State of (Un) Employment in India

What is the issue?

Centre for Monitoring Indian Economy (CMIE) data shows that India’s labour force participation rate (LFPR) has fallen to 40% from an already low 47% in 2016.

What is LFPR?

• Unemployment- The term unemployment refers to a situation when a person who is actively searching for employment is unable to find work.
• Labour force- According to the CMIE, the labour force consists of persons who are of age 15 years or older, and belong to either of the following two categories
  • Are employed
  • Are unemployed and are willing to work and are actively looking for a job
• LFPR-The labour force participation rate indicates the percentage of all people of working age who are employed or are actively seeking work.
• It is calculated as the labour force divided by the total working-age population.
• UER- The Unemployment Rate (UER) is nothing but the number of unemployed as a proportion of the labour force.
• Significance of LFPR in India- In India, the LFPR is falling which in turn, affects the UER because LFPR is the base on which UER is calculated.
• Merely looking at UER will under-report the stress of unemployment in India.

The world over, LFPR is around 60%. In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.

What is the correct way to assess India’s unemployment stress?

• When LFPR is falling steadily and sharply in India’s case, it is better to track the Employment Rate (ER).
• The ER refers to the total number of employed people as a percentage of the working-age population.
• The ER captures the fall in LFPR to better represent the stress in the labour market.

What is the reason for India’s low LFPR?

• Low level of female LFPR- less than one in 10 working-age women in India are even demanding work.
• As per the World Bank data, India’s female labour force participation rate is around 25% when the global average is 47%.
• Reasons
  • Working conditions- law and order, efficient public transportation, violence against women, societal norms etc. are far from conducive for women to seek work
  • The other has to do with correctly measuring women’s contribution to the economy.
  • It is also a question of adequate job opportunities for women.

References

1. https://indianexpress.com/article/explained/unemployment-labour-force-participation-rate-india-economy-explained-7890638/
2. https://data.oecd.org/emp/labour-force-participation-rate.htm
3. https://www.investopedia.com/terms/u/unemployment.asp