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Five-state Assembly elections begin this week. Voters will consider a range of factors before casting their ballot. At ExplainSpeaking, we analyze various economic trends.
We watched how per capita income rose in all five states on the ballot.
Then we looked overall employment levels and found that in four of the five states for which data was available – Uttar Pradesh, Punjab, Goa and Uttarakhand – the total number of people employed at the end of December 2021 was lower than five years ago.
Next, we looked at another key election issue – inflation – and a related issue – the wage rate. We have seen that in the run-up to these elections, all states have witnessed inflation rates above the national averagein particular food price inflation.
Today we will delve deeper into the question of employment or lack thereof. We will examine the employment levels of young people (those aged 15 to 29), highly educated people (graduates and above) and women. [But we will not be able to consider Manipur since data is not available].
Why look at these categories in particular?
There are several reasons.
In India, the overall unemployment rate is quite unevenly distributed. In other words, unemployment
– is highest in young people,
– increases with the level of education,
– and is higher in women.
Here are three graphs (from the Center for Monitoring Indian Economy) that support these claims.
Figure 1 (CMIE, December 2021) highlights the challenge of youth unemployment. The blue line shows the labor force participation rate (LFPR). The LFPR is the percentage of the working-age population (that is, people over the age of 15) who are actively seeking employment. As such, it includes both the total number of employed people and those who are unemployed. The red line is the unemployment rate, which is expressed as a percentage of the labor force.
Chart 1 shows us that the unemployment rate (TUE) is highest among young people (15 to 29 years old) even when the LFPR in this age group is relatively lower than the other age groups. In other words, even when a relatively smaller percentage of people in the young age group (15-29) are looking for (or “demanding”) work, the economy is unable to create (or to “provide”) enough jobs.
Chart 1 illustrates one of the main reasons why so many young people are on the streets, angrily demanding answers from the government.
Chart 2 (CMIE, December 2021) captures the other big reason for youth unrest. In India, the unemployment rate increases with education. The CMIE calls it the “Skills Challenge” because, obviously, the skills acquired by young people during their studies do not correspond at all to those they need in the labor market. In December 2021, one in five Indian graduates seeking employment were unemployed. This does not mean that graduates who have a job could do what they like or be paid as they wish. This number also does not include the millions of people who drop out of the workforce when they are disappointed (and stop looking for a job).
Chart 3 and Chart 4 (both from December 2021) highlight the gender aspect of unemployment in India.
Chart 3 shows that whichever way you slice the data, female unemployment is significantly higher than male unemployment. Chart 4 highlights an even more frightening aspect of female unemployment. Female unemployment (e.g. urban women in this case) is higher even though a very small percentage (only 7.2%) of women are looking for (or demanding) employment.
In the recently released Global Risks Report, the World Economic Forum, famous for the annual Davos meeting, highlighted “widespread youth disillusionment” as one of the main risks for India.
By “widespread youth disillusionment”, the WEF refers to “youth disengagement, lack of trust and/or loss of faith in existing economic, political and social structures globally, negatively impacting social stability, individual well-being and economic productivity”.
Loud scenes of young people clamoring for jobs in UP, India’s most populous state, are a strong indicator that unemployment may well be a deal breaker for voters, especially the young, educated and women .
So where do the poll-linked states rank on each of these metrics?
ExplainSpeaking analyzed publicly available CMIE data to arrive at the following results. The tables below present the total population belonging to the category concerned and the total number among those who have a job. The ratio is calculated as the employment rate (i.e. the total number of employees expressed as a percentage of the total population in that category) to help us compare the state to each other as well as to the national average.
The data is compiled for three periods:
> Sept-Dec 2016 (as he gives the picture just before the start of the Assembly’s term)
> Sept-Dec 2019 (because it provides a comparable picture before the Covid pandemic)
> Sept-December 2021 (as this is the latest available data and provides a clear 5-year trend)
Uttar Pradesh (See FIGURE 5)
On all three counts – youth, educated and female employment – not only is Uttar Pradesh far behind the national average, but it has also seen a steep decline over the past five years.
