Where Do They Come From, Where Do They Go? Labour Market Transitions in India

Rahul Menon, Tata Institute of Social Sciences, Hyderabad
Paaritosh Nath, Azim Premji University

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Using two rounds of the Periodic Labour Force Survey (PLFS) covering the periods 2017-18 and 2018-19, we construct a panel of urban Indian individuals aged 15 to 65, and analyse the dynamics of their participation – or non-participation – in the labour force. We construct transition probabilities to study the movement of individuals through three distinct statuses – employment, unemployment and non-participation – at the aggregate level and for different demographic groups. We find evidence of considerable movements from the labour force to non-participation; there exists a significant discouraged worker effect as well as a pronounced movement from employment outside the labour force, specifically for women. A majority of those unemployed in the beginning of the year remain so at the end of the year, indicating the presence of long-term unemployment. The reduction in unemployment rates from 2017-18 to 2018-19 hides significant weaknesses in Indian urban labour markets. This study represents an original contribution to the field of Indian labour economics, given the paucity of large-scale studies of the dynamics of Indian labour.

Keywords: Labour market transitions, employment, unemployment, PLFS

Suggested citation:

Menon Rahul and Paaritosh Nath. 2021. “Where Do They Come From, Where Do They Go? Labour Market Transitions in India ” Centre for Sustainable Employment Working Paper #42, Azim Premji University, Bangalore.