Unemployment rate falls rapidly in June: CMIE

June 2020 has been witnessing a rapid fall in the unemployment rate. After clocking 23.5 per cent in April and May, the unemployment rate first dropped to 17.5 per cent in the first week of June and then took a steeper fall to 11.6 per cent in the second week, according to the Centre for Monitoring Indian Economy (CMIE). This fall is almost as dramatic as the rise in unemployment when the lockdown began.

The fall in the unemployment rate is doubly appealing as it is accompanied by an increase in the labour participation rate (LPR). The LPR was 40.4 per cent in the week ended June 14. The rate had fallen from 42.6 per cent in the week ended March 22, which was just before the lockdown, to 39.2 per cent in the first week of the lockdown and further to 36.1 per cent in the first week of April. It continued falling till the week of April 26, when it reached its lowest level of 35.4 per cent.

The LPR has been recovering since the last week of April. At 40.4 per cent in the week of June 14, it was not too far from its pre-lockdown level of around 42.7 per cent. What is encouraging is the recovery from around 36 per cent in early May.

An increase in the LPR along with a fall in the unemployment rate implies an increase in the employment rate, which is a desired outcome. 

In fact, it is a far more important indicator of the health of the economy than the unemployment rate.

In India, the employment rate fell by a massive 10 percentage points immediately upon imposition of the lockdown. The average employment rate during the three months ending February 2020 was 39.5 per cent. This crashed to 29.9 per cent in the first week of lockdown, the week ended March 29. 

It kept falling to touch a low of 26.1 per cent in the week ended April 19.

The employment rate has been rising since early May 2020. But the increase in the latest week of June 14 has been the smartest, said a release by CMIE. The employment rate shot up 3.3 percentage points from 32.4 per cent in the week ended June 7 to 35.7 per cent in the week ended June 14. This is the largest weekly increase in the employment rate. It is, however, not as sharp as the 9.2 percentage points fall was in the week of March 29. Evidently, while the fall in employment was very sharp and immediate, the recovery is much slower, even if the weekly gains are higher than ever before.

Much of the labour participation lost during the lockdown has been regained but the gain in employment has been lesser. This is because the unemployment rate is still too high. The LPR in the week ended June 14 was 94.7 per cent of its level in the week just before the lockdown, which is the week of March 22. However, the employment rate during the week ended June 14 was only 91.4 per cent of its pre-lockdown level.

The return of labour to participate in the economy and the simultaneous fall in the unemployment rate suggest that the lockdown is being lifted effectively across the country. People are getting back to work and the worst seems to be over. While we will better understand the composition of this recovery in early July, as per CMIE, it is safe to expect that labour productivity will remain low in the midst of the ongoing partial lockdown.