Are labour markets overheating?
As countries come out of the economic slump induced by Covid-19related lockdowns, they have been forced to take a cautious approach. The pent-up demand and supply-chain problems have led to galloping inflation in most economies. Employment moving faster than expected hasn’t helped matters. In the UK, data released a fortnight ago showed that the economy hit an unemployment rate of 3.7 per cent in February — the lowest in nearly 40 years. In the
US, the unemployment rate is at par with levels last witnessed in October 2019 (chart 1).
India has not seen a similar level of improvement, but the unemployment rate in the first four months of the year, according to CMIE data, was lower than the 2021 average (chart 2). Does this indicate an overheating of the labour market? The latest International Labour Organisation (ILO) report pointed to the contrary. The report highlighted that there is still some slack as the number of hours worked in the first quarter were lower than the pre-pandemic period (fourth quarter of 2019). The ILO report highlights that the lower-middleincome economies will be the worst affected. In the second quarter of the year, working hours shall still be down 6 per cent compared to pre-pandemic levels, translating into a loss of 69 million jobs (chart 3).
The ILO report also highlighted that incomes haven’t returned to prepandemic levels across most of the world. The low-income countries were down 1.6 per cent, whereas the lower- and upper-middle-income countries were down 2.7 per cent and 3.7 per cent, respectively (chart 4). In India, a stark divide in employment can be witnessed between rural and urban areas. Urban unemployment has been rising for the last two months, whereas rural unemployment has declined (chart 5).
Moreover, there is a stark contrast in the unemployment levels of states. Haryana had the highest unemployment rate of 34.5 per cent in April, followed by Rajasthan (28.8 per cent) and Bihar (21.1 per cent). On the other hand, the unemployment rate in Himachal Pradesh was 0.2 per cent. In Chhattisgarh, it was 0.6 per cent
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