India’s unemployment rate shot up to 8.7 percent in October 2024. It was 7.8 percent in September. This increase in the unemployment rate is the result of an increase in the labour participation rate (LPR) and a simultaneous fall in the employment rate (ER). This means that the proportion of the working age population that was seeking employment (LPR) in October had increased compared to September but the proportion of the same working age population that found employment (ER) had declined.
The demand for jobs increased in October. This is reflected in the LPR rising from 41 percent in September to 41.2 percent in October. But the supply of jobs did not rise. The ER fell from 37.8 percent to 37.6 percent in the same period.
These 20 bps movements may appear like small changes but since the denominator in these ratios is the entire working age population of India the ratios translate into millions of people as we shall soon see.
The LPR is the ratio of the labour force to the working age population. The working age population includes all who are of 15 years and more. The labour force is a part of the working age population that includes those who are employed and those who are actively seeking employment while they are unemployed. It does not include those who do not actively seek any employment.
The unemployment rate is the proportion of the unemployed who are actively seeking employment in the labour force. A person who does not actively seek employment is not considered unemployed. The unemployment rate is therefore a partial measure of labour market conditions. The nearly one percentage point increase in the unemployment rate in October is a partial measure of the increase in economic stress in October.
A more comprehensive measure of the economic stress of October 2024 is the 0.3 percentage point fall in the employment rate. This, the employment rate, is a more comprehensive measure of labour market conditions because it takes into consideration, the entire working age population. It tells us that the proportion of working age people that were employed fell from 37.8 percent in September to 37.6 percent in October. Both ratios are low but even at the low levels, they fell in October. In absolute terms this translates into a fall of 2.25 million jobs in October. Or a 0.54 percent fall in employment in the month.
Total employment fell from 416.25 million in September to 414 million in October. This fall could be at least partly seasonal. A fall in employment has been recorded in October of 2021 2022 and 2023.
At the same time that employment fell, the labour force expanded from 451 million to 454 million. This rise is also likely to be seasonal as a similar rise was seen in 2022 and 2023.
Thus, October seems to be the time of the year in India when the demand for jobs from labour remains high even as the supply of job starts to wane. This is usually the end of the peak festive season in India. This is, therefore, a transitory period and the rise in the unemployment rate in October reflects the movement of casual labour in the vast unorganised labour markets in India.
As the number of people seeking employment in October 2024 increased and the number of jobs available shrunk, the unemployed who were actively looking for employment increased. Their count rose from 35.1 million in September to 39.7 million in October. The unemployed people swelled by 4.6 million in October.
The seasonal fluctuations in employment notwithstanding, the unemployment rate in India seems to be averaging at a little over 8 percent. In the 12 months ended October 2024, the unemployment rate has hovered between 7.3 percent and 9 percent with an average of 8.1 percent. This is the same as the average unemployment rate in 2023-24 but higher than the 7.6-7.7 percent rate in the preceding two years.
Author is MD and CEO of Centre for Monitoring Indian Economy Pvt. Ltd
