Unemployment rate down, but does that mean more jobs created? Data suggest otherwise

The unemployment rate dropped to 6.6 per cent in January 2022 from 7.2 per cent in January 2020. However, according to data, the reason behind the dip is not due to the creation of more jobs, but due to a decline in people looking for jobs.

The Covid-19 pandemic severely hit the job market in 2020. Two years later, its effects are still visible in the economy, more so in the informal sector. While restrictions and lockdowns led to a massive job shedding in 2020, workers seem reluctant to get back into the job market even now.

The unemployment rate dropped to 6.6 per cent in January 2022, which is lower than the pre-pandemic levels of 7.2 per cent in January 2020. However, the reason behind the dip in unemployment is not the addition of jobs — rather, it was caused by the decline in the number of people looking for jobs. The number of unemployed people fell by 66 lakhs in January 2022, as they stopped looking for jobs. Consequently, they were no longer counted as unemployed.

According to the Centre for Monitoring Indian Economy, “Employment did not expand to absorb the unemployed in January. On the contrary, employment shrunk by 33 lakhs. The labour force participation rate fell from 40.9 per cent in December 2021 to 39.9 per cent in January 2022. These two ratios show the real stress in the labour markets in January.” This is a perfect example of why the unemployment rate is not a very reliable measure of labour market stress, the CMIE added.

The Reserve Bank of India, too, underlined the roadblock of labour shortage hampering companies’ productivity. “Sentiments improved over subsequent survey rounds, but companies reported unavailability of raw materials, working capital requirement along with labour shortage as major constraints,” a February 2022 RBI bulletin noted.

The haphazard manner in which daily-wage workers were forced to quit jobs during the first and second waves of the pandemic has instilled fear among the working class. It has also taught them new ways of earning a livelihood.

“All those who migrated are not willing to come back to the labour market, and many women have post-pandemic decided to not enter/reenter the labour market,” Gayathri Vasudevan, Chairperson at LabourNet Services India, told India Today.

Many in the gig force are not registered as workers looking for work and, therefore, are seemingly employed part-time, Vasudevan, who is also a former Project Officer at the International Labour Organization, added.

Hospitality (42.2 per cent), education (34.8 per cent), telecom (32.2 per cent), and retailing (23.7 per cent) were the sectors that faced a major drop in employment during the pandemic in the same interval, according to CARE Economics Research.

On the other side, information technology (11 per cent), banks (9.3 per cent), healthcare (6.9 per cent), and consumer durables (6.1 per cent) were the sectors that saw an uptick in employment during 2021, compared to the pre-pandemic levels of the year 2019.

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