By Nikhil Gupta
According to the periodic labour force survey (PLFS) report for 2022-23 (year ending June 2023), India’s labour force participation ratio (LFPR) for people aged above 15 years increased sharply to 57.9% from 50.2% in 2018-19 and 55.9% in 2011-12. LFPR is defined as the sum of employed and unemployed persons to the total population. The increase in LFPR was broad-based among males and females in rural and urban areas. LFPR increased faster for the younger age group (aged 15-29 years), while it also increased for the working-age population (aged 30-59 years) to 71.5% from 65.4% in 2018-19 and 68.9% in 2011-12.
Notably, LFPR for females, aged 15 years and older, increased to 37% in 2022-23 from 32.8% in 2021-22, 24.5% in 2018-19 and 31.2% in 2011-12. Female LFPR for the working-age population (aged between 30 and 59 years) increased even more impressively to 50.2% in 2022-23 from 33.8% in 2018-19 and 39.6% in 2011-12. Does this mean that the long-awaited spurt in female LFPR is finally happening in India? Can this provide a tailwind to India’s productivity growth, and thus better GDP growth?
Compared to 2018-19, the surge in female LFPR was primarily led by rural India. Rural female LFPR increased to 41.5% (57.5% for 30-59 years age group) from 26.4% in 2018-19, while urban female LFPR increased modestly to 25.4% last year (33.3% for 30-59 years age group) from 20.4%. Excluding rural females, India’s LFPR (for 30-59 years) fell below 80% for the first time in at least the past three decades, while it rose to 55% for the younger population.
That said, a look at the improvement in female LFPR has revealed a concerning fact about its connection to education. The increase in LFPR is inversely related to the education level. It means that the increase in LFPR was much higher among illiterate and less-educated females compared to graduate and post-graduate females. This fact undermines the quality of the improvement in female LFPR. It also creates doubts about the hypothesis that the rise in female LFPR is a result of higher education enrolments.
The same thing is true for rural females. There was a small increase of ~25% in LFPR of most-educated (post-graduate and above) rural females during the last four years, while it increased by three-fourths for less-educated (primary school to graduate) and by more than half for illiterate females. The situation is actually better among urban females. While the increase is the highest among less-educated females in urban areas, the rise in LFPR among illiterate urban females is the least—lower than that among the most-educated females.
One of the key aspects of India’s labour market is that growth in the labour market and growth in employment match each other, which keeps the unemployment rate contained or actually brings it down. This is not necessarily true, but it is generally the case. It is then not surprising that the female worker population ratio (for 15+ years) also increased in line with the rise in their LFPR—to 35.9% at all-India level from 23.3% in 2018-19. It increased to 40.7% in rural India (from 25.5%) and 23.5% in the urban areas (from 18.4%). Consequently, the female unemployment rate declined to 2.9% at India level, from 5.1% in 2018-19. It was as low as 1.8% in the rural areas (half of 3.5% in 2018-19), though remains elevated at 7.5% in the urban India (but down from 9.8% in 2018-19).
But more importantly, where did employment increase? Workers are usually categorised into three broad categories: self-employed, casual labour, and regular wage/salaried employees. There are two sub-categories in self-employed: own account workers (employers) and unpaid helpers in household enterprises. More than 85% of the increase in female employment between 2018-19 and 2022-23 was led by the self-employed category, followed by a 9% contribution from casual labourers, and less than 6% female employment was accounted for by regular wage/salaried workers. Within the self-employed category, unpaid helpers in household enterprises accounted for about half of the total increase in the female workforce. Of course, the quality of female employment generated during the past four years is not satisfactory.
An analysis of the female employment generation by industry confirms that almost four-fifths of the new jobs created in the last four years were in the agricultural sector, which is in line with the self-employed category. The services sector, the most buoyant sector in the post-Covid period, accounted for 11%, while the manufacturing sector accounted for another 8% employment created since 2018-19. Interestingly, despite the massive growth in the real estate sector, the share of the construction sector in the female workforce has declined to 4% from 5.5%. The share of construction sector, however, has increased to a multi-decade high of 13% for India (due to higher male employment).
Overall, it is encouraging to see that female LFPR is finally increasing in India. Higher female LFPR is expected to boost productivity and thus, GDP growth. Nevertheless, this potential can be achieved only if the workforce is educated, and they get absorbed in the non-farm sector as regular wage/salaried employees. Details about female LFPR and employment take away the optimism. A look at the education profile of the increasing female labour force and employment profile by status or industry reveals unsatisfactory details.
The author is a senior group vice president, Institutional Research, Motilal Oswal Financial Services Ltd.