Labour market failed to employ enough workers this festive season: CMIE

The labour market failed to absorb enough workers this festive season despite the labour participation touching a "recent" peak of 41.3% in the week ended October 25, according to the Centre for Monitoring Indian Economy (CMIE). The market has weakened in the last four weeks since reaching the October high, wherein key indicators such as labour participation and employment rate fell in each of these weeks, Mahesh Vyas, Managing Director and CEO, CMIE, said in an article.

The unemployment rate has bounced between "5.5% and 7.8% with an average of 6.8%" which is almost inconsequential, he stated adding that the important aspect to take note of here is that the "labour markets were unable to absorb adequate proportions of the working-age population during the festive season of 2020."

Vyas further added that the labour participation touching a "recent" peak of 41.3% in October-end itself is "very low" as it had reached 42% in June this year during the recovery from the fall in April and May, however, the level couldn't be sustained.

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"The LPR (labour participation rate) oscillated between 40.4 per cent and 42.2 per cent during mid-June through late August. Then, it fell during September and October to between 40 and 41.4 per cent," he wrote.

Vyas also pointed out in the article that the private think-tank had expressed concern regarding the recovery process in July when it started manifesting signs of fatigue. "This had turned out to be true," he said adding that the LPR did not recover entirely before it started sliding again.

"The average LPR in 2019-20 was 42.7 per cent. It had never fallen below 42 per cent till the lockdown. Now, it seems to be heading towards a sub-40 per cent level. The LPR was 39.5 per cent in the week ended November 15 and it was 39.3 per cent in the week ended November 22," Vyas highlighted with data.

A falling LPR implies that an increasingly smaller proportion of the working-age population is seeking employment. Talking about it in absolute terms, the CMIE chief said that the LPR translates into the labour force and if it continues to fall sharply, the labour force shrinks.

This is what, he stated, happened in September 2020 after the recovery process lost steam and "labour force stagnated in October." Vyas projected that it could be falling in November as well, and is "worrisome."

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Talking about the unemployment rate, he added that it is the proportion of the labour force that fails to find employment. "In the week ended November 22, 7.8 per cent of the labour force could not find employment. This is much higher than the 5.5 per cent unemployment rate pencilled in the preceding week." Vyas noted.

He stated that in the week ended November 22, 7.8% of the labour force could not find employment which is higher than the 5.5% (unemployment) rate pencilled in the preceding week.

"Since the sudden rise in the unemployment rate in the latest week of November 22 was accompanied by a fall in the labour participation rate, the result was a steep fall in the employment rate. This fell by a substantial 114 basis points from 37.38 per cent in the week ended November 15 to 36.24 per cent in the week ended November 22," Vyas wrote.

He added that the employment rate is the best measure of the summary health of the Indian economy and at 36.2% rate in November, it is the lowest since the recovery stagnated in late June 2020. "The employment rate never reached its pre-lockdown levels. And before reaching there, it has started to decline again," Vyas noted.

Besides the weak employment rate, the CMIE chief noted that the deterioration of labour metrics (in November) is a signal again that the recovery is not complete.

Vyas also cautioned that the recovery seen in the increased economic activity till September or October is "running out of steam."

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