Are We Creating 6.2 Million Formal Jobs A Year? EPFO Payroll Data Is Improving, But Nowhere Near Credible 

With every passing month, it is possible to gain a bit more confidence in the new payrolls data coming from the Employees Provident Fund Organisation (EPFO), which covers formal sector employment. The fact that some of the old numbers are being revised also indicates that the data is being cleaned up with time. But the data is far from being fully credible.

The latest data (get the details here), which relate to the period September 2017-April 2018, shows a healthy net increase in EPFO subscriptions by 4.13 million. April alone shows a net rise of 6.85 lakh employees, of which 1.87 lakh represent subscribers in the 18-21 cohort, which is the rough age at which one gets into jobs. For the eight months as a whole, the additions in the 18-21 age group add up to 1.43 million. Annualised, it would mean around 2.14 million young people are joining the formal workforce every year. (EPFO data covers organisations with more than 20 employees).

If you annualise the entire eight-month addition of 4.13 million, you get around 6.2 million additions to formal sector jobs.

One should obviously take this kind of formal job growth with lots of salt, for EPFO numbers suffer from the following problems:

One, there will be people with multiple accounts, due to job changes. One presumes, as the UAN (universal account number) becomes widely accepted, it should be possible for people to avoid having multiple PF accounts when they change jobs. But it is a work in progress.

Two, the data may also be overcounting jobs growth as informal jobs get formalised, leading merely to a switch from non-reported employment to one that is officially counted. Thanks to the goods and services tax regime, some small companies may be feeling the pressure to formally register the employees on their rolls. The reason could be simple: if, after goods and service tax, you show a high turnover, the taxman will assume that your profits are also higher, unless you show greater costs. It would make sense for some small sector companies to show employees on their rolls as these will constitute legitimate costs to be deducted from sales revenues. When this was not accounted for, large parts of sales could be shown as cash, and outside the books. Employees could also be paid cash without social security, which gives them higher takehome salaries.

Three, even if we take the 18-21 age group as proxy for new job entrants, this is also the age when most employees will try to maximise salaries by switching jobs. A delivery person for Swiggy may well switch to Domino’s or Zomato for small differences in wages, hence increasing the base count of formal jobs artificially.

Four, a larger reason for discounting the high EPFO job numbers is improbability: If 6.2 million jobs are being created in the formal sector alone, the real job creation could easily be double that – over 12 million – even assuming the formal sector’s share of employment is a high 50 per cent, which most people will not believe. At this level, we should be meeting the fabled number of providing jobs to one million job-seekers every month. But, anecdotally, we are not seeing this kind of wage or income growth in any sector to begin believing it. It certainly doesn’t show in the four-monthly job surveys done by the Centre for Monitoring Indian Economy (CMIE).

Moreover, if we take 401 million as the base employment figure (the CMIE January-March 2018 survey on employment gives us this number), and we assume an employment elasticity of 0.2 per cent, we will get an overall total of 5.6 million new jobs at 7 per cent gross domestic product (GDP) growth. (That is, 0.2 per cent elasticity on 7 per cent GDP growth works out to 1.4 per cent growth on the assumed employment base of 401 million). This too shows that the kind of formal employment numbers generated purely from EPFO data can result in serious overcounting. The only way this could be even partially right is if real employment is much higher than what the CMIE’s four-monthly surveys suggest. (We should not rule this out entirely, for the CMIE figures have been stuck around this level for many surveys, and it seems improbable that seven per cent growth is resulting in zero jobs growth. The CMIE employment number gives an almost identical number of 401 million for January-April 2016).

If we assume the formal sector to be anywhere between 25-30 per cent of the total workforce, the element of overcounting new jobs through EPFO data could be huge.

So, clearly, the EPFO data needs a lot of tweaking before we actually get to count a segment of it as additional employment.

However, this is not to suggest that the data is totally unreliable. In fact, if it can be regularly tweaked and the data made available in a more disaggregated form, it will become more and more useful and credible. At some point, it could the most useful form of jobs data, since it will be formal, easily verifiable, and includes social security.

We also need granular data on where the new subscribers are coming from: new companies, old companies, services companies, educational and health institutions, manufacturers, or even NGOs.

Another form of granular data would be gender-wise data, for there are disturbing reports that more women lost jobs after the government legislated the new 26-week paid leave law for maternity.

A report in The Times of India, quoting a TeamLease study involving 300 employers across 10 sectors (including aviation, BPO, real estate, education, e-commerce, retailing, tourism, banking and finance, IT and manufacturing) shows a potential job loss of 11-18 lakh women in 2018-19. While female work participation rates have been low and falling (TeamLease estimates that 28 lakh women workers have moved out of jobs every year between 2004 and 2012), the 11-18 lakh loss is over and above that.

One wonders if the EPFO data reflect these trends, and whether the net additional to subscriptions show a decline in female work participation rates in the formal sector, too.

Over time, formal payrolls ought to be the best measure of non-farm employment. But we are not there as yet.