Hiding in labour data, a tale of economic distress

The recent statements by the Union labour minister Mansukh Mandaviya rightly suggest that the labour force participation rate is up and the unemployment rate is down based on data from the Periodic Labour Force Survey (PLFS).

- Maitreesh Ghatak, Mrinalini Jha, Jitendra Singh

He, however, goes on to conclude that the labour market is thriving in India, reflecting the economic dynamism generated by the growth process. Not just that, this tide of apparent job creation has managed to push the female labour force participation rate up since 2017-18, reversing the earlier downward trends.

Drawing this inference simply from the broad overall trends is puzzling because this period generally experienced a sustained slowdown starting around 2017, well before the pandemic. Growth rates of per capita Gross Domestic Product (GDP) fell for four consecutive years. It recovered a bit in the post-pandemic period, but the sluggishness persists if we look at growth rates in the last four quarters. Juxtaposed with the labour market trends, this poses a puzzle. Are these trends correlated with the creation of good jobs and improvement in the livelihoods of workers? Instead of getting warped singularly around the macro performance indicators of employment and economic growth (which we will also address later), here we examine the outcomes for the individual units that collectively make up the macro picture and not in a simply additive fashion. So in an economy experiencing steadily falling unemployment numbers, is it that the individuals who collectively make the economy are also on average living better?