India’s labor market strengthened in July, with the unemployment rate falling to 5.1% from 5.5% in June as more workers, especially women, moved into the labor force.
The improvement was concentrated almost entirely in rural India, where the jobless rate fell sharply and a much larger share of women both entered the labor force and found work.
Urban India, by contrast, told a different story: Employment conditions there barely changed, and unemployment among urban women got worse.
The divergence is the reason why we would caution against reading July’s headline drop as the start of a durable labor market turnaround. Rural gains tend to be concentrated in lower-productivity, informal work tied to the agricultural calendar, while the urban, formal-sector labor market that better reflects underlying demand for workers stayed essentially flat.
Inside the data
- The overall unemployment rate fell to 5.1% in July from 5.5% in June. Compared with same time last year, when the rate stood at 5.2%, the level is broadly unchanged.
- The labor force participation rate (LFPR) rose to 55.4% in July from 54.4% in June and 54.9% a year earlier. Rural LFPR climbed to 58.0% from 56.6% (but with an annual increase of 1.1 percentage points), while urban LFPR edged up to 50.4% from 50.1% (but annually is down 0.3 percentage points).
- Female LFPR improved to 34.4% in July from 32.7% in June and 33.3% a year earlier. Rural female LFPR rose to 38.8% from 36.6%, and urban female LFPR increased to 25.3% from 24.8%.
More workers
The improved labor market wasn’t just a matter of the unemployment rate falling on its own. More people entered the labor force in July, and the worker population ratio, the share of working-age people actually employed, rose for the first time since February.
That combination—more people looking for work and a rising share of them finding it—is generally healthier than a falling unemployment rate on its own, since a falling jobless rate can also happen when discouraged workers simply stop looking.
There are still meaningful headwinds facing India’s labor market, so some caution is warranted.
Urban female unemployment’s second straight monthly rise suggests the participation gains among women are not yet being matched by job creation in India’s cities.
Our concern is that if urban hiring does not follow rural India’s improvement into the back half of the year, July’s decline in the headline rate will prove temporary.
We expect the unemployment rate to drift back toward 5.3% to 5.5% over the next two months, given the one-month rural improvement has not yet been matched by any gain in urban hiring.
