Unemployment peaks in August as 1.5 Million Indians lose Jobs

The fact that unemployment is on the rise when more people are looking for work is not a healthy sign for long-term economic growth

unemployment

The latest unemployment rate data released by the Mumbai-based think-tank Centre for Monitoring Indian Economy (CMIE) show that 15 lakh people lost jobs in August. The unemployment figure accounts for jobs lost in both the formal and informal sectors.

The latest unemployment data released indicates that employment gains made in July have been reversed to some extent in August, with job losses on the rise in both rural and urban India.

According to the Centre for Monitoring Indian Economy (CMIE), the number of the employed fell from 399.38 million in July to 397.78 million in August, with nearly 1.3 million job losses in rural India alone.

The national unemployment rate rose from 6.95% in July to 8.32% last month.

Urban unemployment rose almost 1.5 percentage points to 9.78% in August. It was at 8.3% in July, 10.07% in June, 14.73% in May and 9.78% in April. In March, just before the second wave of covid infections hit India, the urban unemployment rate was at 7.27%.

CMIE report shows 97% popn has become poorer in India
CMIE report shows 97% of population has become poorer in India. Source: National Herald

Rural unemployment rose 1.3 percentage points to 7.64% in August against 6.34% in July, primarily driven by low sowing during the kharif season. While the employment rate fell, the labour force participation rate climbed marginally in August, indicating that a larger pool of people were willing to get into the job market. The monthly CMIE data showed 36 million people were actively looking for work, compared to around 30 million in July.

The total labour force size also rose to 433.86 million—almost four million more than July—reflecting how more people are now looking for jobs. In fact, the labour force size in August was almost the same as in March 2020, just before the pandemic-induced nationwide lockdown, which led to muted economic activity, closure of firms and a shrinking employment market in April.

India has been witnessing a tough jobs environment for the last few years. The situation worsened after the covid outbreak. Though economic activity is gradually returning to normal, the job market is struggling. Across India, at least eight states, including Haryana and Rajasthan, are still reporting double-digit unemployment rates.

The rise in unemployment in August comes after July witnessed nearly 15 million people joining the labour force primarily in low-productive agriculture work when the monsoon-led sowing season was at its peak.  Job additions in July mostly comprised poor-quality informal jobs, and  unless the economy recovers these people absorbed in agriculture work will find it tough to find alternatives, CMIE said last month.

High Labour Force participation Rate

Besides the higher unemployment rate, CMIE data also indicated that there has been a rise in the labour force participation rate. This means more people are actively looking for jobs. As per data, nearly 36 million or 3.6 crore people were actively looking for jobs in August, compared to 30 million or 3 crore in July.

The fact that unemployment is on the rise when more people are looking for work is not a healthy sign for long-term economic growth. Recovery in India’s job market was cut short by the second wave and the job environment has remained weak ever since.

While key economic indicators point towards rapid recovery, the overall job market continues to struggle. A lack of employment opportunities could impact long-term economic growth as it would reduce overall purchasing power, leading to a fall in consumption demand.

It may be noted that average consumption demand remains weak in the country despite growth in the first quarter of the year. The growth was largely due to a weak base.

The Shape of the Beast Called Unemployment in India

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