Understanding India's Unemployment using data

India switched from a largely rural agrarian economy with high fertility and mortality rates to an urban industrial and service-oriented society characterized by low fertility and mortality rates. This has given India a large labour force that can boost economic growth. But, Data shows that over the last few years, unemployment has risen and labour force participation has fallen and thus we are unable to reap the demographic dividend.

Let’s break it down in this detailed analysis and see what is happening.

What is unemployment?

Unemployment is simply a condition of not having a job when you are of legal age and looking for a job.

Unemployment = less earning population = less spending power of people = less expenditure in economy = less production = lower GDP.

Generally, a high unemployment rate signals recession and problems with the economy.

To understand unemployment, we need to understand the following two concepts.

Labour force participation rate (LFPR)

Unemployment rate (UER)

Labour force participation rate (LFPR)

Suppose the Population of a country is 10,000.

Now, suppose out of these 10,000 people, 2,000 are children and not eligible to work. So, those who are eligible to work are 8,000 (i.e., 10,000 minus 2,000).

Now, suppose out of these 8,000 people who are eligible to work, 2,000 people are not willing to work, maybe they are rich, lazy, tired of working, tired of job searching, retired, studying etc. So, those who are both eligible and willing to work are 6,000 (i.e., 8,000 minus 2,000). Such a population that is both eligible and willing to work is called the labour force. Note that the labour force will include people who are employed and who are looking for jobs.

Labour force participation rate = (people who are eligible and willing to work / People who are eligible to work) X 100

Labour force participation rate = (Labour Force / Population above the minimum working age) X 100

In our example, Labour force participation rate = (6,000 / 8,000) X 100 = 75%

So basically, the Labour force participation rate is the percentage of the working-age (15 years or older) population that is asking for a job.

What does this chart tell us?

• Less than half of eligible Indians are actually willing to work
• Labour force participation rates have dropped across countries, but it is slightly sharper in the case of India
• Referring to the year 2021, the US have 32.6% and China have 47.8% more willing workforce than India
• Referring to the year 2021, India’s LFPR is 28.3% lower than the world average.

What does this chart tell us?

• LFPR has dropped across gender and regions
• Drop is greater among women than men & greater among urban areas than rural areas
• LFPR is really low in the case of women as compared to men
• LFPR in Rural and Urban India is almost equal.

Unemployment rate (UER)

In our earlier example, the People who are eligible and willing to work (labour force) are 6,000.

Now, suppose out of these, 5,500 are employed and 500 are unemployed.

Unemployment rate = (Unemployed People / Labour Force) X 100

In our example, Unemployment rate = (500 / 6,000) X 100 = 8.33%

So basically, a person is called unemployed if he is able and willing to work, but does not have a job right now.

What does this chart tell us?

• The US has made great progress in the last decade to reduce the unemployment rate
• The unemployment rate peaked during the pandemic and cooled off in 2021
• Though the chart doesn’t show, but if you analyse the Nov 2022 data, the unemployment rate for the US is 3.7%, for China is 5.4%, while for India it is 8%.

What do the above 2 charts tell us?

• India’s Unemployment has been range bound between 6.5% and 8.3% in the last 1 year, while before the pandemic India’s average unemployment rate used to be near 5.4%
• The unemployment rate is mostly higher In Urban areas than in Rural areas.

Though a lot of insight can be drawn from the above analysis, here are a few points that I feel are important.

• If we want to improve the labour participation average, we need to find ways to bring women into the labour force. 9% LFPR is really low
• We need to focus on bringing down the unemployment rate in states that perform below the national average.
• As evident from the data, in case of a pandemic or an unforeseen event, India’s labour force participation and unemployment rate dip more than the world average. We need to make our labour force shockproof
• With limited skills in the workforce, in case of loss of job many are left unemployable and with no alternate skills to show, people thus lose intrinsic motivation and LFPR drops. We have to upskill and reskill
• We need to focus on sectors like agriculture, construction, manufacturing, MSME etc that employ a higher number of people.

Metadata Reference:

• Centre for Monitoring Indian Economy (CMIE)
• World Bank data library

Tools used to cross link and analyse the data:

• Excel with Pover Pivot
• Power BI with DAX

Hope you have gained some valuable insights from this article. I would love to hear your views.

#HRwithAbrar