Unemployment figures hide widening job gap in South Asia

unemployment and job gap in India
While global unemployment dips, South Asia grapples with declining labour force participation and widening job gap that put a generation at risk.

The world has encountered a series of extraordinary events in the last five years that transformed everyday life and economic activity. The COVID-19 pandemic was such an event that brought global affairs to a standstill. The depth and breadth of its impact were so profound that they confounded the expectations of policymakers and altered the collective approach to daily living. In the US, for example, the economic definition of a recession as two consecutive quarters of negative growth was called into question in early 2022. Despite clear economic contractions, the presence of a robust job market and historically low unemployment rates made economists hesitant to declare a recession which is a reflection of the pandemic’s impact.

The International Labour Organisation recently released its World Employment and Social Outlook 2023 which provides an employment forecast for 2024. Echoing the US experience, the report notes that global markets have lost their post-COVID economic momentum, yet the job market remains resilient. According to the ILO, unemployment and job gap levels have reverted to pre-pandemic figures. However, the recovery has been uneven across different geographical regions.

The ILO report casts light on the shifting dynamics of the global labour market as it emerges from the shadows of the pandemic. It offers a prognosis for 2024, mirroring the dichotomy observed in the US, where post-pandemic economic buoyancy has waned, yet the labour market displays unexpected resilience. The disparities highlighted in the report reflect a world where employment situations simultaneously converged and diverged across different regions, setting the stage for a complex narrative of recovery and challenge.

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Labour market trends in South Asia

In 2023, the labour force participation rate (LFPR) in South Asia returned to its pre-pandemic downward trajectory. The LFPR has been declining over the past two decades, from 55.7% in 2000 to 51.3% in 2019. It is projected to decrease further to 53.6% in 2024 and 53.5% in 2025, following a temporary increase to 54.2% in 2023 due to the pandemic’s impact.

While countries like Bhutan, India, and Bangladesh are expected to see an increase in LFPR, Sri Lanka and Iran anticipate stagnation. Notably, except for Iran and Sri Lanka, the rate of female labour market participation is rising across the region, led by India. However, the report highlights that a staggering 87% of workers are employed in informal jobs, highlighting a significant lack of decent employment. The region also faces challenges from the gig economy and other new forms of employment.

The economic situation in South Asia, as revealed by the LFPR trends, is one of contrasts and contradictions. While some nations within the region anticipate growth in labour force participation, others brace for stagnation, presenting a picture of economic resilience and vulnerability. This regional disparity not only highlights the diverse economic health across South Asia but also highlights the critical need for tailored economic policies that can address the unique challenges faced by different countries.

South Asia is home to the world’s largest youth population, but the data reveals a troubling trend: a high proportion of young people are not engaged in employment, education, or training (NEET). This poses a long-term risk to their careers. In 2021, Pakistan had the highest NEET rate at 34.6%, followed by India at 28.0%. Furthermore, the proportion of females in NEET is alarmingly high in both Pakistan (56.4%) and India (43.5%).

The profound social implications of these labour trends cannot be overstated. In South Asia, where a substantial segment of the youth remains disconnected from employment, education, or training, the society may face turbulence. This threatens not just the economic stability of the region, but also the social cohesion and future prospects of its young population. Addressing this issue is imperative not only for the economic health of the region but also for securing a socially inclusive future.

Moving beyond unemployment

While the global trend of decreasing unemployment rates continued in 2023, challenges persist in both low-income and high-income countries, where unemployment rates slightly increased or remained stable, respectively. The ILO report goes beyond simple unemployment figures to include the ‘job gap’ indicator. This new metric counts those who wish to work but are currently jobless, expanding the focus beyond those actively seeking or available for immediate employment. Globally, the projected job gap for 2023 is 11.1%, with women facing a larger gap (13.7%) compared with men (9.3%). In South Asia, however, the expected job gap is slightly lower than the global average at 9.3%, yet the gender disparity persists.

As the world grapples with these challenges, the opportunities for reform and innovation in labour markets worldwide become evident. The resilience shown by global labour markets opens avenues for innovative employment policies and strategies that could redefine work in the post-pandemic era. This period of transition presents a unique opportunity for nations to harness the lessons learned from these unprecedented times to foster a more inclusive and resilient economic future.

Furthermore, about 241 million people (6.9% of the global population) were employed but still lived in extreme poverty (earning less than US $2.15/day), and 423 million workers (12.2%) faced moderate poverty (earning less than US $3.65/day) in 2023. Notably, recent data from NITI Aayog reveals that only 11.3% of the Indian population lives in multidimensional poverty. However, India paradoxically records the highest percentage of working poor in the region, at approximately 9.0%. Bangladesh (5.8%) and Pakistan (3.5%) also have significant portions of their working populations experiencing extreme poverty.

The global labour market has shown resilience post-COVID, with falling unemployment and a narrowing job gap. However, South Asia continues to face challenges, including declining LFPR, youth disengagement, and persistent gender gaps. The region also struggles with high levels of informal employment and challenges from the emerging gig economy. Despite some progress, the prevalence of extreme and moderate poverty remains a pressing concern, especially in India. This situation warrants targeted interventions to address the complex issues.

(Jyoti Thakur is Associate Fellow at National Council of Applied Economic Research.)