The unemployment rate increased in December 2022 to 8.3 per cent from 8 per cent in November. This increase was expected. Weekly data of the unemployment rate during December had suggested a rising trend. The unemployment rate had been in excess of 8 per cent in each of the four weeks that ended in December with an average of close to 8.8 per cent. The final estimate of 8.3 per cent is therefore a pleasant surprise compared to expectations of a sharper increase. But, the rural-urban disparity in the labour market in December has turned out to be much worse in December than our expectations.

First, we study the overall picture of the labour markets in December before we delve into the regional divergences. The lower-than-expected increase in the unemployment rate is not the only pleasant surprise in the December 2022 labour markets data. Other important metrics such as the labour participation rate, employment rate and absolute employment improved remarkably during the month.

India’s labour participation rate (LPR) rose to 40.5 per cent from 39.6 per cent in November, which itself was an improvement over October’s 39 per cent. In two months, the LPR has gained a substantial 150 basis points. This translates into an expansion of the labour force by 17.6 million, of which 10.6 million were added in December.

The happy outcome of this surge is that most, though not all, found employment. Of the additional 10.6 million who joined the labour force in December, 8.4 million found employment and the remaining 2.2 million joined the ranks of the unemployed. Earlier, in November, of the 7 million that joined the labour force, 5.5 million found employment and the remaining 1.5 million got added to the stock of the unemployed.

Thanks to this steady increase in employment in recent months, by December 2022 total employment in India reached 410 million. This is the highest employment level since the pre-pandemic month of January 2020.

The increase in employment has been greater than the increase in the working age population during the two months of November and December 2022. As a result, the most important labour market metric the employment rate has also improved remarkably. The employment rate is the proportion of the working age population that is employed. This was 36 per cent in October 2022 before it rose to 36.4 per cent in November and then to 37.1 per cent in December. India provided additional employment to over one per cent of its working age population during the past two months. This is a big improvement on the labour market front that nearly negates the rise in the unemployment rate during the same period.

Perhaps, an increase in employment opportunities in rural India during recent months has attracted large numbers from the unemployed working age population into the labour force during these months. This could be an explanation for the extraordinary increase in the labour force and the LPR. This increase in the labour force was greater than the demand for labour. This, in turn, led to an increase in the stock of the unemployed. The stock of the unemployed who were actively looking for employment was 27.8 million in September 2022. This rose to 33.4 million in October, then to 35 million in November and to 37.1 million in December. As a result, the unemployment rate rose from 6.4 per cent in September 2022 to 8.3 per cent in December.

In December 2022, employment increased essentially in rural India and, the unemployed increased predominantly in urban India. This sums up the regional divergence in labour markets in recent months.

Rural India accounts for about 68.5 per cent of total employment in India. This ratio has increased marginally from 68 per cent over the past five years. However, the increase in employment in December was almost 80 per cent in rural India. This is true also for November . Evidently, most of the additional employment is happening in rural India and not in the towns.

Most of the unemployment is recorded in urban India. Usually, urban India accounts for 34 per cent of the unemployed. In December, a whopping 90 per cent of the additional unemployed were located in urban India.

The December surge in the labour force was quite evenly spread across rural and urban regions. Urban India accounted for a 34.5 per cent share while its average share is about 31.5 per cent. But, then, urban India could not provide jobs to these new aspirants and landed up with a greater increase in the stock of the unemployed.

As a result, the unemployment rate in urban India shot up to 10.1 per cent in December 2022. This is the highest unemployment rate recorded by urban India in non-Covid times in the last five years. The urban unemployment rate was already quite high in November at 9 per cent. We had expected this to rise, but had not expected it to touch 10 per cent.

Rural India has safety valves to keep the unemployment rate under check. Agriculture can easily absorb some surplus labour, often as disguised employment. Rural India also has the benefits of the Mahatma Gandhi National Rural Employment Guarantee Scheme. Urban India does not have an employment guarantee scheme.

While the urban unemployment rate increased to 10 per cent in December, the rural unemployment rate dropped a bit, from 7.6 per cent in November to 7.4 per cent in December. Nevertheless, the unemployment rate in rural India is also creeping slowly to settle at levels higher than 7 per cent.