Which one is a better indicator for depicting the problem of joblessness -- Proportion Unemployed or Unemployment Rate?

Which one is a better indicator for depicting the problem of joblessness -- Proportion Unemployed or Unemployment Rate?

In a recent blog post, Columbia University professor Arvind Panagariya mentions that the critics of the present Prime Minister of India failed to underscore ‘employment rate’ -- flip side of unemployment rate -- that stood at nearly 94 percent according to the report on Periodic Labour Force Survey 2017-18.

A recent article by Dr. Vikas Rawal and Prachi Bansal, however, points out that in order to understand the problem of joblessness in the country it is better to consider the indicator 'Worker-Population Ratio' (WPR), which is also known as the 'Work Participation Rate' for the age-group 15-59 years (according to usual status) instead of the indicator 'unemployment rate'.

It should be noted that the indicator ‘Proportion Unemployed’ (viz. proportion of persons unemployed in the population) among the age-group 15-59 years is a corollary of WPR.  

If 'Proportion Unemployed' (according to usual status) is considered, then it could be noticed that 24.8 percent of rural working-age men and 74.5 percent of rural working-age women were not employed during the period July 2017 to June 2018. In contrast, 25.8 percent of working-age men and 80.2 percent of working-age women were not employed in the urban areas during the same period.

Why is the WPR/ Proportion Unemployed a better indicator than unemployment rate?

In the article entitled Surgical Strike on Employment: The record of the first Modi government, the authors ask the readers for focusing on WPR for the age-group 15-59 years, and use the proportion of non-workers in this working-age population as a measure of unemployment in the Indian economy.

In their article, Rawal and Bansal mention that in the recently released Annual Report on Periodic Labour Force Survey (PLFS), unemployment rate is defined as the proportion of unemployed persons in the labour force. The labour force includes workers and persons who are actively looking for work. Therefore, this definition of labour force leaves out persons who have given up looking for employment (which may be because they realised that there is no work available for them and it is costly to search for work) and treats such persons as being uninterested in working. In short, a large proportion of persons, who are otherwise unemployed, are not counted in the unemployment rate by definition simply because they are not searching for work (viz. they are not part of the labour force).

The authors state that WPR is defined as the proportion of population that is actually employed. A fall in WPR for the age-group 15-59 years clearly indicates contraction in the availability of employment. WPR, according to usual status, refers to all persons who are employed for at least 30 days in a year. Since workers who are employed for as little as 30 days are considered as employed, WPR fails to capture the level of under-employment among workers. Due to a contraction of employment availability, there can be fall in WPR in the age-group 15-59 years as well as a decline in the length of employment of workers. However, Rawal and Bansal warn the readers that the decline in the duration of employment of workers due to a fall in employment availability in the economy has not been captured in their article. It may be noted that WPR does not include: (a) persons who are unable to find employment; (b) persons who have given up looking for employment because they realised there is no work available for them; and (c) persons who are not looking for jobs because they are engaged in other activities (such as studies or housework).

Please note that according to the Annual Report on PLFS 2017-18, persons who were neither 'working' nor 'seeking or available for work' for various reasons during the reference period have been considered as 'not in labour force'. Persons under this category are students, those engaged in domestic duties, rentiers, pensioners, recipients of remittances, those living on alms, infirm or disabled persons, too young persons, prostitutes, etc. and casual labourers not working due to sickness. Activity status codes 91-95, 97, 98 and 99 have been assigned for persons belonging to the category 'not in labour force'.

It is worth noting that in an article published in The Hindu dated 9th February, 2019, Mahesh Vyas says that if the unemployed (viz. unemployed persons who were willing to work and actively looking for a job earlier) decide to leave the labour force due to dearth of employment opportunities (something that happened after demonetisation), then both labour force participation rate and the unemployment rate will go down.

What does the WPR data show?


It could be seen from chart-1 that at the national level, the proportion of employed persons in the rural working-age population fell by about 6.8 percentage points for men and a humongous 11.7 percentage points for women between 2011-12 and 2017-18. The WPR for rural women in 2017-18 was the lowest for Bihar (4.0 percent), followed by Assam (11.5 percent), Punjab (13.7 percent), Uttar Pradesh (14.6 percent) and Haryana (14.8 percent). The WPR for rural men in that year was the lowest for Bihar (65.6 percent), followed by Uttarakhand (68.9 percent), Haryana (71.4 percent), Punjab (72.1 percent) and Uttar Pradesh (72.4 percent).

Chart 1 Worker to population ratio rural men and women aged 15 to 59 years by state 2011-12 and 2017-18
Note: Please click here to access the above data in tabular format
 
Source: Surgical Strike on Employment: The record of the first Modi government -Vikas Rawal and Prachi Bansal, Macroscan.org, 4 June, 2019, please click here to access 
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Chart-2 shows that the proportion of employed persons in the urban working-age population at the national level declined by nearly 4.2 percentage points for men and 1.2 percentage points for women between 2011-12 and 2017-18. The WPR for urban women in that year was the lowest for Bihar (6.5 percent), followed by Uttar Pradesh and Uttarakhand (both 10.5 percent), Haryana (13.4 percent), Jharkhand (13.5 percent) and Rajasthan (14.2 percent). The WPR for urban men in 2017-18 was the lowest for Bihar (62.2 percent), followed by Jharkhand (64.9 percent), Uttar Pradesh (69.3 percent), Uttarakhand (69.8 percent) and Rajasthan (70.4 percent).

