From UPSC perspective, the following things are important :
Prelims level : LFPR
Mains level : Paper 3- Rising unemployment
India’s unemployment rate in August was 8.3 per cent. This was higher than the 7 per cent recorded in July. The month-to-month variations notwithstanding, these are all very high unemployment rates.
Why inflation gets more attention in India than unemployment?
- Periodic Labour Force Survey (PLFS) results showed the historically high unemployment rate of 6.1 per cent for 2017-18 (July to June). It was at a 45-year high.
- New norm at 7-8 per cent: Till then, India was used to recording an unemployment rate of around 3 per cent.
- Today, an unemployment rate of 7-8 per cent seems to be the norm and such levels do not seem to matter.
- The unemployment rate is not the most important labour market indicator for a country like India.
- Why inflation gets preference: Between inflation and unemployment, the two economic indicators conjoined theoretically by the Phillips curve, it is inflation that wields political power.
- Inflation hurts almost the entire population.
- Equally importantly, high inflation rates can upset financial markets that in turn exert pressure on regulators to keep inflation in control.
- Unemployment directly impacts only the unemployed, who don’t count much.
- Worse still, society perceives being unemployed as an individual shortcoming, and not an outcome of a macroeconomic malaise.
What does low labour force participation rate (LFPR) indicate about the labour market in India?
- The unemployment rate is a measure of the economy’s inability to provide jobs only for those who seek work.
- But, in India, very often people do not look for jobs in the belief that none are available which is reflected in a low labour force participation rate (LFPR).
- India’s LFPR is at around 40 per cent when the global rate is close to 60 per cent.
- It is important that this belief in the futility of a job hunt is overcome by an explosive creation of new good quality formal jobs.
Why employment rate is a useful indicator for India
- A useful labour market metric for a country like India is the employment rate.
- This measures the proportion of the population over 14 years of age that is employed.
- The definition of employment needs to be changed, at present, engaging in some economic activity for just one hour in any of the past seven days is counted as employment.
- India’s record in providing employment to its people has been abysmally poor.
- CMIE’s definition of employment indicates that in 2016-17, only 42.8 per cent of the working-age population was employed.
- In the year of the pandemic, it fell to 36.5 per cent.
Reverse migration in employment from manufacturing to low productivity employment
- People are moving away from factories as manufacturing jobs shrink, to farms that provide shelter largely in the form of disguised unemployment.
- It cannot be the desire of a nation to move people away from high productivity, better quality jobs in manufacturing to low productivity employment in agriculture or as gardeners or security guards in the household sector.
- Employment opportunities need to expand in areas where labour is deployed to deliver higher productivity for enterprise and higher returns to labour.
- Increase investment: A large part of the solution to this lack of adequate jobs is in increasing investments.
- Focus on demand size: For this, the investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.
The government needs to come up with policies for generating employment opportunities and stemming the reverse migration from manufacturing jobs to low productivity employment.