Rising unemployment adds to the Covid pain

Surabhi | | | Updated on: Dec 06, 2021

Unemployment rates are slowly moving back to the record highs of June 2020 when there was a national lockdown

A fledgling recovery in the country’s labour market has been derailed, with surging Covid cases and localised lockdowns bringing economic activity to a halt.

This time around, job losses and unemployment are being reported not only from urban centres but also from rural India, which has been affected more by the second wave than the first.


Data from the Centre for Monitoring Indian Economy (CMIE) show that unemployment rates in the country are slowly moving back to the record highs of June 2020 when there was a national lockdown.

Unemployment rate for the week of May 16 shot up to 14.45 per cent on an all-India basis. For urban areas, it was higher at 14.71 per cent, while for rural areas it was a tad lower at 14.34 per cent, according to CMIE data. This is the highest since the week of June 7 last year, when the all-India unemployment rate was 17.51 per cent.

On a monthly basis, the unemployment rate for April was at a four-month high of 7.97 per cent, and given the weekly data since then expectations are that it will shoot up further in May.

“The unemployment rate, however, remained lower than the high of 23.5 per cent a year ago during the first wave. Similar movements were visible in both rural and urban areas. The pandemic has slowed down the labour participation rate to 39.9 per cent from an average of 42.7 per cent in 2019-20,” noted the Reserve Bank of India in its monthly bulletin for May on the CMIE data.

Job losses continue

Coming on the back of the Covid-19 led crisis in 2020, the pain this time around could be more severe.

Economists point out that the labour market was already depressed even pre-pandemic with high unemployment levels due to the economic slowdown.

“By 2017-18, the unemployment rate was at a 45-year high. The Covid pandemic has magnified this problem,” said Santosh Mehrotra, labour economist and retired JNU Professor.

While most changes in the labour market in this second wave of the pandemic are in the unorganised sector, he pointed out that 18 million organised sector jobs were already lost in 2020-21, and that trend continues unabated in this fiscal year so far.

“Around 3 million regular jobs were lost again in April 2021. Moreover, unlike the first wave, rural supply chains will be impacted because farmers and cultivators are also infected,” he said.

Till now, the second wave has hurt self-employed persons as well as informal workers in urban areas, which is also evident from reverse migration of many going back to their villages.

Microfinance players have been flagging the impact on incomes in the hinterland, as infections have soared in rural areas with almost no economic activity taking place in several pockets.

Formal sector insulated

Staffing agencies indicate that many formal sectors such as IT continue to do well.

Suchita Dutta, Executive Director, Indian Staffing Federation, said there have not been job losses till now and some amount of hiring continues to take place in sectors such as IT,FMCG, deliveries, pharma and healthcare.

“The formal sector is well protected. Jobs are safeguarded, some hiring is happening. The January to March quarter had given a lot of hope with positive signs of recovery. The April to June quarter could however, be slow,” she noted.

Amit Vadera, Assistant Vice-President – Staffing, TeamLease Services, also said that this time aroundorganisations are better prepared to handle the lockdowns but the optimism is dented to some extent due to the uncertainty. “The pandemic continues to impact industries such as entertainment, hospitality. Some companies are hiring, especially in rural areas, like BFSI segment continues to hire in microfinance and affordable housing companies, retail asset, telesales (work from home). In metro cities, hiring is happening in e-commerce, FMCG, telecom, but overall it has slowed down,” he said. But Mehrotra warned that this may not be for long. “Aggregate demand is likely to be impacted as rural incomes get affected and this will spill over to the formal sector too,” he noted.

Impact of lockdown

Till now, the impact of lockdowns has been somewhat limited compared to the first wavewhen there was a mass exodus of migrant workers to their home States.

“Importantly, the labour market appears to be holding up better. The 0.1 percentage point drop in the labour force participation rate is marginal compared to the 7.8 percentage point decline seen last year, and the rise in the unemployment rate has also been less (2.6 percentage point versus 19.7 percentage point),” said Nomura in a recent report.

“We believe there has been a much smaller migration of labour back to rural hometowns during the second wave (hard data are difficult to find) because States have steered away from announcing complete and stringent lockdowns,” it further said.

However, a resumption of normalcy in labour markets may not come very soon, even though there are expectations that India may have crossed the second peak of the pandemic. Even after the first wave, when the economy was hobbling towards normalcy, many migrant workers had chosen to stay back home.

For many, who had returned, the size of their remittances had gone down, indicating that their earnings had not gone back to pre-pandemic levels.

Published on May 23, 2021
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