Covid leaves a lasting impact
The second wave of the Covid-19 virus has ebbed and restrictions on mobility have reduced. Correspondingly, labour markets have started improving slowly. As of the week ended June 27, the unemployment rate was 8.7 per cent. In the past three weeks, the unemployment rate has ranged from 8.7 per cent to 9.4 per cent. The average unemployment rate of 8.9 per cent is much lower than the 11.9 per cent unemployment rate seen in May 2021. The unemployment rate had shot up to 14.5 per cent in the week ended May 16 and then it peaked at 14.7 per cent in the week ended May 23.
As the unemployment rate rose, labour participation rate (LPR) started to fall indicating a rise in dejection in the labour force. First, it fell from 41.3 per cent in the week ended May 9 to 40.5 per cent in the week ended May 16 when the unemployment rate shot up. Then, in the next week when the unemployment rate inched up further, the LPR fell rather sharply to 39.4 per cent and it continued to fall, to its recent low of 39 per cent in the week ended May 30, 2021. As the unemployment rate started falling thereafter, the LPR also recovered a bit. But, in the week ended June 27, it was down to 39.6 per cent again indicating continued weakness in the labour market.
The employment rate (ER) which is the best summary indicator of the labour markets in India demonstrates this weakness very well. The employment rate was mostly over 37 per cent between July 2020 and March 2021 with an average that was close to 38 per cent. It fell to 36.8 per cent in April and then sharply to 35.3 per cent in May 2021. The first four weeks of June 2021 indicate a recovery that is still just short of 36 per cent. This is a worryingly low ER.
The second wave of the Covid-19 virus took many more lives than the first one but, it had a smaller impact on employment. The official death count in the first wave was less than 1,200 per day. In the second wave it averaged at around 3,600 per day and peaked at over 7,000 deaths on June 10, 2021. The lasting visuals of the first wave were of migrant workers trudging home desperately and helplessly because of the sudden cessation of all sources of livelihood in an alien and locked-up urban space. The middle and higher classes sat at home, discomforted but safe in the first wave. In the second wave, the lasting visuals were of the helpless well-off class households shattered by loss of life, fear of loss of life and of failing life support and health services systems.
The unemployment rate had shot up sharply to 24 per cent in the first wave as soon as the severe lockdown was imposed. As the lockdown eased, the unemployment started climbing down and it eventually came down to its pre-lockdown level. In the second wave, the lockdown has been much less severe. This explains the much lower unemployment rate. It peaked out shy of touching 15 per cent. The unemployment rate had recovered to its pre-Covid levels before the second wave hit India. The average unemployment rate during January-February 2021 was 6.7 per cent which was lower than the 7.5 per cent unemployment rate in 2019-20. After having risen to nearly 15 per cent, the rate is expected to decline to less than 9 per cent in June 2021 and then possibly back to its earlier levels of 6-7 per cent.
India’s problem is less with the unemployment rate and much more with the LPR and the ER. The lasting impact of Covid is a much smaller worker participation rate in India.
The average LPR in 2019-20 was 42.7 per cent. It fell to 35.6 per cent in April 2020 and recovered to touch 41 per cent August 2020. But, it never crossed 41 per cent after the first Covid-19 wave. So, the LPR has lost and never recovered about 1.7 percentage points from its pre-Covid 19 levels. In April-May 2021 it averaged at 40 per cent. It could end June 2021 at a similar level. With this India will still not have recovered its pre-Covid LPR levels.
The impact on the ER follows logically from the above discussion. The ER continues to remain lower than in the pre-Covid times. In 2019-20, the ER was 39.5 per cent. This fell to 27 per cent in April 2020 and was at 30 per cent in May 2020. The recovery helped it touch 38 per cent in September 2020. But the gap with pre-Covid levels remained in excess of 1.5 percentage points. The second wave has increased this gap substantially. The average ER in April-May 2021 was 36 per cent. It is likely to remain at that level in June 2021 as well. This would imply that at the end of the second wave, the ER would be 3.5 percentage points lower than it was in the pre-Covid days. As the unemployment rate declines in the coming months, this gap in the ER may reduce but it still will be much lower than in the pre-Covid times.
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