COVID-19: India's Disappearing Labour Force

The unemployment rate has risen to 24% as of April 12th, according to Centre for Monitoring Indian Economy's report. What is it going to take to bring back the economy and how will the supply chain disruptions be fixed?

BOOM's Govindraj Ethiraj speaks to Mahesh Vyas from Centre for Monitoring Indian Economy (CMIE) to discuss India's labour force and how it is disappearing.

'Unemployment rate was 23.8, 24, and now it is up to 26%' and that it is important to find ways when it is appropriate to bring the economy to an even keel again, said Mahesh Vyas. Watch the episode to know more!

Here is the transcript for this episode of From The Frontlines -

The unemployment rate in the country has now risen to 24% as of April 12th according to a report put out by the Centre for Monitoring Indian Economy. In addition, as we all know, and have expected, the industrial production has been hit, quite sharply. Unemployment numbers are now at a rate which are obviously worrisome. Equally now the question is, as we are seeing a partial lifting of the lockdown as of today, i.e. 20th of April, going into a likely full lifting or increased lifting by the 3rd of May, what is it going to take to bring back the economy to an even keel or even a relatively even keel. How do we fix the supply chain linkages that are broken, particularly remember that employment or labor force is a particularly critical input to getting the supply chain linkages back up again? And finally, solutions like 'helicopter money' can they play a role in bringing back or making life easier for particularly the labor force? I am joined by CMIE Managing Director, Mahesh Vyas.

Govindraj Ethiraj: Take us through the numbers first—the broad numbers. April1st unemployment rate is 24%, last week of March it was 23.8%. Last year, it was around 7 and 8%. Now that illustrates the big jump that we have seen.

Mahesh Vyas: Let me give you a small update on that. It has gotten worse. The week ended 19th, which is yesterday, the number jumped up to 26.1%. Unemployment rate was 23.8, 24, and now it is up to 26%. Not surprising, as the lockdown prolongs, few more people will lose their jobs. Initially, they thought they had the jobs, and then they are told are realised that they do not have the jobs, and so there can be a creeping increase to the unemployment rate. The number of people employed and the number of people in the labor force have all declined. So, there is a small further deterioration in the labor market compared to what it was a week ago.

Govindraj Ethiraj: What would this be in absolute numbers, Mahesh. In proportion of the total workforce in the country?

Mahesh Vyas: You know we will require to wait for the numbers to come in by the end of April to give proper estimates of this but some back of the envelope calculations can be done. So, for example, we know that the employment rate has declined by about 10% point or maybe even 12% points. The total labor force or workforce in the country is of the order of about 440 million people. So easily losing some 50 million people out of the jobs, maybe the numbers are even larger than that. Actually, if you look at the employment rate you should look at the working age population, which is a billion. Now 10% of the billion seem to have lost the job, which means about 10 million people are out of the job, the number could be easily 12 million.

So, looking at in a month's time, an order of 100-120 million people, 10-12crore people have lost their jobs. So, in magnitude it is quite large—100-120 million losing jobs is scary. But that is what the numbers seem to suggest.

Govindraj Ethiraj: And this as a proportion of population is unprecedented, at least in near history

Mahesh Vyas: Totally unprecedented. I do not think that this could have happened anytime. We do not remember in our history or history we know when the economy was shut down for a month. If you have an economy shutting down for a month, you will obviously have unprecedented unemployment rates and unprecedented people losing employment. Mind you, population is at an unprecedented high. We are talking of a large base, so the number of people who will lose jobs will be higher than ever before.

Govindraj Ethiraj: You are also saying that you are surprised at the unemployment numbers. That you did not expect them to be so high. Why is that?

Mahesh Vyas: That is right. This is the lesson that we had learnt from demonetization. When we found that, when there is this kind of sudden economic stress that we saw in demonetization, people were not losing jobs as much as people were saying that there are no jobs available, therefore just stop looking for jobs. So, typically what we found in those times, is that person in the Thane-Belapur area, or person in the Faridabad or Gurgaon region they would say that there are no jobs available over here. So, there is no question of asking whether I am looking for a job. There was no looking, they were saying, we are out. The situation is so bad that we are not looking for jobs. So, we had expected the same thing to happen this time. We thought when you have this big a shock, people will not even look for jobs. But what seems to have changed and what we have learnt from this exercise or incident is that people did leave the labor market. But so many have lost jobs this time, that many were forced to look for jobs even in such desperate times. We had expected a fall in the labor participation rate, which has happened mind you. When the labor participation rate falls, the unemployment rate also falls. This time it became a double whammy. The labor participation fell, and the unemployment rate went up. This is worse than anything seen before.

Govindraj Ethiraj: What is the usual correlation between the number of people who have jobs and the families or the size of families they support?

Mahesh Vyas: This ratio changed during demonetization. To put this same question differently, a fairly large proportion of households, had two people working. So, in a family of 3.5 average, you had 2 people working. This number reduced substantially to lower than 2, it came close to 1. This was the shrinking of the labor force, which happened mostly amongst women and amongst young people. That means that young people seeing that the labor markets are quite stressed and young women, particularly, seeing that the labor markets are too stressed, quit. Today, we are seeing that the ratio is most likely just one person working in a family, which could be one person supported 3.5 people.

