The unemployment rate in India has decreased dramatically since the Covid-19 pandemic, according to a few private agencies. However, the number of self-employed people has increased, which many economists believe is hidden unemployment.
According to the government’s official quarterly Periodic Labor Force Survey, published earlier this month, the percentage of self-employed male employees increased to 42.9 percent in the April-June 2020 quarter. This compares to 38.7% from April to June of this year. In the same time span, the number of self-employed female employees increased to 34 percent from 33.3 percent.
In the April-June 2020 period, the number of self-employed employees increased to 41 percent, up from 37.7% the previous quarter.
Although government data has a significant lag, private surveys show that the higher share of self-employed people persisted at least until December, even as the rest of the economy began to normalise.
The Centre for Sustainable Jobs at Azim Premji University analysed data from the Centre for Monitoring Indian Economy’s Consumer Pyramids Household Survey and discovered that the proportion of self-employed people increased to 53 percent in September-December 2020 from 50 percent in September-December 2019.
Although this may not seem to be a large amount, it is significant when seen in the sense of formal salaried jobs, which accounts for just 10% of the workforce, according to Amit Basole, director of the Centre for Sustainable Employment. Staff who had lost their employment during the lockdown had to return to agriculture, petty retail, or trade jobs, according to Basole, even after the economy’s constraints were eased. He claims that although they are technically hired, they are seriously underemployed.
According to APU’s upcoming study on the “Condition of Working India 2021,” 35 of the 100 formal salaried employees who lost their jobs between September and December 2020 went into self-employment.
Agriculture remained the fallback choice for those considering self-employment. Around 18% of manufacturing workers and 18% of education workers who lost their jobs went into agriculture. According to the survey, which will be released next month, about 20% of education and modern services staff, as well as 15% of manufacturing workers, went into petty retail.
The Consumer Pyramids Household Survey, on which the university’s research is focused, contains data from approximately 1.7 lakh households.
The reason for the increase in the number of self-employed people is self-evident.
People couldn’t afford to stay unemployed if they lost their jobs during the lockdown and couldn’t find employment after the economy reopened, according to Radhicka Kapoor, a fellow at the Indian Council for Research on International Economic Relations.
Self-employed employees are classified as either “own account workers” or “unpaid helpers in household businesses” in the PLFS. According to Kapoor, many of those who are now self-employed fall into the latter of the two categories. Young people who have lost their jobs, who have only recently completed their schooling, or who have had to drop out due to the pandemic, for example, are likely to have been absorbed as unpaid helpers by family members. According to Kapoor, the phenomenon is popular in developing economies.
The increase in self-employment has consequences for income as well. A further review in APU’s upcoming study reveals a 30 percent drop in median earnings in the third quarter of FY21 compared to the previous year.
Around 40% of the workers who remained self-employed saw a 25% drop in earnings, while those who were forced to switch from formal salaried jobs to self-employment saw a 70% drop in earnings.
Prior to the pandemic, formal salaried employees earned an average of Rs 28,000 per month, while self-employed workers earned an average of Rs 10,000 per month, according to Basole.
The current trends in India are not uncommon.
The International Labour Organization reported in its flagship report in 2020 that a lack of income or other means of financial support causes workers to participate in informal occupations that pay poorly and have little to no social security or rights at work. This is particularly true for the 1.4 billion own-account and contributing family workers in low- and middle-income countries, who are usually working informally, work in hazardous environments, and earn significantly less than those in wage and salaried jobs, according to the study, which was released in January.
It’s uncertain how quickly jobs, especially in the formal sector, can recover. The manufacturing sector’s Purchasing Managers’ Index, for example, reported a drop in jobs for the eleventh month in a row.
Although some old jobs are likely to have returned, with no new private sector investments, there is little to indicate that the labour market will change in the short or medium term, according to Kapoor.
A declining labour force is followed by an increase in self-employment and lower earnings. In the previous fiscal year, the unemployment rate was 7.6%, with 33.2 million unemployed out of a labour force of 438.5 million, according to Mahesh Vyas, managing director of the CMIE, in a post on the company’s portal. A similar unemployment rate of 7.3 percent was reported from July 2020 to February 2021, resulting in 31.2 million unemployed people out of a much smaller labour force of 426.3 million.
Each of these measures continues to point to a labor market recovery that is taking longer than anticipated. Although employment levels have recovered to 90-95 percent of pre-covid levels, the labor market remains harmed by higher informality and lower earnings, according to Basole.