Macro Trends | The poor are dropping out of the workforce

The unemployment rate in India has seldom been given much importance. The rate has always been very low, simply because, in the absence of social security, most Indians cannot afford the luxury of remaining unemployed for any length of time. Underemployment or disguised employment was seen as the problem, not unemployment. The unemployment rate’s sudden rise to prominence is more a symptom of these politically charged times. It’s all the more so, because an NSSO report suppressed by the government puts the rate at a 45-year high.

Of course, it is the relatively better off who can afford to remain unemployed. That is why unemployment among the educated workforce has always been higher than the overall unemployment rate. More educated people are likely to come from relatively well-heeled households who can afford to have one of their members unemployed and they are unlikely to settle for menial jobs, preferring to wait till one more suitable to their educated status turns up. Their poorer cousins, on the other hand, take whatever jobs come their way, thus being classified as ‘employed.’

The State of Working India 2019 report, recently published by Azim Premji University, has some interesting data on joblessness among men with different educational backgrounds, which could give us clues about unemployment trends among the poor and not-so-poor.

The report finds that the workforce participation rate (WPR), or the percentage of people of working age who are working, has fallen between 2016 and 2018. It says that between the Jan-April 2016 and Sept-Dec 2018, the WPR fell by 2.8 percentage points for urban males and 3 percentage points for rural males.

The report then classifies males by educational attainment -- the ‘high education’ group consists of men with a degree or diploma beyond Class 12, while the others are classified as ‘low education’. We could say that the ‘high education’ group consists of the relatively well-off.

At the beginning of the survey period, or in Jan-April 2016, the WPR for both the ‘high education’ and ‘low education’ groups was 68 percent. At the end of the period, in Sept-Dec 2018, the WPR for less educated men had fallen to 63.7 percent, while that for the ‘high education’ group had increased to 71.9 percent. Simply put, the proportion of less educated men who are working fell, while the proportion of higher educated men working went up. This indicates that the poorer classes, or those who can’t afford higher education, bore the brunt of the job losses during the period.

The report says, ‘Clearly, there is a large differential impact by level of education. This is consistent with the idea that the informal sector, where we can expect the share of less educated men to be higher, was hit hardest by demonetisation as well as the introduction of GST.’ What the report doesn’t spell out is the obvious connection between the less educated and the poor.

But surely the poor cannot afford to remain out of the workforce? The report says ‘it can be a result of the fact that work has become less regularly available, leading to a lower probability that the individual will be counted as part of the workforce in a survey.’ In short, the data show that the poor have been dropping out of the workforce, no doubt due to the lack of work opportunities.

The report brings out two trends, both reason for concern. The rise in unemployment for the relatively well-heeled shows there aren’t enough formal sector jobs. The drop in workforce participation among the poor tells us that the informal economy, which provides employment to the masses, is in poor shape.