August , 2021
PLFS-2021 hints towards need of employment generation
14:13 pm

Kishore Kumar Biswas

The Periodic Labour Force Survey (PLFS) 2021 has been published recently. It is conducted by the National Statistical Office under the Ministry of Statistics and Programme Implementation of the Government of India. The survey covers the period between July 2020 to June 2021. One of the important takeaways from this survey is that growth of GDP alone cannot be enough for economic revival and it emphasises on the need of employment generation.

Importance of employment generation

One of the most important purposes of macroeconomic theories is to provide policies which help an economy reach full-employment. The most important elements of economic growth are investment and consumption. According to macroeconomic theories, investment in a period tends to increase GDP over a future time period by a multiple of the initial value of investment. In this sense, investment is very crucial. The level of GDP may depend on the value of the rate of investment. So growth of GDP is important for economic revival. But this is not sufficient for the understanding of economic revival. This is because the value of the multiplier itself is important as it determines the level of GDP growth. Actually, the value of the multiplier depends on the consumption level. That means growth of GDP is not only dependent on the level of investment alone, it also depends on the multiplier value which in turn depends on the consumption level. So, if the consumption level does not increase to a desired extent, the revival of the economy is not possible. Here lies the importance of employment generation.

Why does employment generation lead to economic revival?

The answer can be found in the writings of John Maynard Keynes. In his book General Theory of Employment Interest and Money (1936) Keynes explains this with the help of the idea of marginal propensity to consume (MPC). MPC means how much of the additional income of a person is spent on consumption. The poorer section spends most of their additional income on consumption because he/she needs many basic things for his/her survival or for the ease of life. For the rich, only a small portion of additional income is spent on consumption and the bigger portion is saved. So, for revival of a depressed economy (when there is low demand for investment as a result of no hope of selling products out of new investments) increasing consumption is the only way to restart the economy. In the pandemic situation, almost every economy of the world is facing slowdown and increasing exports cannot be an option. In such a situation, when economic revival is necessary by expanding domestic demand for goods and services, it is necessary to enhance the income of the poor or the lower middle class. That is possible by increasing employment generation. Enhanced income of the poor or the lower middle class (the biggest section of an economy like India, in particular) may increase the level of demand in the economy. Many observers think that it can be possible without increasing employment as jobless growth has been a characteristic of the ongoing neo-liberal economic policy. It is true but from the perspective of the pandemic situation, when both the demand and supply sides are depressed, sustained growth without employment generation is difficult.

A few notable points in PLFS 2021

It is pointed out that the unemployment trend in India differs depending on whether it is taken on the year on year (y-o-y) basis or the current weekly basis (CWS), that is, unemployment over the past week. On a y-o-y basis, it is declining. But in accordance with the CWS basis, it shows that the unemployment rate is at its highest level in five decades. This is quite surprising. Another area, labour participation rate or LPR (% of people working in the economy) also shows divergences. It is known that India has one of the lowest LPR, almost 20% lower than the global average. But if it is considered on the CWS basis, it is closer to global norms. The PLFS also observes that in the period before the Covid 19 pandemic, the unemployment rate was 9% but unemployment among youth (aged 15 to 29 years) was 20%. It is important to note that human suffering as a result of high unemployment was severe even before the pandemic.

A bigger concern for various economies in the post pandemic period, including India has been the shift in the functioning of the economies. This has already started in many countries including the US and China. In these countries, unemployment has not declined in proportion to the growth rate of the GDP. If unemployment stays high with high growth of GDP, then economies may fall into the problem of under-consumption as was observed by Swiss economist Sismondi in the mid 19th century.


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