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ExplainSpeaking: High Unemployment Rate – The Common Factor in Poll Linked States

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Dear readers,

The electoral commission has announced the voting schedule for elections to five state assemblies, namely Uttar Pradesh, Uttarakhand, Punjab, Goa and Manipur. As such, it is a good time to examine the performance of these states on different economic parameters such as personal income, unemployment, health, etc.

A few months ago, ExplainSpeaking wrote about per capita income in these states. The analysis was based on the latest RBI data. The detailed analysis can be read by by clicking on this link but here are two graphs that summarize the results.

The graph maps the net domestic product per capita of each of the five states that go to the polls.

Chart 1 mapped the state’s net domestic product per capita for each of the five states and compared it to the national average. As can be seen, even though UP’s overall economy is larger than almost any state in India, in per capita terms it is quite small. The reverse is true for Goa.

But from a voters’ point of view, the most important question is: how has per capita income increased over the past 5 years?

This graph shows the growth in per capita income in the five states.

Figure 2 attempts to answer this question. For each state, this graph provides three data points. One, shown in the blue bar, is the rate of increase in income over the five years between FY13 and FY17. Second, the red colored bar shows how quickly per capita income grew before Covid. Finally, the orange colored bar attempts to show how revenues would increase over the past five years – FY18 to FY22. The orange bar calculations are based on the rather optimistic assumption that per capita income will fully recover in FY22.

This is unlikely to happen now that we have the first forward estimates of GDP for the whole country for fiscal year 22. The latest official data shows that while overall GDP is likely to return to pre-Covid levels, per capita income and expenditure will remain significantly below pre-Covid levels.

Chart 2 shows that when it comes to increasing the per capita incomes of its residents, with the exception of Uttarakhand, which barely manages to exceed the national average, all other election-related states have achieved results well below the national average. Goa is the worst performing with per capita income expected to be lower than five years ago.

Today we are going to take a look at the state of unemployment in these states. For the data, we will depend on the latest estimates from the Center for Monitoring Indian Economy. But since the CMIE does not provide data for Manipur, this analysis will focus on only four states.

How do you measure unemployment?

Before we go over the data for each state, here is a brief introduction on how to read it.

Typically, unemployment is tracked by looking at the unemployment rate (or EBU now). The EBU is the percentage of people in the labor force who applied for work but did not get it.

Under normal circumstances, the EBU is a perfectly accurate measure for tracking unemployment, but in the case of India, and particularly over the past decade, the EBU becomes ineffective in accurately gauging the true level of unemployment. distress of unemployment. This is because the workforce itself has shrunk rapidly.

The economically active population includes those who have a job and those who are looking for work but cannot find it (ie the unemployed).

So, what has happened over the past decade is that the labor force participation rate in India has declined. So often when it appears that the EBU has gone down, it is not because more jobs have been created but because fewer people have applied for a job (in other words, the LFPR has gone down) .

In most other comparable countries, the LFPR is between 60% and 70%. In India, it hovers around 40%. This means that in other countries 60% of people in the working age group (i.e. 15 years and over) apply for a job while in India only 40% are looking for a job.

The 20 percentage point gap – this too in the Indian population scale – represents a huge number (millions) of people who are unemployed. But since millions of people do not officially “ask” for work, the number of unemployed is underestimated in India. This is why the EBU fails to adequately capture the unemployment distress in India.

It is for this reason that Mahesh Vyas, CEO of CMIE, advocates using the “employment rate” (or ER now) to fully understand what is happening to unemployment in India.

The employment rate is the percentage of people of working age who are employed. By definition, it takes into account the movement in LFPR. You can read about it in more detail and understand how Indian policymakers have misinterpreted the unemployment distress by clicking on this piece.

Five key variables

For each of the states, we have five key variables. These are:

  1. Total population of working age (ie over 15); (in thousands)
  2. Total number of employees (over 15 years old); (in thousands)
  3. Employment rate (total of persons employed as% of the working-age population)
  4. Labor force participation rate (labor force as a% of the working-age population)
  5. Unemployment rate (unemployed as% of the active population)

When you read the tables you will notice that quite often the EBU decreases not because more people find jobs (# 2 above) but because fewer people apply for work (# 4 above). above).

To really understand the distress, take a look at what happens to the ER (# 3 above).

Data has been compiled for the five years between December 2016 and December 2021.

Let’s start in alphabetical order:

Unemployment rate in Goa.

Goa (See table)

The state has witnessed high unemployment, but the EBU alone fails to grasp the depth of the distress as the LFPR itself has fallen sharply. The first three columns better capture unemployment.

In percentage terms, Goa has experienced the most dramatic collapse in the employment rate. It was 49.31% in December 2016, but has now fallen to less than 32%. In other words, five years ago one in two of Goa’s working-age population had a job, but now that proportion has dropped to one in three.

The absolute numbers show the exact extent of the distress. Over the past five years, as Goa’s working-age population has grown from 12.29 lakh to 13.13 lakh, the total number of people in employment has increased from 6.06 lakh to 4.20 lakh .

Surprisingly, the largest decline in RE occurred during the January-April 2019 period, just on the eve of the 2019 national general elections.

Unemployment rate in Punjab.

Punjab (See table)

The Punjab, too, employs fewer people today than it did five years ago. In December 2016, when its total working-age population was 2.33 crore, more than 98.37 lakh of them were employed. In December 2021, when its working-age population increased to 2.58 crore, it had only 95.16 lakh of employees.

While all of the states in this analysis score below the national average in both RE and LFPR, the Punjab is not only the closest to the national average, but has also experienced the smallest decline in RE over the years. of the last 5 years.

Unemployment rate in Uttar Pradesh.

Uttar pradesh (See table)

UP is a good example of why the EBU misleads policy makers by correctly diagnosing the extent of unemployment.

At first glance, UP’s unemployment rate is 4.83, far lower than that of Punjab and Goa. However, the EBU hides the drop in the LFPR.

A look at the first three columns presents the real picture.

In December 2016, UP had 5.76 million people employed. At that time, its total working-age population was 14.95 crore. Its RE was already quite low compared to other states and the national average (43% at the time).

Over the past five years, his RE has fallen further below 33%.

As a result, even though the total working-age population of UP has increased by more than 2 crores in the past five years, the total number of people in employment has decreased by more than 16 lakh.

Unemployment rate in Uttarakhand.

Uttarakhand (See table)

The state has the lowest EBU of the four states analyzed here. But again, just like UP, its low EBU hides the real distress as it has the lowest LFPR and lowest employment rate of the four states.

During the five years, its working-age population increased by around 11.5 lakh, but the total number of people in employment decreased by around 4.5 lakh.

Summary

In all four states, the employment rate has declined significantly over the past five years. This means that even though working-age populations have increased by lakhs – and crores in the case of UP – the number of people in employment has, instead of increasing, actually decreased.

For example, if UP had maintained its employment rate from December 2016 (which was already quite low), the total number of employees in the state in December 2021 would have been 6.57 crore instead of 5, 59 crore. In other words, if UP had the same percentage of employed people (as a proportion of the working-age population) in December 2021 as in December 2016, then nearly 1 crore of UP residents belonging to the age group to work would have had a job today.

Finally, while all of these states were below the national average, the fact is that India as a whole has seen its LFPR and employment rate drop sharply. Between December 2016 and December 2021, India’s LFPR rose from 46% to 40% and the employment rate fell from 43% to 37%.

As a result, as the total working age population of India increased from 96 crore to 108 crore, the total number of employees increased from 41.2 crore to 40.4 crore.

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