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Lockdown Impact:Unemployment rate over 23% by Mahesh Vyas

Labour statistics for March 2020 are worrisome. And, those for the past two weeks are much worse.


In March 2020, the labour participation rate fell to an all-time low, the unemployment rate shot up sharply and the employment rate fell to its all-time low.


The employment rate fell to an all-time low of 38.2 per cent in March 2020. The fall since January 2020 is particularly steep - almost spectacular. It seems to have nosedived in March after having struggled to remain stable over the past two years. Then, there is a precipitous fall.


The labour participation rate in March 2020 was 41.9 per cent. It was 42.6 per cent in February and 42.7 per cent in March 2019. We had feared a fall in labour participation rate because of the national shutdown to contain the spread of Coronavirus. But, this fall seems to have happened even before the lockdown. Of course, it gets much worse as we move into the lockdown.


This is the first time that the LPR has fallen below 42 per cent. Between January and March 2020, the LPR has fallen an entire percentage point - from 42.96 per cent in January to 41.90 per cent in March.


This fall in the LPR in March was the result of a sharp 9 million fall in the labour force - from 443 million in January 2020 to 434 million in March 2020. The components of this fall is telling of the times. The labour force consists of all employed persons and persons who are unemployed and are actively looking for jobs. What has happened between January and March is that the number of employed fell from 411 million to 396 million and the number of unemployed increased from 32 million to 38 million.


So, the 9 million fall in the labour force consists of a 15 million fall in the count of employed and a 6 million increase in the count of unemployed.


These are very big variations and are subject to the usual sampling errors. It therefore, may not be very wise to focus on the magnitude of those movements but on the certainty of the movements. It is evident that there was a significant fall in employment and there is a simultaneous significant increase in unemployment in March 2020. And, this is what shows up in the rather sharp rise in the unemployment rate.


The unemployment rate in March was 8.7 per cent. This is the highest unemployment rate in 43 months. Or, since September 2016. The rate has climbed rather steeply from the 7.16 per cent level of January 2020. The unemployment rate has been rising steadily since its low point of 3.4 per cent in July 2017. But, the 98 basis point increase in March 2020 over the previous month, is the largest monthly increase recorded. And the 158 basis point increase over two months ended in March 2020 is similarly, the largest increase over a two month period recorded so far.


The scene gets much worse as we move into the lockdown period.


As we do that, it is important to point out the one difference between the estimations made for March 2020 and all previous months. Usually, the data deployed in making labour market estimates of a month are collected continuously during the month. Field operations of the Consumer Pyramids Household Survey deliver data for over 3,500 individual members who are of 15 years or more every day. The total sample deployed in making monthly estimates is usually over 117,000 individuals.


In March 2020, survey operations were disrupted during the last week of the month because of first, the selective shutdowns in some states and towns and then a nation-wide lockdown. We did manage to get some data during this week but it was much smaller than the usual numbers.


As a result, the sample size for March 2020 is 83,929 observations. This is not small although it is much smaller than the usual sample size. The average sample in the preceding six months was 117,382 individuals of more than 14 years of age.


Nevertheless, the sample is large enough to yield robust estimates. It is also unlikely that we missed the deterioration of the last week.


Although the survey was suspended in the last week, enumerators who were in the field on March 24 and March 25 continued to report observations. And, by March 30 we did manage to get observations over telephonic interviews. As a result, CPHS yielded 2,289 observations in the last week of March. These were evenly spread over rural and urban areas.


The unemployment rate during this last week was 23.8 per cent. Labour participation rate fell to 39 per cent and the employment rate was a mere 30 per cent.


Telephonic interviews caught pace in the week ended April 5. We had 9,429 observations. These yielded an unemployment rate of 23.4 per cent during this week; an LPR of 36 per cent and an employment rate of 27.7 per cent.


This is really worrisome.

Source: CMIE