Chart 2 Worker to population ratio urban men and women aged 15 to 59 years by state 2011-12 and 2017-18
Note: Please click here to access the above data in tabular format

Source:
Surgical Strike on Employment: The record of the first Modi government -Vikas Rawal and Prachi Bansal, Macroscan.org, 4 June, 2019, please click here to access 
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Rawal and Bansal in their article say that the drop in WPR for the working-age population happened across rural and urban areas, for men and women, and in almost all of the large states.

Table-1 shows that the proportion of rural men (all ages) employed in agriculture has fallen from 32.3 percent in 2011-12 to 28.4 percent in 2017-18 (viz. by 3.9 percentage points), whereas the proportion of rural women (all ages) employed in that sector declined from 18.6 percent to 12.8 percent (viz. by 5.8 percentage points) between those years, which according to Rawal and Bansal, indicates agrarian crisis. The proportion of rural men (all ages) employed in construction -- a sector, which is known to have absorbed labour intensively between 2004-05 and 2011-12 -- has increased from 7.1 percent in 2011-12 to 7.5 percent in 2017-18 (viz. by just 0.4 percentage points), whereas the proportion of rural women (all ages) fell from 1.6 percent to 0.9 percent between those years (viz. by 0.7 percentage points).

Table 1: Proportion of population employed in different sectors of the economy, men and women, rural and urban

Table 1 Proportion of population employed in different sectors of the economy men and women rural and urban
Source: Surgical Strike on Employment: The record of the first Modi government -Vikas Rawal and Prachi Bansal, Macroscan.org, 4 June, 2019, please click here to access
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From table-1 it could be observed that the proportion of rural men (all ages) who are not employed has increased from 45.7 percent to 48.3 percent between 2011-12 and 2017-18 (viz. by 2.6 percentage points), whereas the proportion of rural women (all ages) who are not employed has jumped from 75.2 percent to 82.5 percent between those two year (viz. by 7.3 percentage points). However, the proportion of urban men (all ages) who are not employed has climbed up from 45.4 percent to 47.0 percent between 2011-12 and 2017-18 (viz. by 1.6 percentage points), whereas the proportion of rural women (all ages) who are not employed has risen from 85.3 percent to 85.8 percent between those two year (viz. by 0.5 percentage points).

Unemployment rate data


From the Annual Report on Periodic Labour Force Survey (July 2017-June 2018), one finds the following:

• According to usual status (ps+ss), unemployment rate was 5.8 percent among males and 3.8 percent among females in rural areas, while the rates were 7.1 percent among males and 10.8 percent among females in urban areas.

• Some of the states that saw high unemployment rate (for all age-groups) in 2017-18 according to usual status (ps+ss) are Delhi (9.7 percent), Haryana (8.6 percent), Assam (8.1 percent), Kerala (11.4 percent), Punjab (7.8 percent) and Tamil Nadu, Telangana and Uttarakhand (each 7.6 percent).

• According to current weekly status (CWS), the unemployment rate was 8.8 percent among males and was 7.7 percent among females in rural areas while the rates were 8.8 percent among males and 12.8 percent among females in urban areas.

• For educated (highest level of education secondary and above) rural males and rural females of age 15 years and above, unemployment rates according to usual status (ps+ss) were 10.5 percent and 17.3 percent, respectively.

• For educated (highest level of education secondary and above) urban males and urban females of age 15 years and above, unemployment rates according to usual status (ps+ss) were 9.2 percent and 19.8 percent, respectively.

• The unemployment rate among the rural male youth (persons of age 15-29 years) was 17.4 percent while the unemployment rate among the rural female youth was 13.6 percent during 2017-18. The unemployment rate among the urban male youth was 18.7 percent while the unemployment rate for urban female youth was 27.2 percent during 2017-18.

It may be noted that in the usual status approach (ps+ss), the activity status of a person is determined on the basis of the reference period of last 365 days preceding the date of survey.

The usual status, determined on the basis of the usual principal activity (ps) and usual subsidiary economic activity (ss) of a person taken together, is considered as the usual activity status of the person and is written as usual status (ps+ss). According to the usual status (ps+ss), workers are those who perform some work activity either in the principal status or in the subsidiary status. Thus, a person who is not a worker in the usual principal status is considered as worker according to the usual status (ps+ss), if the person pursues some subsidiary economic activity for 30 days or more during 365 days preceding the date of survey.

The labour force in current weekly status gives the average picture of the labour force participation in a short period of one week during the survey period. The estimate of labour force according to the current weekly status approach gives the number of persons who worked for at least 1 hour or was seeking/ available for work for at least 1 hour on any day during the 7 days preceding the date of survey.

References

Annual Report Periodic Labour Force Survey (PLFS), July 2017 - June 2018, National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, May 2019, please click here to access 

India's low productivity trap: Prosperity and economic transformation require a complete change of mindset -Arvind Panagariya, The Times of India blog, 11 June, 2019, please click here to access

Surgical Strike on Employment: The record of the first Modi government -Vikas Rawal and Prachi Bansal, Macroscan.org, 4 June, 2019, please click here to access 

The Dramatic Increase in the Unemployment Rate -Prabhat Patnaik, Newsclick.in, 14 June, 2019, please click here to access 

It's now official: Joblessness rises with education level -Surojit Gupta, The Times of India, 2 June, 2019, please click here to access 
 
A problem of measurement -Shamika Ravi, The Indian Express, 31 May, 2019, please click here to access 

Unemployment: Why Amitabh Kant and Surjit Bhalla are Wrong -R Ramakumar, Newsclick.in, 15 April, 2019, please click here to access 

Surveying India’s unemployment numbers -Mahesh Vyas, The Hindu, 9 February, 2019, please click here to access 
 
 
Image Courtesy: Inclusive Media for Change/ Himanshu Joshi




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