September unemployment data show big changes

The unemployment rate inched up to 6.6 per cent in September 2018. And, the labour participation rate also scaled up to 43.2 per cent. In August, the unemployment rate was 6.3 per cent and labour participation was 42.5 per cent.

It is important to understand these estimates in the light of the demonetisation shock of November 2016.

Demonetisation had led to a sharp fall in the labour participation rate. Before demonetisation, labour participation was of the order of 46-47 per cent. That is, about 47 per cent of the working age population were either working or were looking for a job before demonetisation. After demonetisation, this ratio fell continuously till it dipped to just-below 43 per cent where it seemed to have stabilised. However, in August 2018, it fell sharply to a new low of 42.5 per cent.

This meant that about four per cent of the working age population actually moved out of the labour force after demonetisation. These were predominantly women.

In September 2018, labour participation improved. It jumped up substantially to 43.2 per cent. This means that the number of people willing to work shot up by seven million between August and September 2018. This is a good sign.

But, the not-so-good news is that while the willingness to work and to also look for jobs has increased, the availability of jobs has not improved correspondingly. As a result, the count of the unemployed increased by an estimated 1.7 million and the unemployment rate also increased.

So, nearly two years after demonetisation, labour participation rate continues to remain very low. In fact, the labour force even today is 17 million less than it was in November 2016. The average labour force size was of the order of 444 million during the months preceding demonetisation. This has dropped to about 427 million.

However, even with this reduced labour force, the unemployment rate is almost as bad as it was during the time of demonetisation. In October 2016, 6.75 per cent of the labour force was unemployed. In September 2018, 6.61 per cent of the labour force is unemployed.

The unemployment rate has been rising. Note that the rate had fallen after demonetisation because people left the labour markets since there weren't enough jobs on offer. Now, as they return to the labour markets in search for jobs but still do not find them in adequate numbers, they get added to a growing list of the unemployed labour force. This shows up in the rising unemployment rate. Even a little improvement in labour participation is met with higher unemployment.

The sharp fall in jobs post demonetisation did not lead to social strife because the job-loss was borne almost entirely by women and, we believe that women are not prone to expressing their displeasure violently. But, in September 2018, after a long time, we see a welcome turnaround. Female labour participation rate picked up in rural and urban India.

Overall female labour participation rate improved from an all-time low of 10.3 per cent in August 2018 to 11.9 per cent in September. The fall in August was a bit steep. But, the recovery in September more than compensated for the fall. Female labour participation rate improved in urban India from 9.7 per cent to 11 per cent and in rural India it improved from 10.6 per cent to 12.5 per cent.

Female unemployment rate, which is much higher than it is for men, increased from 15.2 per cent in August to 16.7 per cent in September. But here, the performances in rural and urban India were starkly different. In urban regions, female unemployment declined slightly from a recent high of 21 per cent to 20.7 per cent. In rural regions, however, the unemployment rate increased from 12.2 per cent to 14.6 per cent.

While the increase in female labour participation rate in September is welcome, it may be a bit early to accept that one observation as a turnaround from a declining trend seen hitherto.

A slightly worrying feature emerging from the data is the gradual increase in unemployment in male urbanites. In September 2018 this reached 5.65 per cent. This is the highest unemployment rate in this group since September 2016. Urban male labour participation rate has not recovered yet, from the demonetisation hit. But, even as labour participation continues to fall, unemployment is rising.

It is somewhat intriguing to see a low urban labour participation rate. Why is the urban working age male not willing to get up and go to work or go to look for work? Whatever be the reasons for this behaviour, it does not help that those who go out to work are increasingly not finding work. Perhaps, this is a bigger worry.