The unemployment rate rose sharply to 9.1 per cent in December 2020. This is the highest unemployment rate since the beginning of India’s recovery from the lockdown in June. It is also a steep increase from the 6.5 per cent unemployment rate pencilled in November. The unemployment rate was seen rising steadily in the weekly estimates during December. The week ended December 6 saw the unemployment rate rise to 8.4 per cent. The rate then rose to 9.9 per cent and 10.1 per cent in the following two weeks before moderating to 9.5 per cent in the last week.
It makes it much worse that the rise in unemployment comes along with high inflation, which has been in the vicinity of 7 per cent in recent months. Further, the big increase in unemployment strengthens worries regarding the recovery process.
The rise in in unemployment in December is the result of a partial recovery of the labour participation rate. The LPR had fallen to 40 per cent in November from 40.7 per cent in the preceding two months. This was the lowest LPR since the recovery began. This lower LPR had reduced the pressure in the labour markets as it implied that lesser people were looking for work. As a result, the unemployment rate fell to 6.5 per cent in November. In December, the LPR recovered partly, to 40.6 per cent. The influx of people looking for work swelled. The labour force increased from an estimated 421 million in November to 427 million in December. But, labour markets were not ready for this six-million surge in labour. It thus left them largely unemployed.
The main source of the problem that led to the rise in unemployment in December was the failure of the farm sector to absorb the influx of labour. Farming is the last resort of many who are rendered jobless. But, December is not the month in which it can absorb labour. This is the month when it sheds jobs. In each of the past five years since 2016, labour employed in farming in December has shrunk compared to November. In December 2019, the job loss from farming was 10 million. In December 2020, this sector shed an estimated 9.8 million jobs.
As a result, the count of the unemployed mounted to 38.7 million in December 2020 compared to 27.4 million in November, registering a massive increase of 11.3 million. This huge increase places the unemployed higher than it was before the lockdown. The average count of the unemployed in 2019-20 was 33.3 million. The highest count in the year was 37.9 million in March 2020 and it was below 36 million before that.
The increase in the labour force was only partly responsible for this increase in unemployment. December also saw a fall in employment. This fell by 4.8 million, from 393.6 million in November to 388.8 million in December.
At the end of the third week of December we made an estimate that employment during December would be of 394 million (Reading the tea leaves, December 22). But, the last ten days turned out to be much worse than anticipated. The unemployment rate rose to over ten per cent in the week ended December 27.
The employment rate fell to 36.9 per cent in December. The increase in labour participation could not translate into a higher employment rate because the unemployment rate had shot up. Finally, a smaller proportion of the working age population found employment in December.
While the farm sectors shedding labour was a principal reason for the fall in employment, the deterioration in labour market conditions was across urban and rural regions. LPRs rose in both regions and so did the unemployment rate.
Urban India saw its LPR rise from 37.1 per cent to 37.7 per cent, its unemployment rate rise from 7.1 per cent to 8.8 per cent and its employment rate fall from 34.5 per cent to 34.4 per cent. Employment in urban India fell from 122.5 million to 122.4 million and the unemployed rose from 9.3 million to 11.9 million.
Rural India saw its LPR rise from 41.5 per cent to 42 per cent. But, unemployment rose dramatically from 6.3 per cent to 9.2 per cent. As a result, its employment rate fell from 38.9 per cent to 38.2 per cent. Employment fell from 271 million to 266 million and the unemployed rose from 18 million to 26.8 million.
This across-the-board deterioration in labour market conditions raises concerns about recovery process. This does not look like a problem of one sector or one region. It seems to be secular decline. Employment has been falling month-after-month since September 2020 when it was estimated at 397.6 million. As a result, employment has not only remained consistently below year-ago levels, it has also fallen far short of the two-years ago levels. Employment in November and December 2020 was lower than it was in November and December 2019 and was also lower than it was in November and December 2018, respectively.