Challenge of pervasive unemployment

By Dr Santosh Kumar Mohapatra*

May Day, also known as International Labour Day or Worker’s Day, will be celebrated all over the world again on May 1, 2023. As we prepare to celebrate May Day 2023, there is a need to examine various factors that influence labours’ living standards. One important factor is the employment generation capacities of various economies.

According to ILO Monitor on the World of Work, tenth edition (October 2022), while the impact of Covid-19 has waned in most countries, multiple and overlapping economic and political crises are threatening labour market recovery around the world. These crises are likely to further increase labour market inequalities due to the disproportionate impact on certain groups of workers and firms while contributing to a growing divergence between developed and developing economies.

The latter had already been recovering more slowly from the Covid-19 pandemic, and are now facing less policy space to protect hard-hit workers and enterprises during the most recent crises.

Recovery in hours worked remains uneven and is now threatened by a slowdown. The encouraging recovery in hours worked seen at the beginning of 2022 has not continued, although there continue to be significant differences between regions and income groups. The outlook for the labour market is currently highly uncertain, with growing downside risks, including the impacts of high inflation, tightening monetary policy, increasing debt burdens and declining consumer confidence. While it normally takes time for an economic slowdown or a recession to result in job destruction and unemployment, available data suggests that a sharp labour market slowdown is already underway.

According to the International Labour Organization (ILO) ’s report titled “World Employment and Social Outlook: Trends 2023 (WESO Trends), strong employment growth in 2022 raised the global employment-to-population ratio to 56.4 per cent up from 54.5 per cent in 2020, however, was still almost half a percentage point below the level of 2019. A slowdown in employment growth in 2023, would further mean that gaps opened up by the Covid-19 crisis, globally, are not projected to be closed in the next two years.

Global employment is projected to expand by only 1 per cent in 2023, which is a significant deceleration from the 2.3 per cent growth rate of 2022 owing to the Russia-Ukraine war, soaring inflation, and tightening of monetary policy, The ILO has projected global employment to grow by 1.1 per cent only in 2024. The report comes amidst mass layoffs by several big-tech companies and startups globally.

The report says, “The outlook is pessimistic for high-income countries, with close to zero employment growth. By contrast, low-income and lower-middle-income countries are projected to see employment growth surpassing their pre-pandemic growth trend”. The current global economic
slowdown is likely to force more workers to accept lower quality, poorly paid jobs which lack job security and social protection, so accentuating inequalities exacerbated by the Covid-19 crisis.

Global unemployment is slated to rise slightly in 2023, by around 30 lacks, to 20.8 crores (corresponding to a global unemployment rate of 5.8 per cent). The moderate size of this projected increase is largely due to the tight labour supply in high-income countries. This would mark a reversal of the decline in global unemployment seen between 2020-2022. It means that global unemployment will remain 1.6 crores above the pre-crisis benchmark.

In addition to unemployment “job quality remains a key concern”, the report says, adding that “Decent Work is fundamental to social justice”. A decade of progress in poverty reduction faltered during the Covid-19 crisis. Despite a nascent recovery during 2021, the continuing shortage of better job opportunities is likely to worsen, the study says.

The current slowdown means that many workers will have to accept lower-quality jobs, often at very low pay, sometimes with insufficient hours. Furthermore, as prices rise faster than nominal labour incomes, the cost-of-living crisis risks pushing more people into poverty. This trend comes on top of significant declines in income seen during the COVID-19 crisis, which in many countries affected low-income groups worst. The report also identifies a new, comprehensive measure of the unmet need for employment – the global jobs gap. As well as those who are unemployed, this measure includes people who want employment but are not actively searching for a job, either because they are discouraged or because they have other obligations such as care responsibilities. The global jobs gap stood at 47.3 crores in 2022, around 3.3 crores above the level in 2019.

The global employment slowdown will also have a significant impact on widening the already existing gender gap. In 2022, the unemployment rate amongst women stood at 5.8 percent which is 0.1 percentage points above that of men. Moreover, the jobs gap rate globally stood at 12.3 per cent in 2022, which was well above the global unemployment rate of 5.8 per cent. However, this job gap was particularly large for women, as per the report. The female jobs gap rate stood at 15 per cent, whereas the male jobs gap rate stood at 10.5 per cent in 2022.

