How the pandemic and lockdown disrupted labour markets
The 2019-20 Periodic Labour Force Survey (PLFS), which was released last week by the National Statistical Office (NSO) shows a fall in unemployment rate from 5.8% in 2018-19 to 4.8% 2019-20. Since PLFS follows a July-June rather than the fiscal year (April-March) period, the 2019-20 report includes the 68-day long complete lockdown period.
Does this mean that there was no distress in labour markets during the lockdown?
An HT analysis suggests that the headline employment numbers in the latest report might be misleading, and a careful reading of the report and the unit-level data does show signs of pandemic driven distress in labour markets. Here are five charts which elaborate this argument.
What do the headline numbers show?
The three most important numbers in the PLFS report are labour force participation rate (LFPR), work participation rate (WPR) and unemployment rate (UR).
LFPR is the share of population in a given age group which is either working or looking for a job. WPR is the share of population which is actually working. UR is the percentage of unemployed persons in the labour force.
There have been three PLFS reports so far, the latest one covering the period from July 2019 to June 2020. A comparison of the three reports shows that despite LFPR being the highest in 2019-20, unemployment rate was the lowest in the last three years. But these numbers hide more than they reveal. Here is why.
The pandemic forced a distress-driven rise in rural employment
Images of thousands of migrant workers walking back to their villages after the lockdown are among the most graphic memories of economic distress during the pandemic. The 2019-20 PLFS offers first official proof of this distress.
In keeping with established wisdom on economic transformation, the share of agricultural employment in India has been falling gradually. 2019-20 was an exception to this trend when agricultural employment actually increased from 42.5% in the 2018-19 PLFS to 45.6% in the 2019-20 PLFS. A sector-wise comparison of absolute number of jobs shows that agriculture more than compensated for the job loss in every sector of the economy in the April-June 2020 period.
The picture becomes even clearer once we look at the quarterly numbers for April-June 2020 and April-June 2019. On a year-on-year basis, urban India saw a reduction of 11.05 million jobs in the April-June 2020 period and rural areas saw the addition of 14.7 million jobs.
However, unemployment rate — or the share of people looking for jobs who didn’t find one — increased in both rural and urban areas. As is obvious, unemployment rate increased more sharply in urban areas (from 8.9% to 20.8%) than in rural areas (from 8.7% to 12.2%). The reason unemployment numbers did not increase on an annual basis despite a sharp rise during the lockdown months is simple. Unemployment rates had decreased sharply in the July-September and the October-December quarters, and to a lesser degree even in the January-March quarter.
That there was distress in urban job-markets was obvious from the quarterly PLFS report for April-June 2020, released in March this year which covers only urban areas. Where the annual report really offers an insight is the rise in what seems to be distress-driven rural employment.
What happened to wages during the lockdown?
The short answer is they fell sharply. PLFS gives wage data for three kinds of employment categories: regular wage/salaried, casual workers and self-employed.
The self-employed were the worst hit during the lockdown, while regular wage workers suffered a contraction only in rural areas. The plight of self-employed workers was the worst in urban areas, where real wages became 3/4th of what they were a year ago. While regular wage workers do show an increase in wages at the national level, they only account for about a quarter of total workers in the PLFS data.
Underemployment increased as well
To be sure, both employment and wage statistics do not capture the actual stress in labour markets after the pandemic. This is borne out by another statistic in PLFS; the average number of hours for which work was available to different kind of workers.
An average worker worked for 46.5 hours in a week in the April-June 2019 period. This came down to 37 hours in the April-June 2020 period. Urban areas saw bigger reduction because both regular wage and self-employed had big decrease in hours worked. Self-employed were biggest losers in urban areas, while regular wage-earning workers were the biggest losers in rural areas.
“An unprecedented increase in share of agricultural employment underlines the rise in distress driven employment during the pandemic”, said Himanshu, an associate professor of economics at Jawaharlal Nehru University. “It is a well-known fact that more people join the workforce during periods of economic distress to compensate for the loss of incomes and the situation must have become worse given the fact that the government offered very little in terms of direct support during the pandemic”, he added
All numbers except annual numbers are based on current weekly status (based on a 7-day recall period). The annual numbers are based on 365 day recall.