Govindraj Ethiraj: We are on the 20th of April, we are looking at full lifting of the lockdown in most parts of the country by 3rd of May. What is it going to take and how is normalcy likely to return, for the economy and particularly the migrant labor force?

Mahesh Vyas: I think recovery is very important. While it was important to shut down the economy to stop the pandemic from getting worse, or getting completely out of control, it is important for us to find ways when it is appropriate to bring the economy to an even keel again. It is not going to be an easy thing. It will certainly require actions and thinking at various fronts. It is not 1, 2 3, 5 or 6...it is many fronts. So, what do we have? We have infrastructural problems in the supply chain being broken down. We have goods stuck at the ports, warehouses and godowns, which could be rotting, which could be in some kind trouble in some other ways. No labor over there will cause a lock jam. There is an infrastructural problem in supply chain in rotting vegetables. And harvested grain that is exposed to possible weather changes that could cause damage over there. How do you retrieve the situation from those conditions? Fixing the supply chain and infrastructural issues with that is a whole complete chapter in its own self. On the other hand, you will have problem with finance. And I think that is completely different. What will RBI and the banks collectively do for companies that are strained financially. There is going to be a serious liquidity problem that all these people will have. People would have spent something to survive this lockdown, but they will not have as much of income. They would have spent, but there would be no income—so there will be a mismatch between their outgo and inflows and there will be a liquidity crisis for them. It is important to ensure that most people should not have to convert, should not be the case, that this liquidity converts into a solvency problem. It is important to not let companies get into trouble just because of the liquidity problem. This liquidity is so completely different from the problems of supply chain, which will be very different from the problems that companies will face from a collapse in demand. If households do not have incomes for a sustained period, obviously, they are not going to spend enthusiastically. If they know there are difficult times ahead, then they are going to save the little cash that they have. So, demand is suppressed. So how do you fix demand? It is a completely different problem. Maybe an easier problem is how you fix the supply side. Which means, you have power generation but how do you convert that into steel, going down to plastics, going to consumer goods—the whole chain of supply being fixed from the supply side.

Govindraj Ethiraj: But electricity, steel, fertilizers, food, petroleum...they have been exempted from the lockdown.

Mahesh Vyas: But you see that they do not do very well. Despite this exemption, just take the example of March, when the lockdown was only in one week. In that month in the month of March, petroleum products consumption was down nearly 18%. That is huge. It has never happened in the past. Electricity generation is also down 8.8% if I am right. So, these are exempted industries, and even then, they face these big declines because if there is no transportation, what is the point of saying petroleum products is exempt. Because you cannot move aircraft, buses, trains and so on. So, there is a very substantial meltdown in even the exempted industries. So, I think there are many issues to take care of. Then there is labor. The labor problem is a completely different chapter. I am reasonably sure that labor is scared. Not only migrant labor but even normal labor is extremely scared of moving out to work. Because they fear, if they go and somehow get infected, then they will be in lockdown. After being told to stay at home for six weeks, if you say now you can go out but be careful; careful means if I get infected I will be quarantined and the whole family and the neighbourhood can get quarantined. The fear factor of being quarantined or being put into some similar situation will not go away very easily. And I can tell this to you anecdotally. We are trying to get ready for post May lockdown for our survey and many of our interviewers are saying we would like to wait for a little more, we do not want to be in trouble if there is any around the corner. So, it is anecdotal as well that labor is really scared.

Govindraj Ethiraj: Helicopter money, that is one phrase that is being used. There are funds being transferred to people's accounts directly. But 'helicopter money' means I am assuming at more scale, or more funds. Is that a solution to ease some of the problems?

Mahesh Vyas: I think of the many things that I said earlier, it addresses one problem—the problem of demand. Since, demand has fallen very sharply; according to the survey we do, we found that all this time around 8-9% of the households told us that their income, at any given point in time, is lower than a year ago. After the lockdown that number is 45%. So, that is a huge increase in people's incomes falling and there is a need for us to fill in the gap. Now, helicopter money implies that you go and sprinkle money, which means that we do not have good means of delivering this money to households, but whichever way we do it, I think we have improved our direct benefit transfers (DBT), we have Aadhar account linkages, we have a lot of progress that we have made in the recent past, so far as being able to deliver money to people. We should do that. We should do that without distinguishing between rich people and poor people. Just do it for everyone. It is important not to miss out anyone. It is okay if you give it to someone who does not deserve it, but nobody should be missed out because the shrinkage of demand is huge.

Govindraj Ethiraj: Do you have a number in mind, Mahesh, which you think will help people tide. Canada, United States they are all in the $1500-$2000.

Mahesh Vyas: I would link it to income levels in India. I will make a guess that people will be losing in the order of two months income in India. So, we have had a lockdown of six weeks and it is possible in some states there is a little more or little less. But it is good to compensate for not only what is lost but also potentially lost as well. I would say that Indian households have lost, most likely, two months of income. At least so far, or till May 4th . If that is the case, we should compensate 2 months equivalent of income. Now you obviously, cannot go and ask what your income is and pay that, so what I would suggest as a starting point in thinking is what is the median income of households in India. And the median annual income in India is in the order of hundred and twenty thousand rupees per annum. That is the median income. If that is the case and we can work a little more to get that right, I think we are talking about delivering Rs 20,000 per household, one-time grant straight off, no questions asked. That is what I would start to think.

Updated On: 2020-05-02T16:04:40+05:30
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