Unemployment is a critical issue that affects economies worldwide, and India is no exception. The recent report indicating a decline in the unemployment rate to 6.5% in urban areas of India during the third quarter of the fiscal year 2023-24 is undoubtedly a positive development. However, it is essential to take a closer look at the nuances of this statistic to get a comprehensive understanding of the prevailing labour market conditions.
Examining the Decline in Unemployment Rate
The news of the unemployment rate dropping to its lowest level since the first quarter of FY20 brings hope and optimism to policymakers, business leaders, and citizens. However, it is crucial to acknowledge that the unemployment rate alone does not provide a complete understanding of the labour market situation. While 6.5% is undoubtedly a positive trend, it may not reflect the true picture of the urban workforce in India.
Labour Force Participation Rate and Underemployment
To assess the true dynamics of the labour market, it is necessary to consider other indicators such as the labour force participation rate (LFPR) and underemployment rate. LFPR represents the percentage of the working-age population either employed or actively seeking work. In urban India, LFPR increased from 48.2% in October-December 2022 to 49.9% in October-December 2023. However, this is still lower than the pre-pandemic level of 50.7% in the corresponding period of 2019.
The rise in LFPR indicates a greater willingness of individuals to participate in the labour market, which is a positive sign. However, it is essential to analyze the quality of employment achieved. While the periodic labour force survey (PLFS) provides data on the distribution of workers by broad status in employment, such as regular, casual, and self-employed, it does not explicitly measure the underemployment rate. Nevertheless, these employment categories can provide some insights.
According to the PLFS, the share of regular workers in urban areas increased from 55.8% in October-December 2022 to 57.4% in October-December 2023. However, this does not necessarily translate to an improvement in the overall quality of employment. Many regular workers might be facing challenges such as working in informal or low-paid sectors, reduced working hours, or delayed payments. Moreover, considering the broader perspective of underemployment, it becomes apparent that individuals might be working less than their desired hours or utilizing skills below their potential.
The Need for Comprehensive Analysis
The decline in the unemployment rate in urban areas must be viewed in conjunction with the LFPR and underemployment rate to obtain a comprehensive overview of the labour market. Focusing solely on the unemployment rate paints an incomplete picture and can lead to a misguided perception of the actual situation on the ground. It is crucial for policymakers, economists, and stakeholders to delve deeper into these nuances to address the multifaceted challenges faced by the urban workforce.
Policy Implications
Understanding the true dynamics of the labour market is essential for adopting effective policy measures. While the declining unemployment rate showcases some progress, it should not overshadow the underlying issues of low LFPR and underemployment. Policymakers need to address the barriers that discourage individuals from actively participating in the labour market and take measures to improve the quality of employment.
Policy interventions could include creating a conducive environment for entrepreneurship, promoting skill development and matching with industry demands, enhancing access to credit and formal financial services for small and medium enterprises, and fostering innovation and technology-driven growth. Additionally, efforts should be made to strengthen social protection measures and ensure the fair treatment of workers, irrespective of their employment status.
Conclusion
The decline in the unemployment rate in urban areas of India is undoubtedly a positive step towards economic recovery. However, a comprehensive understanding of the labour market necessitates the consideration of various indicators such as LFPR and underemployment. This holistic analysis would reveal underlying challenges and enable policymakers to devise targeted interventions for sustainable and inclusive growth. By addressing the issues of low LFPR and underemployment, India can strive towards creating a robust and vibrant labour market that empowers its urban workforce to reach their fullest potential.
References:
(1) Periodic Labour Force Survey (PLFS) Annual Report 2022-2023 Released. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1966154.
(2) Unemployment rate in India (2008 to 2024): Current rate, historical .... https://www.forbesindia.com/article/explainers/unemployment-rate-in-india/87441/1.
(3) Unemployment rate in urban areas falls to 6.50 per cent in Q3. https://www.indiatvnews.com/business/news/unemployment-rate-urban-areas-falls-q3-jobs-2024-02-13-916545.
(4) Unemployment rate in urban areas has come down: survey. https://www.thehindu.com/news/national/unemployment-rate-in-urban-areas-has-come-down-survey/article67588411.ece.
(5) Unemployment rate in urban India at 10.3% in Q3 of 2020-21: NSO. https://m.economictimes.com/news/economy/indicators/unemployment-rate-in-urban-india-dropped-to-10-3-in-third-quarter-of-2020-21-nso/articleshow/86070295.cms.
(6) Periodic Labour Force Survey (PLFS) – Quarterly Bulletin [October .... https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2005297.
(7) Periodic Labour Force Survey-Quarterly Bulletin for April - June 2023. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1965946.
(8) Unemployment rate rises sharply in rural areas: CMIE data. https://www.indiatoday.in/business/story/unemployment-rate-rises-sharply-in-rural-areas-cmie-data-1832774-2021-07-26.
(9) India Unemployment rate: Unemployment rate in urban India in the .... https://economictimes.indiatimes.com/news/economy/indicators/unemployment-rate-in-urban-india-in-the-january-march-quarter-of-2021-22-fell-to-8-2/articleshow/92257881.cms
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