Personal and family responsibilities, including unpaid care work, can prevent many people from seeking employment or limit their availability to work at short notice. Such limiting factors disproportionately affect women and thus explain the large gap in this broader measure of labour underutilization. Apart from this, the ongoing impact of the Covid-19, cost-of-living and geopolitical crises are also “eroding” the purchasing power of household disposable income and reducing aggregate demand, according to the report. What is more disconcerting is that Stagflation conditions threaten productivity and labour market recovery. The labour market deterioration is mainly due to emerging geopolitical tensions and the Ukraine conflict, uneven pandemic recovery, and continuing bottlenecks in global supply chains.

Together, these have created the conditions for stagflation – simultaneously high inflation and low growth – for the first time since the 1970s.
Women and young people are faring significantly worse in labour markets. Globally, the labour force participation rate of women stood at 47.4 per cent in 2022, compared with 72.3 per cent for men.

This 24.9 percentage point gap means that for every economically inactive man, there are two such women. Young people (aged 15–24) face severe difficulties in finding and keeping decent employment. Their unemployment rate is three times that of adults. More than one-in-five – 23.5 per cent – of young people are not in employment, education or training (NEET). Indian Context Lack of employment opportunities has been India’s Achilles’ heel for decades. The pandemic has worsened the labour market recovery and made it highly fragmented. Various studies suggest how
the pandemic has left several unemployed people discouraged and these people are now overly pessimistic about job conditions. Additionally, job discrepancies across regions, gender, and generations are on the rise. What is distressing is that when the number of educated youth unemployed is growing rapidly, the rate of generation of employment in the organised sector especially in government, public sector and corporate sectors are declining.

According to the Centre for Monitoring Indian Economy (CMIIE ), India’s labour market metrics deteriorated in March 2023 on the back of a significant drop in employment in construction and retail trade as millions of workers moved to agriculture for the harvesting of rabi crops. CMIIE’s weekly analysis shows that the labour markets have been weak, especially during the last quarter of 2022-23.

According to the CMIIE, the unemployment rate in India increased to 7.80 per cent in March from 7.50 per cent in February of 2023. This is too high compared to many advanced countries. The employment rate from 37.1 per cent in December 2022 to 36.9 per cent in February and further to 36.7 per cent in March, which means employment fell from 40.99 crore to 40. 76 crores between February to March 2023.

The unemployment rate only measures people who are unemployed, but it didn’t calculate the total number of people who have stopped demanding work. Typically, this happens when people of working age get disheartened from not finding work. Thus, it is better to track the variable: the Employment Rate (ER). The ER refers to the total number of employed people as a percentage of the working-age population. According to the CMIE, the labour force consists of people who are 15 years or older and belong to either of the following two categories: Are Employed and unemployed but willing to work and are actively looking for a job. In other words, it includes those who are employed and those who are unemployed but seeking jobs.

These two categories have people “demanding” jobs. This demand is what the labour Force Participation Rate (LFPR) refers to. Thus, the LFPR essentially is the percentage of the working-age (15 years or older) population that is asking for a job. It represents the “demand” for jobs in an economy.

In India, the LFPR is not only lower than in the rest of the world but also falling. In India, it has been sliding over the last 10 years and has shrunk from 47 per cent in 2016 to just 40 per cent as of December 2021. According to CMIE data, as of December 2021, while the male LFPR was 67.4 per cent the female LFPR was as low as 9.4 per cent. In other words, less than one in 10 working-age women in India are even demanding work. Even if one sources data from the World Bank, India’s female labour force participation rate is around 25 per cent when the global average is 47 per cent.

The main reason for India’s LFPR being low is the abysmally low level of female LFPR. The reasons for low women’s LFPR are essentially about the working conditions — such as law and order, efficient public transportation, violence against women, societal norms etc. — are far from conducive for women to seek work. Further, a lot of women in India are exclusively involved within their own homes (caring for their families).

However, the Periodic Labour Force Survey (July 2020 – June 2021) report provides a picture of the decline in unemployment which sounds preposterous. According to the report, the unemployment rate in 2021-22 was recorded at 4.1 per cent, lower than the 5.8 per cent witnessed in 2018-19. However, there has been an increase in the share of agriculture in overall employment. It was 42.5 per cent in 2018-19, which rose to 45.5 per cent in 2021-22. The bitter truth is that people move to farming when no jobs are available in the markets. The numbers also show that the effects of the COVID-19 pandemic continued to bruise a section of the country’s population. By contrast the share of manufacturing in employment has declined to 11.6 per cent in 2021-22, from 12.1 per cent seen in 2018-19. Five years ago, manufacturing was the second-largest employer after agriculture, but now it has been replaced by the construction sector and is in the fourth position. This is an omen sign.

