Employment Trends: Signs of Recovery

The latest released Periodic Labour Force Survey (PLFS) for July-September 2024 signals a nuanced picture of India’s urban labour market with the unemployment rate hitting a record low at 6.4 per cent since the PLFS began in April 2018.

The decline is combined with a marginal rise in the labour force participation rate (LFPR) as well as in the worker population ratio (WPR), which increased from 49.3 per cent in Q2 FY24 to 50.4 per cent in Q2 FY25, and from 46.0 per cent during Q2 FY24 to 47.2 per cent in Q2 FY25 respectively.

Well, this is indeed a desired policy outcome because it indicates that the rate of job creation in the economy over the last quarter outpaced the number of individuals entering the job market.

An in-depth analysis of the data reveal that the decline in the unemployment rate among urban youth aged 15–29 years is the primary driver behind the overall reduction in unemployment.

Bifurcating the overall numbers based on gender reveals that female unemployment has declined more sharply than male. This trend is especially true for workers aged 15-29, where the female unemployment rate declined by 2 per cent as against the male unemployment rate, which declined by 0.6 percentage points when compared to the Q1 FY 25 figures.

Also, according to the current weekly status (CWS), an approach of measurement of employment in the last one-week, regular wages/salaried employed category saw an upsurge between the second quarters of last and the current fiscal years.

The drop in urban unemployment — from 6.6 per cent in Q1 FY25 to 6.4 per cent in Q2 FY25 — is largely due to increased public and private sector investments. Government capital expenditure surged to ₹2.3 lakh crore in Q2 FY25, up from ₹1.8 lakh crore in Q2 FY 24, spurring job creation in infrastructure and growth-focused sectors.

Despite the ongoing war in Ukraine and the Israel-Hamas conflict affecting energy markets, this is a positive sign for India. The labour market’s recovery, post-Covid disruptions, reflects a bit of on-track movement, if not resilience.

Services: The pull factor

The services sector continues to expand, absorbing 62.3 per cent of urban workers, 80 basis points higher than the Q2 of the last quarter. This growth has been driven by robust demand in IT, financial services, retail, logistics, and possibly the increase in the numbers of gig and platform workers.

While the services sector remains a key contributor to GDP and employment, it also faces challenges. A substantial share of the workforce in the services sector is engaged in informal jobs, often marked by low pay and job insecurity.

Additionally, the sector’s growth is concentrated in urban centres, leaving smaller towns and rural regions underserved. To unlock the sector’s full potential, policymakers need to prioritise strengthening digital infrastructure in Tier II and III cities, fostering equitable growth.

Equally important are targeted skilling initiatives in emerging areas like fintech, edtech, and green logistics, ensuring a diverse and geographically balanced distribution of opportunities.

Manufacturing: A stagnant sector

The workforce distribution in the manufacturing sector has remained stagnant at 32.3 per cent from Q2 FY24 to Q2 FY25, reflecting limited job growth over the past year. A slight improvement was observed in the last quarter, with the share rising from 32.1 per cent to 32.3 per cent.

Encouragingly, the overall unemployment rate has declined, and the labour force participation rate has increased, indicating faster job creation across sectors, including manufacturing in urban areas.

Stable industrial demand in major global markets presents a key opportunity for India. For instance, the textile sector has secured fresh orders from the UK and the US, boosting exports beyond the previous year’s figures.

The government’s aggressive push in tech-oriented sectors like electronics, automobiles, semiconductors, and defence equipment is fostering an attractive environment for firms, both domestic and global, to establish manufacturing bases under the “China Plus One” strategy.

Additionally, the Production Linked Incentive (PLI) scheme provides critical support, driving urban job creation and industrial growth.

To sustain momentum, policies should prioritise improving ease of doing business and encouraging private sector investment in labour-intensive industries, particularly by large anchor firms.

Skilling programmes must align with the needs of advanced manufacturing and emerging technologies such as green energy and AI-driven production. Furthermore, government-supported internships in large corporations could significantly enhance youth employability.

Manufacturing-services: Robust linkage is must

Meanwhile, the share of salaried employees has shown modest growth, and the quality of salaried jobs remains uneven, with a significant share concentrated in low-paying roles.

With a youthful and growing urban population, India has a unique opportunity to capitalize on its demographic dividend. However, this requires creating meaningful, well-paying jobs at scale. The current data underscores the need for a dual-sector strategy.

The manufacturing sector must be revitalized to absorb large-scale labour, while the services sector should continue to evolve and expand to meet global demands.

Engaging top labour economists and social scientists specializing in labour, skills, human capital, and technology for a national brainstorming session can help the ministry address issues like low female labour force participation, productivity gaps, and gig worker regulations.

This approach can aid the government in strategizing job generation in both manufacturing and services.

Conclusion

The PLFS data for Q2 FY25 offers a mixed yet hopeful picture of India’s urban labour market. While unemployment has declined, challenges in sectoral distribution and job quality across our country persist.

For India to fully capitalize on its demographic dividend and meet the aspirations of its growing urban population, a balanced approach to boosting manufacturing and services is essential.

Policymakers must act swiftly to address these gaps, ensuring that India’s labour market is not only afloat, but also inclusive and future-ready. With the right interventions, India can emerge as a global economic powerhouse, driven by a dynamic and empowered workforce.

Kumar is a Distinguished Fellow at Pahlé India Foundation and Former DG of CSO, MoSPI; Jha is a Fellow at Pahlé India Foundation. Views expressed are personal.

Published on January 17, 2025