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

Abstract

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