Additionally, the share of self-employed persons in 2021-22 has increased to 55.8 per cent as compared to 52.1 per cent in 2018-19. Self-employed is considered a euphemism for the unemployed and does not give an accurate picture of employment The share of those getting a regular wage or salary has dropped to 21.5 per cent from 23.8 per cent in the same period, the business daily reported. The daily further reported that the dependency ratio (percentage of the working-age population) has slightly increased, suggesting more pressure on employed persons amid the recent economic turmoil.

Further, between 2004-05 and 2011-12, the workforce engaged in farming registered the biggest decline from 58.5 per cent to 48.9 per cent. The recent rise in the workforce engaged in farming reveals the increase of disguised unemployment. Also known as hidden unemployment, this refers to a situation where labour that is employed in a job is not actually utilised for the production of goods and services. In other words, such employment does not contribute to the output of an economy and is thus akin to a form of unemployment. Sometimes disguised unemployment could simply be a form of underemployment wherein the skills of a labour force are not utilised to their full capacity.

However, a falling unemployment rate in India as per any survey (though actually increasing) may not provide any idea about decent work or gainful employment. According to the International Labour Organisation (ILO), decent work sums up the aspirations of people in their working lives. It involves opportunities for work that is productive and delivers a fair income, security in the workplace and social protection for all, better prospects for personal development and social integration, freedom for people to express their concerns, organize and participate in the decisions that affect their lives and equality of opportunity and treatment for all women and men.

Mammoth Challenge and Create Broad-Based Jobs

The slowdown in global employment growth means that we don’t expect the losses incurred during the Covid-19 crisis to be recovered before 2025,” said Richard Samans, Director of the ILO’s Research Department and report coordinator. “The slowdown in productivity growth is also a significant concern, as productivity is essential for addressing the interlinked crises, we face in purchasing power, ecological sustainability and human well-being.”

According to a note on gainful employment in India, which was prepared by Jonathan Woetzel, Anu Madgavkar, and Shishir Gupta (2017) for McKinsey Global Institute — an international private-sector think tank – gainful employment covers a range of issues, including the quantity and type of work done by people already in employment, growth in labour productivity, higher earnings, and aspects of work quality such as greater safety, cleanliness, flexibility, income security, and intellectual challenge. The policy brief further explained that the labour -force participation and the number of jobs do not in themselves measure gainful employment. However, India must deal with this immense challenge and create broad-based jobs (for youth, and across skills and sectors). It must prepare its workforce for the future.

Need For Decent Work and Social Justice

“The need for more decent work and social justice is clear and urgent,” said ILO Director-General, Gilbert F. Houngbo. “But if we are to meet these multiple challenges, we must work together to create a new global social contract. The ILO will be campaigning for a Global Coalition for Social Justice to build support, create the policies needed, and prepare us for the future of work.”

According to ILO, comprehensive, integrated and balanced policies are needed to face multiple crises The multiplication of crises raises the risk of another significant global labour market downturn, requiring comprehensive, integrated and balanced policies which address not only
inflation in isolation but also its broader implications for employment, enterprises and poverty.

Excessive policy tightening is causing undue damage to jobs and income in both advanced and developing countries. The set of policy tools to combat multiple crises needs to be widened through social dialogue, which would include: (a) interventions in setting prices for public goods; (b) charging windfall profits; (c) strengthening income security through social protection; (d) increasing income support to maintain the purchasing power of labour income; and (e) targeting support to the most vulnerable people and enterprises.

To support the labour markets in Ukraine and those affected by the ongoing conflict, a continued focus on decent jobs and social protection is needed, including in the ongoing discussion on reconstruction in Ukraine. Labour market integration measures for Ukrainian refugees also need to be strengthened. In order to respond at a global level to multiple economic and geographical crises, internal solidarity and coordination is even more critical, and policy coherence is key, which are also principal aims of the UN Global Accelerator on Jobs and Social Protection for Just Transitions.

 

The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]

 

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.