Potential unemployment rate 8.9% in November 2018

by Mahesh Vyas

Labour market metrics improved a tad in November 2018 compared to their levels in October 2018. But, in essence they remain dismal.

The unemployment rate was lower at 6.62 per cent in November compared to 6.91 per cent in October. The labour participation rate improved from 42.39 per cent to 42.72 per cent. And, the employment rate improved from 39.46 per cent to 39.89 per cent.

The improvement was concentrated in the rural areas. Urban regions saw a deterioration in labour market metrics.

In rural India, labour participation rate improved from 43.06 per cent in October 2018 to 43.94 per cent in November 2018. The employment rate improved from 40.17 to 41.25 per cent and the unemployment rate fell from 6.72 per cent to 6.14 per cent.

But, in urban India, labour participation rate fell from 41.19 per cent in October 2018 to 40.53 per cent in November 2018. The employment rate fell from 38.20 per cent to 37.47 per cent and the unemployment rate rose from 7.27 to 7.56 per cent.

Labour participation rate and employment rate in urban India are at their lowest levels at least since January 2016 when we started measuring these. Further, the slight improvement in November notwithstanding, the unemployment rate has been rising steadily since July 2017.

The unemployment rate measured by CMIE is narrowly defined. A person is considered unemployed if she / he claims to be unemployed on the date of the survey and also claims to be actively looking for a job. Persons who are unemployed but are not actively looking for a job are not included in this measure of the unemployed.

This narrow definition makes a lot of sense. Because, our interest is in measuring the count of persons who want to work and are making efforts to get a job but they still cannot get one.

What if a person is willing to work but does not make efforts to find a job? These are also an interesting lot. Of course, a pertinent question is that if they are willing to work but do not have a job, then why do they not make efforts to look for one. We do not know why they do not look for jobs even when they are willing to work. But, we know that they are also a significant lot. We call these the potential unemployed.

The concept of the potential unemployed is useful in measuring the potential labour force.

The 19th International Conference of Labour Statisticians convened by the International Labour Organization recognised the concept of the potential labour force which comprises persons who were outside the labour force but were available (ie willing to work) but not did not seek employment.

CMIE has been measuring the employed, the unemployed and the potential unemployed and therefore the potential labour force since January 2016. Monthly, quarterly and annual estimates of all these measures are available since January 2016 in its "Economic Outlook" service.

We call the potential labour force as the greater labour force. Similarly, the unemployed and the potential unemployed together are the greater unemployed persons. This is then the count of all those who are willing to work but do not have any employment - for wages or for profits.

The ratio of the greater unemployed to the greater labour force is the greater unemployed rate. This is a telling ratio as it measures the larger, or the potential unemployment rate.

In November 2018, the greater unemployment rate was 8.90 per cent. In many ways, this is a useful, if not a better measure of unemployment. It considers all the people who are unemployed and willing to work independent of whether they make efforts to find a job or not.

A young educated unemployed person in a small town of India could be willing to work but may not be able to always actively look for a job because none are available in the neighbourhood. The condition of having to necessarily look for a job before being included in the count of the unemployed is unfair in such a case. But, a similar person in a large town where jobs are available regularly should not be included in the count of the unemployed if the person does not make efforts to get a job.

It is not possible to include or exclude people from the count of the unemployed by considering the availability of jobs. It would therefore be fair to say that the true unemployment rate is between the unemployment rate and greater unemployment rate. In November 2018, this was between 6.62 per cent and 8.90 per cent.


First Published in Business Standard Link