India’s labor market continued to improve in August, with the unemployment rate falling to 5.0% from 5.1% in July as labor-force participation and the share of people employed both increased.
The improvement, however, remains concentrated in rural India, where seasonal agricultural demand and new rural employment-support measures may be contributing to stronger employment. The absence of improvement in urban hiring suggests that the recovery has yet to become broad-based.
Female participation continued to rise for a second consecutive month, but the gains were again concentrated in rural India.
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The August report remains consistent with an economy expanding at a healthy pace, but one where employment growth continues to be driven more by rural seasonal activity than a broad-based strengthening of India’s labor market.
We had expected the headline rate to drift back up toward 5.3% to 5.5% over August and September on the view that rural improvement wouldn’t be matched by urban hiring.
The rate has instead continued to ease even without a matching pickup in urban job creation.
The risk is whether rural momentum can keep pulling the headline rate lower if the urban labor market stays this flat for much longer.
The key test for the labor market will be whether rural employment gains extend beyond seasonal farm work and whether employment growth broadens into urban, nonfarm, and formal-sector jobs over the coming quarters.
