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Unemployment Fluctuations in Urban Labour Market in India

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Abstract

Fluctuations in unemployment rate have been widely studied in developed countries. Lack of panel data, however, limited the scope of such studies in India until quarterly periodic labour force surveys (PLFS) were published in 2019. Here we use the novel quarterly PLFS of urban sector in India to study the gross flows using three states of labour market. We found most of the fluctuations in unemployment rates originates within the labour force. In upturn, employment margin contributes about 80% of the decline in unemployment, while in downturn it contributes about 98% of the rise in unemployment. Flows from employment to unemployment have stronger association with the fluctuations in unemployment rate than the flows from unemployment to employment. Higher female unemployment rates are mainly because of their lower chances to find job and higher chances to stay as unemployed. Contrary to widely held view, we found females are more likely to participate than males. Their higher probability to drop out of labour force and lower chances to find a job hold their labour force participation rate low. Youth face higher chances to lose jobs and their longer stay as unemployed than mature hold their unemployment rates higher. Difficulty in finding a job, higher chances of job loss, along with longer stay as unemployed keep unemployment rate higher among the better educated.

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Notes

  1. The quarter 5 reflects in revisit file of the personal data for survey year 2017–2018 as well as in the first visit and revisit file for survey year 2018–2019. Therefore, instead of including quarter 5 from 2017 to 2018, we have taken it from survey year 2018–2019. Abdul-Razak and Sahoo  (2021) mention it as a problem of misspecification of the quarter number.

  2. For transition from unemployed or from ‘not in labour force’ occupation and industries cannot be defined.

  3. Flows either from employed to unemployed (EU), unemployed to employed (UE), unemployed to inactivity (UN) or inactivity to unemployed (NU).

  4. Net inflow in unemployment (EU − UE) at employment margin as a percent of net change in unemployment [(EU − UE) + (NU − UN)] in a quarter.

  5. Shimer (2005) shows that the flow from employment to out of the labour force is not cyclical, though it has subcyclical trends.

  6. Shimer (2005), job-to-job transitions fell during the one observed recession, in 2001.

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  1. Indian Economic Service, New Delhi, India

    Jitender Singh

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  1. Jitender Singh
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Appendix: Result Tables

Appendix: Result Tables

See Tables 1, 2, 3, 4 and 5.

Table 1 Separation probability (eu)
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Table 2 Job-finding probability (ue)
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Table 3 Probability of staying unemployed (uu)
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Table 4 Probability of staying as employed [ee]
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Table 5 Probability of joining labour force (ne and nu)
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Singh, J. Unemployment Fluctuations in Urban Labour Market in India. Ind. J. Labour Econ. 66, 81–111 (2023). https://doi.org/10.1007/s41027-022-00417-2

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