India’s unemployment rate fell to 8 percent in November 2024 after having scaled up to 8.7 percent in October. The unemployment rate has declined, but it is still quite high. November was the second consecutive month of the unemployment rate being over 8 percent. The unemployment rate was over 8 percent in 5 of the first 8 months of the current fiscal year so far. It was 8.1 percent in 2023-24. It was 8.1 percent in the first 8 months of the current fiscal as well. Evidently, India’s unemployment rate is stabilising around a rather elevated 8 percent. It is also likely that will continue to remain elevated in December.
In November, the labour participation rate and the employment rate fell a tad. Labour markets cooled off after the busy festival season that ended early in the month. But, the unemployment rate remained high indicating a certain stickiness of the rate around 8 percent.
The labour force participation rate (LPR), which is the labour force as a percent of the working age population, fell from 41.2 percent in October to 40.8 percent in November. A mild fall in the LPR is common in November. The fall therefore could be seasonal. Correspondingly, we expect a seasonal rise in the LPR in December.
If this happens, the challenge in December would be to ensure that the labour markets provide the jobs that the rise in LPR would entail.
In November, there was a large 3.4 million fall in the number of unemployed people. A person is considered unemployed if he cannot find employment although he actively looks for employment, given that he has none in hand. The number of unemployed fell from 39.7 million in October to 36.2 million in November. 3.4 million lesser people were looking for employment in vain in November.
Most of these 3.4 million who stopped looking for employment did not do so because they found employment. Employment grew by only 0.5 million in November while the number of unemployed fell by 3.4 million. Nearly 3 million stopped looking for employment although they did not find any in November. Possibly, they were quite discouraged by the lack of availability of job opportunities.
These about-3 million could easily return to the labour force in search of employment in December. Nearly a million of them flocked into the category unemployed and willing to work but not actively looking for employment. These can easily re-start looking for employment. Then, they will be classified as unemployed once again.
The likelihood of an increase in the labour force and therefore pressure on the labour markets to provide additional employment in December is therefore potentially quite high.
Historically, employment has usually risen in December. It is likely that this seasonal rise will repeat in December 2024 and absorb at least some of the expected increase in the labour force. However, historically, the rise in employment in December has remained inadequate to absorb all the additional influx of labour. As a result, while employment rises in December, simultaneously, the unemployment rate also rises in December. This can be expected in December 2024 also.
A rise in the unemployment rate in December 2024 would imply that the rate would remain over 8 percent for three consecutive months.
But, the unemployment rate is a treacherous indicator in a developing country like India. If people leave the labour market because of lack of jobs, the unemployment rate can fall. This is what happened in November 2024. Employment increased by only 0.5 million but the count of unemployed fell by 3.4 million. Nearly 2.9 million left the labour market and caused a fall in the unemployment rate. Such a fall in the unemployment rate, based on a shrinking labour force cannot be a cause for celebration.
The employment rate is a far more useful indicator. This is the ratio of employed persons to the total working age population. In November, the employment rate fell by a whisker, from 37.56 percent in October to 37.55 percent. This is very small. But, it is the fourth consecutive fall. The employment rate has fallen from 38 percent in August to 37.6 percent in November.
The employment rate was 37.1 percent in 2023-24. In the first two quarters of 2024-25, the employment rate was 37.8 percent. In October and November 2024, the employment rate has fallen to 37.6 percent. We expect the employment rate to rise in December 2024. But, this would be a seasonal rise. What is missing is a rising trend in the employment rate. This critical rate has been quite flat in 2024.
Author is MD and CEO of Centre for Monitoring Indian Economy Pvt. Ltd.
