Measuring Labour Underutilisation in India: Beyond the Headline Unemployment Rate

Abstract

Aims: The main aim of the study is to measure the extent of labour underutilisation in India using alternative labour market indicators defined by the International Labour Organization (ILO) in its Key Indicators of the Labour Market (KILM) series, and to test whether the headline unemployment rate understates labour market slack. The study specifically asks whether conventional unemployment measures adequately capture the extent and distribution of labour underutilisation across different demographic and socioeconomic groups. Study Design: Descriptive, cross-sectional analysis of nationally representative secondary unit-level survey data. Place and Duration of Study: All-India, Periodic Labour Force Survey (PLFS), July 2023 to June 2024. Methodology: Unit-level PLFS 2023-24 records were used to compute the unemployment rate (UR), labour force participation rate (LFPR) and work force participation rate (WPR) under usual principal status (UPS), usual principal and subsidiary status (UPSS), and current weekly status (CWS). The youth 'not in education, employment or training' (NEET) rate, long-term unemployment, time-related underemployment at four-hour and eight-hour daily thresholds, status of employment, earnings distribution, and educational attainment were then estimated and disaggregated by age, gender, and education. Results: UR varied by activity status: 3.18% (UPSS), 4.14% (UPS), and 4.89% (CWS), with LFPR of 45.09%, 40.34%, and 42.30%, respectively. Youth unemployment peaked at 14.36% (20-24 years), compared with 2.37% at 30-34 years; the NEET rate was 10.02% (female 10.69%, male 9.73%). Of the unemployed, 64.51% had been jobless for over a year, while 54.91% of the working-age population remained outside the labour force. Only 21.74% of workers were regular salaried employees; 39.03% were self-employed, and 19.40% were unpaid family workers, of whom approximately two-thirds were women. Mean monthly earnings (Rs 15,633) far exceeded the median (Rs 12,000). UR was highest among those with higher education (12.88%), and female LFPR (31.71%) was roughly half the male rate (58.22%). Conclusion: Open unemployment substantially understates labour market slack in India. A broader assessment incorporating underemployment, NEET, long-term unemployment and job-quality indicators reveals substantial hidden labour underutilisation, particularly among women, youth and the educated. These findings suggest that employment policy should move beyond reducing open unemployment towards increasing labour-force participation, generating adequate working hours, improving job quality and expanding productive employment opportunities for vulnerable groups. However, the descriptive cross-sectional design identifies patterns of labour underutilisation but does not establish causal relationships or directly determine the reasons underlying observed labour-market outcomes.