Measuring Unemployment in India

Background

In 2017, the release of the Periodic Labour Force Survey (PLFS) brought attention to India’s unemployment rate, which reached a historic high of 6.1%.
However, the more recent PLFS data for 2021-22 indicates a reduction in unemployment to 4.1%, though it still exceeds the levels seen in some developed countries.
To understand how these figures are derived, we need to delve into the concept of unemployment and how it is measured in India.

Unemployment Defined

Unemployment refers to the situation when an individual who actively seeks employment is unable to secure a job. In this context, someone who has lost a job but isn’t actively seeking another is not considered unemployed.
The labour force comprises individuals aged 15 or older who are either employed or actively seeking employment.
The unemployment rate is calculated as the percentage of the labour force represented by individuals willing to work and actively searching for a job.

Assessing unemployment in India is challenging due to the informal nature of many jobs.
Unlike developed economies, where individuals typically hold year-round positions, Indian workers often engage in various roles throughout the year. This makes it difficult to categorize them as employed or unemployed consistently.
To address this complexity, the National Sample Survey Office (NSSO) employs two primary measures to classify individuals’ working status: the Usual Principal and Subsidiary Status (UPSS) and the Current Weekly Status (CWS).
The UPSS relies on an individual’s primary activity over a more extended period (usually the previous year), while the CWS considers a shorter reference period of a week.
This distinction results in UPSS unemployment rates typically being lower than CWS rates because it’s more likely that someone will find work over a year compared to a week.
These nuanced definitions sometimes lead to an “underestimation” of unemployment but were designed to capture the informal economy’s dynamics.
Additionally, the Centre for Monitoring Indian Economy employs a daily reference period, resulting in a higher estimated unemployment rate but lower labor force participation rates due to the unpredictability of daily work in the informal sector.

Shift Away from Agriculture: Many workers are leaving farming, but there hasn’t been a corresponding increase in non-farm employment opportunities.
Traditional Factors: Disguised unemployment in agriculture, limited focus on labor-intensive sectors like textiles and leather, and economic slowdowns due to events like the COVID-19 pandemic and the Russia-Ukraine war.
Infrastructure and Manufacturing: Inadequate growth of infrastructure and low investments in the manufacturing sector.
Social Norms: Regressive social norms that discourage women from joining or continuing to work.
Population Growth: Rapid population growth exacerbates the employment challenge.
Lack of Skills and Education: Insufficient vocational skills and low education levels among the workforce.
Women’s Participation: Low participation of women in the workforce, influenced by mechanisation in agriculture and the nature of India’s manufacturing sector.
Quality of Jobs: Many jobs are of poor quality, characterised by informality and vulnerability.
Shrinking Public Sector: A decline in direct recruitment in central government ministries and departments.
Employability: Only a fraction of graduates are considered employable according to the India Skills Report.

National Employment Policy: Developing a comprehensive national employment policy that links economic growth strategies with job creation.
Rural Economy Transformation: Shifting from traditional agriculture to value-added activities like horticulture.
Infrastructure Improvement: Enhancing rural infrastructure to promote sustainable growth in rural industries.
Entrepreneurship Promotion: Encouraging entrepreneurial opportunities and investment in traditional manufacturing sectors.
Social Security: Strengthening social security measures for workers in the informal sector.
Women’s Participation: Increasing government procurement from women-led enterprises, providing training in new technologies, and addressing access to capital and childcare.
Informal Economy Enhancement: Building a more productive informal economy through reskilling and upskilling of workers.
Unemployment Insurance: Introducing a centralised unemployment insurance scheme for all unemployed individuals and addressing existing benefit scheme bottlenecks.