Rising unemployment must also be seen as a function of rising education and aspirations

The report from the Periodic Labour Force Survey (PLFS) is finally out, garnering a lot of attention based on selective reading of tables and spurring partisan debates. In particular, the staggering increase in the unemployment rate, from 1.7% in 2011-12 to 5.8% in 2017-18 for rural men and from 3.0% to 7.1% for urban men, has generated wide ranging hand-wringing. However, a more nuanced picture emerges if we are to look beyond the partisan debates to policy implications of the data on employment and unemployment. Three takeaway points from these data are of particular policy relevance.

Three pointers

First, while the unemployment rate is a frequently used measure of poor performance of the economy, under conditions of rising school and college enrolment, it paints an inaccurate picture. Second, the reported unemployment rate is dominated by the experience of younger Indians who face higher employment challenges and exhibit greater willingness to wait for the right job than their older peers. Third, the unemployment challenge is greatest for people with secondary or higher education, and rising education levels inflate unemployment challenges. These three conditions, taken together, suggest that part of India’s unemployment challenge lies in its success in expanding education while not expanding formal sector jobs.

Comparison of male employment and unemployment data from the National Sample Survey Office’s (NSSO’s) 68th round Employment survey conducted in 2011-12 and the new PLFS of 2017-18 illustrates each of these points. The unemployment rate is calculated by dividing the number of unemployed by the number in the labour forces, that is, the sum of employed and unemployed. This statistic ignores people who are out of the labour force — students, homemakers and the disabled.

Unemployment rate data

As long as the proportion of the population out of the labour force is more or less stable, the unemployment rate is a good indicator of the changes in the employment situation. However, India has seen massive changes in proportion of individuals enrolled in an educational institution over the past decade. For 15-19-year-old rural men, the proportion primarily engaged in studying increased from 64% to 72% between 2011-12 and 2017-18. As a result, while the proportion of the population aged 15-19 that is unemployed doubled from 3% to 6.9%, the unemployment rate tripled from 9% to 27%. Leaving the numerator (proportion of population unemployed) same while the denominator changes by removing students from the labour force can overstate job losses.

The proportion of the population that is unemployed has increased only slightly for population aged 30 and above but increased substantially for younger men. For rural men (30-34), the proportion of unemployed increased from 1% to 2.3% while that for men (20-24) increased from 4.6% to 16.1%. Much of the increase in male unemployment is located among ages 15-29. It is important to recognise that in a country dominated by informal sector work, remaining unemployed is possible only for individuals whose families can survive without their immediate contributions. While a 25-year-old may spend his time diligently applying for a formal sector and be supported by his parents during this period, a 30-year-old with a wife and children may have no option but to take any work available to him, even if it pays poorly and offers little job security.

Finally, the unemployment rate has been traditionally high for men with secondary or higher level of education and this is the segment in which most of the increase in unemployment is located. The unemployment rate for illiterate rural men increased from 0.5 to 1.7 between 2011-12 and 2017-18 but the absolute increase was substantially larger, from 3.8 to 10.5 for rural men with at least secondary education. Similar trends are evident for urban men.

This increase in unemployment for educated youth comes at a time when education has expanded substantially. Among rural men (15-29 years), the population with secondary or higher education increased from 43% to 53% between 2011-12 and 2017-18; in urban areas there was a five percentage point increase, from 61% to 66%.

These three observations taken together suggest that the roots of India’s present day unemployment challenges lie in its very success. Educational expansion affects the unemployment debate by skewing the unemployment statistics and by creating greater competition for well-paid jobs among a rising population of educated youth. Rising prosperity allows young graduates to wait for well-paying jobs, creating an army of educated unemployed, before being forced to accept any work, frequently returning to family farms or starting small shops.

Recognition of rising unemployment as a function of rising education forces us to grapple with different issues than a simple focus on unemployment statistics. If public policies such as demonetisation are responsible for rising unemployment, we would see across-the-board increase in unemployment for all age groups. That this phenomenon is located mainly among the young and well educated reflects a challenge that goes well beyond the temporary slowdown facing India post-demonetisation.

Meeting aspirations

Modern India is an aspirational society. After decades of economic stagnation, the 21st century has seen massive growth in aspirations. Parents invest their hearts and souls along with their rising incomes in educating their children. Children hope to make rapid economic progress well beyond the modest gains achieved by their parents’ generation. The unemployment statistics based on PLFS data document the challenges these young people are likely to face.

The Bharatiya Janata Party-led National Democratic Alliance has returned to power with a mandate that allows it the freedom to focus on key challenges facing modern India. Creating jobs for an increasingly educated workforce and ensuring that the new workers are well equipped to enter the labour force are twin challenges that deserve greatest priority. One hopes that leaders of the present government who made their political debut during the student movement in the 1970s will meet this challenge head-on.

Sonalde Desai is Professor, University of Maryland and the National Council of Applied Economic Research (NCAER). The views expressed are personal