SCARY! Double-digit unemployment returns

May 2021 will end with double-digit unemployment rate, falling employment rate and substantial loss of employment, points out Mahesh Vyas.

The unemployment rate has moved into double-digits. This is not normal for India.

The only time the unemployment rate lurched into double-digits was when India was shut down by a stringent nationwide lockdown during April and May 2020.

There is no similarly draconian lockdown now although there are several local restrictions that restrain mobility in varying but distinctly milder degrees.

The double-digit unemployment rate seen in recent times indicates that even these restrictions are taking a toll on the economy.

The unemployment rate touched 14.5 per cent in the week ended May 16, 2021. In the week ended May 23 it was even higher at 14.7 per cent.

Earlier, in the week ended May 9, it was 8.7 per cent.

Evidently, the last two weeks have seen a sudden spike in the unemployment rate.

Weekly estimates are useful early indicators of the possible estimate for a month well before the month is concluded. The unemployment rate was 8 per cent in April 2021.

Gleaning the weekly rates during the current month, it seems that May 2021 could end with an unemployment rate of over 10 per cent.

By one measure, the unemployment rate crossed the 10 per cent mark on May 21. The 30-day moving average of the unemployment rate was 10.3 per cent on the day and it has remained there since then. By May 23, it had reached 10.6 per cent.

The 30-day moving average is like a monthly estimate but it is generated every day using data of the preceding 30 days.

The unemployment rate has been rising in both, rural and urban regions. Usually, the urban unemployment rate is much higher than the rate in rural India.

Urban unemployment entered the double-digit zone on May 6 when its 30-day moving average rate was 10.2 per cent. It has risen steadily since then. By May 20 it touched 12 per cent and as of May 23 it was 12.7 per cent.

Urban unemployment rate, therefore, would most likely be in double digits in the month of May 2020. This would be the first time that the urban unemployment rate would cross double digits since the April-June 2020 period.

The urban unemployment rate has been on the rise since early April 2021. On April 1, the 30-day moving average urban unemployment rate was 7.2 per cent. By May 1, it had reached 9.6 per cent and then by May 23 it was 12.7 per cent.

In contrast, the rise of unemployment in rural India is a more recent phenomenon. Its sharp ascent began in May.

During April, the unemployment rate rose from 6.2 per cent as of April 1 to 7.1 per cent by May 1. Then, it fell to 6.7 per cent by May 7 before it began its steep rise. By May 23 it reached 9.7 per cent.

Employment in rural India in April received substantial support from the central government's MGNREGS. The scheme employed 341 million during the month. This was the highest since July 2020.

Given that the average unemployment rate in rural India has been around 6 per cent in recent years and the monthly unemployment rate touched 8 per cent rarely in rural India before the lockdown, this 9.4 per cent rate is rather high. It warrants a greater deployment of the MGNREGS.

The steady and substantial rise in the unemployment rate in May 2020 is likely to be the result of loss of employment during the month -- some people who had employment already are losing it.

We say this because there is no increase in the labour participation rate that could have also caused an increase in the unemployment rate.

If the unemployment rate were to rise along with an increase in the LPR, then it could be inferred that an increase in the unemployment rate is because there is an increase in the number of people who are seeking employment but are failing to find work.

But, this is not the case. The LPR has not risen perceptibly. Its increase is visible only at the second decimal place. The LPR was 39.98 per cent in April 2021. By May 23, it was 40.01 per cent.

And so, the rise in the unemployment rate reflects a fall in employment during the month. This could be stressful.

We see evidence of loss of employment in the steady fall in the employment rate during May 20

The employment rate was 36.8 per cent in April 2020. The 30-day moving average employment rate on May 23 was 35.8 per cent. This 100 basis point fall in the employment rate translates into a fall in employment of the order of 10 million. This would be much more than the 7.35 million fall in employment recorded in April 2021.

Employment has been falling since January 2021. It had fallen by about 10 million between January and April 2021. May 2021 could see a similar fall.

May 2021 will end with double-digit unemployment rate, falling employment rate and substantial loss of employment.

Mahesh Vyas is MD & CEO, CMIE P Ltd.