India faces a stiff challenge in creating decent jobs for its growing young population, particularly so with the declining labour absorption in agriculture. Between 2005 and 2012, construction had been the major source of employment in India, benefitting, mainly, men in rural areas. However, employment creation in rural areas dropped sharply after 2012, with the slowdown in the growth of the agricultural and construction sectors. The manufacturing sector lost one million jobs between 2012 and 2018, with small firms in the informal sector suffering severe setbacks. At the same time, the crisis in the rural economy appears to have been moderated to some extent by an increase in governmental expenditures after 2016. Women responded to the slow growth of new employment opportunities for them by withdrawing altogether from the labour market. The proportion of women attending to domestic duties, as per official statistics, began to increase markedly from the mid-2000s onwards. A gap between potential labour supply and actual labour absorption emerged in the case of young men (15-29 years old) too after 2012. This is what has resulted in an unprecedentedly large increase in unemployment in India, as observed by the 2017-18 survey.

Unemployment has become a subject of intense political discussions in India. Particularly so since February 2019, when it emerged that unemployment rate in the country had reached an all-time high of 6.1%, according to the then as-yet-unpublished Periodic Labour Force Survey (PLFS) (Thomas 2019a). It needs to be noted that, before this, unemployment had not figured so prominently in public debates in India, as it typically does in middle-to-high income countries (Basole and Jayadev 2019).

One of the reasons why unemployment remained a less noticeable issue was because the official rates of unemployment in India were quite low. They were low enough to put many developed countries to shame, quipped Amartya Sen in a monograph he wrote in 1975 (Sen 1999: 119). Unemployment rate in India was only 2.2%, according to the National Sample Survey Office’s (NSSO) employment and unemployment survey held during 2011-12, which was the latest officially available major employment statistics before the PLFS was released in May 2019. As Sen (1999) notes, the low rates of unemployment in India were partly on account of the way employment and unemployment were measured in the country. A person who does no job but occasionally – as little as one hour of work for thirty days in a year — assist in his family-owned farm could still be categorized as a worker, as per the country’s official employment statistics.

The Indian economy and the labour market have been undergoing significant structural shifts, and these have had impacts on employment statistics in the country as well. First, there has been an expansion in the size of the working-age-population in India. Second, enrolment of young adults in educational institutions has been rising markedly in India, although there have also been concerns on the quality of education offered and the skills acquired. Third, while the agricultural sector employed close to half of the country’s workforce even in 2011-12, there has been a gradual movement of rural workers away from agriculture due to both ‘push’ and ‘pull’ factors. Young persons in rural areas are increasingly eager to avoid finding themselves in ‘disguised unemployment’ in agriculture.

Given such a context, a key question addressed in this paper is whether the rate of growth of labour demand in the non-agricultural sectors – in industry, construction and services – has been rapid enough to absorb the rising supply of young adults who are potential job seekers. Our research shows that this has not been so in India since the mid-2000s onwards. Labour demand from sectors other than agriculture lagged far behind potential labour supply in the case of women. This resulted in a sharp decline in workforce participation rate or worker population ratio (WPR) among females, from 28.1% in 2004-05 to 16.4% in 2017-18 (Table 1). The gulf between labour supply and labour demand has deepened after 2012, not only among women but also among men, resulting in a marked increase in unemployment rate among young men by 2017-18.

The analysis in this paper is based on official data on employment and unemployment in India – mainly the surveys conducted by NSSO during its 2004-05 and 2011-12 rounds and PLFS carried out during 2017-18. The NSSO surveys and PLFS used broadly similar methodologies and sample sizes, and are, therefore, comparable with each other.

The NSSO employment surveys and PLFS have been conducted over a one-year-period, typically from July of one year to June of the succeeding year (the recent PLFS was carried out between July 2017 and June 2018). We have made estimates of employment for the middle of each survey year (that is, for instance, January 2018, for the survey held between July 2017 and June 2018) by multiplying WPRs obtained from the survey with the projection, based on Census, of population at that particular point in time. All estimates in this paper, unless otherwise specified, are based on the usual principal and usual subsidiary status (UPSS) of workers. In January 2018, out of a total estimated population in India of 1358 million, there were 471.5 million who were employed, 30.9 million unemployed, and 361.4 million students. There were also 299 million persons, most of them women, who reported their status as attending to domestic duties, and were, therefore, not part of the labour force (Table 2).

The full article can be accessed here:

https://www.epw.in/journal/2020/34/notes/labour-market-changes-india-2005%E2%80%9318.html