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01 May 2018 Mahesh Vyas

EPFO data is not employment data

The Employees’ Provident Fund Organisation released provisional estimates of payroll by age buckets as per their records. The data shows that there were 3.11 million additions to the payrolls database during the six months from September 2017 to February 2018.

This is an important new series of data on employment in the organised sector in the country. It is expected that such data will be released regularly every month. If it does, then over time this could become one of the lead indicators of the health of the Indian economy. So, the EPFO and NITI Aayog (who apparently has been pushing this) must be complimented for having organised the release of this data.

The data released so far implies an average addition of 0.52 million accounts a month with a monthly variation ranging from 0.39 to 0.65 million.

The total active members on EPFO payrolls database is over 60 million according to the EPFO release. An addition of about 3 million implies that the EPFO payrolls database could be growing at the rate of about 10 per cent per annum. This is a very healthy growth rate.

This implies that there is an increase of about 10 per cent in the number of people who are signing up for relatively more secure and formal jobs. There is a caveat, though. The EPFO release says "estimates may include temporary employees whose contributions may not be continuous for the entire year". Possibly, such numbers are small or at least their proportion is constant over time and so we can assume that the base of formal employment is growing at about 10 per cent per annum.

This of course is not employment data. Growth in EPFO enrolments largely reflect the conversion of hitherto informally employed people into formal employment. This does not take away the importance of this data but, it should not be confused with employment data. NITI Aayog’s press release of April 26 seems to confuse the matter. (pib.nic.in/newsite/PrintRelease.aspx?relid=178955) It says that these data "are an eye opener and put an end to all speculations and conjectures regarding job creation in the economy.". Now, that’s stretched. EPFO’s 60 million members account for less than 15 per cent of the total employment in the country.

NITI Aayog further goes on to say "We may as well as bid goodbye to the days of analyses based on random sample surveys". This almost implies that the government may shut down National Sample Survey Organisation. And, are we bidding goodbye to the Periodic Labour Force Survey? Has NITI Aayog abandoned its stance compared to its own recommendation in the Task Force report: "Household surveys are the only means to generating economy-wide estimates of employment and unemployment. For this reason, it is extremely important to have regular household surveys. The NSSO has started an exercise named Periodic Labour Force Survey (PLFS) that will provide annual estimates of labour force,..."?

It is unlikely that NITI Aayog could be so irresponsible. So, am I missing a message somewhere?

Using EPFO data as a proxy for employment was always fraught with complications because of duplications, inclusion of non-contributing members, etc. These problems were sorted only in December 2016 when EPFO released data on contributing members separately. Recently, Aadhar linking of accounts has helped in de-duplicating records. Since these efforts are recent, it seems unlikely that we will be able to see time-series of the addition to EPFO accounts. Nevertheless, these were commendable measures to create a useful database that could be deployed in analysing trends in the Indian economy.

However, as past problems were overcome new ones emerged from administrative enthusiasm. From an analysis point-of-view, the data was confounded substantially in 2017 because of an amnesty scheme floated between January and June 2017. EPFO membership shot up by 10 million in just four months - from 38 million in March 2017 to 48 million in July 2017 - because of this scheme. If we exclude the effect of this amnesty scheme then there were no net additions to count of EPFO’s contributing members in 2016-17.

So, we cannot compare the 3 million addition to EPFO membership during the six months of 2017-18 to any past data. Compared to its base of 60 million this indicates good growth in formalisation of the labour force.

The EPFO monthly series is a lead indicator of the health of the economy. But, it does not qualify as an indicator of employment.

The BSE-CMIE employment effort, based on a large household survey, will continue to throw light on employment and unemployment. It is happy to note a sharp fall in the unemployment rate in the week ended April 29, 2018 to 4.7 per cent after several weeks of much higher unemployment rate of 6-7 per cent.

First Published in Business Standard Link