On unemployment in Indian States

News Excerpt: 

A recent report released by the International Labour Organization (ILO) and the Institute for Human Development (IHD) revealed that two out of every three unemployed individuals was a young graduate, highlighting the need for urgent policy intervention.

An analysis of unemployment: 

  • This analysis looks at unemployment in the major States of India — excluding the Union Territories —among individuals aged 15 and above as measured by the Usual Principal and Subsidiary Status (UPSS), utilizing data from the Periodic Labour Force Survey (PLFS) of 2022-23.
  • Goa has the highest unemployment rate (around 10%) among Indian states in 2022-23, over 3 times the national average (3.17%).
  • Interestingly, 4 of the top 5 States — Goa, Kerala, Haryana and Punjab are comparatively richer states.
  • Most northern and southern states (except Karnataka) have unemployment rates higher than the national average.
  • Larger states have lower rates like 3% in Maharashtra,  2.4% in Uttar Pradesh and 1.6% in Madhya Pradesh, bringing down the national average.
    • However, this creates an issue:
      • Most States with unemployment rates below the national average also have per capita incomes below the national average, with the exception of Maharashtra and Gujarat.

The determinants of unemployment:

  • The trend line drawn through the data is downward-sloping, indicating that there exists a negative relationship between the two; in States where a large proportion of the labour force is engaged in self-employment, the unemployment rate is low.
    • States with large informal sectors can absorb more job seekers.
    • A large proportion of informal self-employment is accounted for by agriculture and the rural economy.
  • There is a positive relationship between urbanization (share of urban labor force) and unemployment rates.
    • Urbanized states have smaller informal sectors to absorb job seekers compared to rural areas.
    • Urbanised States have smaller agrarian and agrarian-dependent sectors 
      • Hence They have a relatively smaller source of informal jobs available.

On education and employment:

  • There is a clear positive relationship between education levels (share of graduates in the labor force) and unemployment rates across states.
    • Kerala, for instance, has a highly educated labour force — 30% of the labour force are graduates — and faces high unemployment. 
    • Gujarat and Maharashtra have a relatively lower share of graduates in their labour force — roughly 14% and 20% respectively  
      • Hence have lower unemployment in spite of being richer and urbanised.

Potential reasons include:

  • Mismatch between skills acquired by graduates and requirements of growing modern sectors.
    • This necessitates a focus on teaching infrastructure and standards.
  • Higher employment aspirations among graduates who seek high-wage jobs aligned with their qualifications, rather than informal work.
  • As economies develop, they experience a reduction in the role of agriculture, an increase in urbanization, and higher educational attainment levels. 
    • These structural changes put upward pressure on unemployment rates by reducing informal employment opportunities and increasing the supply of educated job seekers.

Periodic Labour Force Survey (PLFS): 

  • The National Sample Survey Office (NSSO) launched the Periodic Labour Force Survey (PLFS) in April 2017.
  • The objective of PLFS is primarily twofold:
    • To estimate the key employment and unemployment indicators (viz. Worker Population Ratio, Labour Force Participation Rate, Unemployment Rate) in the short time interval of three months for the urban areas only in the ‘Current Weekly Status’ (CWS).
    • To estimate employment and unemployment indicators in both ‘Usual Status’ (ps+ss) and CWS in both rural and urban areas annually. 
  • The Periodic Labour Force Survey (PLFS) gives estimates of Key employment and unemployment Indicators like,the Labour Force Participation Rates (LFPR), Worker Population Ratio (WPR), Unemployment Rate (UR), etc. These indicators, and the ‘Usual Status’ and ‘Current Weekly Status’ are defined as follows:
    • Labour Force Participation Rate (LFPR): LFPR is defined as the percentage of persons in the labour force (i.e. working or seeking or available for work) in the population.
    • Worker Population Ratio (WPR): WPR is defined as the percentage of employed persons in the population.
    • Unemployment Rate (UR): UR is defined as the percentage of persons unemployed among the persons in the labour force.
    • Activity Status- Usual Status: The activity status of a person is determined on the basis of the activities pursued by the person during the specified reference period. When the activity status is determined on the basis of the reference period of the last 365 days preceding the date of survey, it is known as the usual activity status of the person.
    • Activity Status- Current Weekly Status (CWS): The activity status determined on the basis of a reference period of last 7 days preceding the date of survey is known as the current weekly status (CWS) of the person.

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