For example, in December 2016, 15.39 million young people were employed. Five years later, even though the total youth population had increased by 9 million (or 90 lakh), the total number of employees had decreased by more than 3 million (or 30 lakh).
This should put into perspective the claims of job creation by the government in power. It also shows that the youth of UP suffered the worst fate because the state failed to create new jobs.
The employment rate for graduates (and above) increased slightly between 2016 and 2019, but since then it has fallen sharply.
When it comes to women, UP has always been a terrible laggard. Over the past five years, this situation has worsened further. While the population of working-age women has increased by 12 million, the number of employed women has halved from the already paltry number of December 2016. Less than 2% of all women in the working-age population working age (15 years and over) have a job.
Punjab (See TABLE 6)
Youth employment rates in Punjab are much better than the national average, but the fact remains that they have declined over the past five years. While the total youth population increased by 10 million, the number of jobs decreased by 5 million.
Similarly, employment rates for both graduates (and above) and women have fallen sharply.
Goa (See TABLE 7)
Earlier analysis of RBI data showed that Goa is a state where per capita incomes have contracted (rather than grown) over the past year. It is therefore hardly surprising to see a fairly sharp drop in the youth employment rate.
As of December 2016, the youth population was 4.05 lakh. Among them, 1.71 lakh had a job. But over the past few years, even though the youth population has shrunk by one lakh, the number of young people with jobs has completely dropped. According to the CMIE, only about 30,000 people belonging to this age group are employed today.
The situation is much better if we consider graduates and (better) educated people. But this employment rate has also declined over the past five years and is now below the national average.
The percentage of working-age women with jobs has also dropped in Goa.
Uttarakhand (See TABLE 8)
This is yet another state where youth employment has been hit hard. The youth employment rate, which was already quite low, has fallen by a quarter over the past five years.
However, the employment rate of highly skilled people has increased and in this respect Uttarakhand is an exception.
But female employment is again following the general downward trend.
That’s about unemployment.
But before we close this issue, there are a few more tips.
The Union’s budget for 2022-23 was presented last week. If you were a regular reader of ExplainSpeaking, you would have been ahead of the curve in understanding the budget. For example, a week before the budget, ExplainSpeaking explained how a fiscal strategy based on investment-led growth can unfold in the future.
If you register today, here is most of the budget.
The central idea of the last budget is not that the government will spend more to stimulate the economy. Far from there.
The main thrust of the Budget lies in the passage of expenditure from “revenue” to “capital”. In other words, the government will spend a lower percentage of its total expenditure on daily consumption needs and a higher percentage on capital construction. In 2019-20, capital spending was only 11% of total government spending, but increased in FY21 and 22, and is expected to reach 18% in FY23.
What is the salience of this change in spending? Simply put, this type of spending shift was the central objective of the Fiscal Responsibility and Fiscal Management Act 2003 (FRBM Act). Such a change is seen as an improvement in the quality of public spending (see chart 9).
For a more detailed understanding, please watch this episode of the recently launched video series — called The Economist Express – where Professor NR Bhanumurthy (VC, Dr BR Ambedkar School of Economics in Bangalore) explains (in very simple language) the difference between income and capital expenditure and their different impact on the economy.
Another issue that was conspicuously absent from the EU budget was any reference to the plight of farmers. Here’s another episode of The Express Economist in which JNU’s Professor Himanshu explains the origins of Indian farmers’ woes and why farmers won’t be doubling their incomes (which was supposed to happen in 2022) any time soon.
Finally, the Reserve Bank of India will release its latest monetary policy review this week. In all likelihood, the RBI will increase the reverse repo rate. Here is a piece that explains what is a reverse repo and how increasing it will impact the economy.
Stay safe and stay masked.