrow range between 48.4 and 45.9 per cent.

In November 2016, it was still the festive season but, the labour participation rate fell to a new low of 44.8 per cent. It is apparent that this was an immediate impact of demonetisation. This is because the rate recovered a bit, to 45.2 per cent in the following two months.

The lasting effect of demonetisation is apparent in the fall in the labour participation rate after these two months. The rate fell to 44.5 per cent in February, then to 44 per cent in March and 43.5 per cent in April.

During January-April 2017, labour participation rate was 44.3 per cent. This was much lower than the 46.9 per cent recorded in the corresponding months a year ago.

The drop in labour participation is in line with CMIE’s observation that new investments have been falling. For a developing economy like India, a drop in labour participation rate is a sign of an economic slowdown.

Unlike in developed countries where labour participation is falling because of structural (ageing) reasons, India is a growing economy with a young population.

A slowdown hurts the younger new labour force. This is already evident. During January-April 2017, job losses were concentrated in the younger age brackets.

First Published in Business Standard Link