On unemployment in Indian States

An analysis in The Hindu on unemployment in major Indian States

A recent report released by the International Labour Organization (ILO) and the Institute for Human Development (IHD) revealed that two out of every three unemployed individuals was a young graduate, highlighting the need for urgent policy intervention. Little is understood about the causes of unemployment in India, a knowledge gap that requires urgent redressal.

This analysis looks at unemployment in the major States of India — excluding the Union Territories —among individuals aged 15 and above as measured by the Usual Principal and Subsidiary Status (UPSS), utilising data from the Periodic Labour Force Survey (PLFS) of 2022-23. (Manipur is not included here since field work was not completed owing to the conflict). Since the coverage of smaller States in the overall sample is less compared to larger States, these estimates should not be taken as definitive measurements but as indicators of the important factors driving unemployment.

Figure 1 outlines the unemployment rates across Indian States in 2022-23 from the highest to the lowest. At almost 10%, Goa’s unemployment rate —more than three times the national average (3.17%) — is the highest. Interestingly, 4 of the top 5 States — Goa, Kerala, Haryana and Punjab — are comparatively richer states. The rich States of western India — Maharashtra and Gujarat — experience unemployment rates far less than the national average. All northern States — Jammu and Kashmir, Punjab, Haryana, Uttarakhand and Himachal Pradesh — have unemployment rates higher than the national average, as do all southern States with the exception of Karnataka.

Out of the 27 States considered, 12 States have unemployment rates less than the national average. Low rates in larger States — 3% in Maharashtra, 2.4% in Uttar Pradesh and 1.6% in Madhya Pradesh — bring down the national average. But this presents a conundrum: barring Maharashtra and Gujarat, much of the States with unemployment rates lower than the national average also have per capita incomes lesser than the national average.

Figure 2 depicts the relationship between unemployment rates and the share of the labour force in self-employment.

The trend line drawn through the data is downward-sloping, indicating that there exists a negative relationship between the two; in States where a large proportion of the labour force is engaged in self-employment, the unemployment rate is low. Since a bulk of the self-employment in India is of the informal variety, States with a large proportion of informal work would find it easy to absorb a large number of job-seekers. Yet it is unclear whether this relationship is cause or effect. Does a lack of self-employment opportunities result in high unemployment? Or is it that in States with high unemployment, individuals do not wish to engage in self-employment?

A large proportion of informal self-employment is accounted for by agriculture and the rural economy. A useful proxy, therefore, is to examine the size of the labour force engaged in the urban sector. Figure 3 outlines the relationship between the urban share of the labour force and the unemployment rate.