Unemployment rises as labour participation improves

As the impact of the second Covid-19 wave ebbed and restrictions on mobility eased, overall unemployment rate declined from its recent peak of 14.73% (for the week ended May 23) to 7.3% last week.

The unemployment rate for the week ended July 11 rose 34 basis points (bps) from the previous week to 7.64%, as improved labour participation raised the need for jobs. With the easing of localised lockdowns and further headway in the Covid-19 vaccination drive, more workers were back in the employment market.

According to data compiled by the Centre for Monitoring Indian Economy (CMIE), unemployment rate in urban area went up by 33 bps to 8.9% for the week ended July 11. Similarly, rural joblessness inched up by 35 bps to 7.06%.

CMIE’s managing director and chief executive Mahesh Vyas said the unemployment rate inching up should not be much of a worry, as it is on the back of an increase in the labour participation rate (LPR). “The net result is that the employment rate has risen to 37.5% compared to 36.6% in the previous week. This is a very good sign,” Vyas said.

The LPR is an age-specific proportion between persons either working or actively seeking work and the total population in the working age group, usually 15 years and above. Unemployment rate is a ratio between persons who are not currently employed but are actively searching for a job, and the total labour force.

As the impact of the second Covid-19 wave ebbed and restrictions on mobility eased, overall unemployment rate declined from its recent peak of 14.73% (for the week ended May 23) to 7.3% last week.

Sources had earlier said the fear of getting infected and the poor vaccination regime would have dissuaded a section of the workforce from opting for work in May, thereby causing a decline in the labour force participation rate. The situation seems to be improving now.

As for the monthly data, the unemployment rate in June fell to 9.17% from 11.9% in May this year. In a recent article, Vyas wrote, “The recovery in June notwithstanding, job losses compared to January 2021 were of the order of 17 million. Compared to 2019-20, the loss is a substantial 26 million. Covering such large gaps could take months if the June 2021 recovery is sustained.”

In the wake of a pan-India lockdown, the unemployment rate had scaled its peak of 23.52% in April 2020 before easing to 21.73% in May.