‘EPFO data not the right gauge of employment level’

The recent downward revision in the Employees’ Provident Fund Organisation data for September-June does not imply a decrease in formal sector employment, according to labour economists, who add that there are several problems with the EPFO data and caution against its use as a gauge of formal sector employment in the country.

The EPFO on Monday revised down the net enrolment numbers for the period from September 2017 to May 2018 by 5.54 lakh (12.4%) to 39.2 lakh from its earlier estimate of 44.74 lakh made last month.

“There is precious little to be derived [from this data]... apart from the very welcome formalisation of a previously informal labour force,” Santosh Mehrotra, professor at JNU’s Centre for Informal Sector and Labour Studies told The Hindu. “This data is not very systematic,” Mr. Mehrotra added, saying that “while EPFO is cleaning it up, it is still not cleaned up altogether”.

‘No clarity’

“EPFO data is a very complicated piece of work,” Abhijit Sen, former member of the Planning Commission, said. “There is a lack of clarity about the methodology being followed for this dataset.” “It is not clear what happens when a person changes jobs — and that happens very, very frequently,” Mr. Sen added. “When someone applies for a new policy and already has an older one, what does EPFO do? Does it merge the two policies? Does it delete one? Does it keep the older policy active? EPFO is not actually telling us… What should happen is that they must make a deduction somewhere, but it is not clear if this is happening.”

Mr. Mehrotra further explained that people at the bottom of the pyramid get low wages, so they are not enthusiastic about their salaries getting cut for the Provident Fund (PF). Neither are their employers eager to pay PF. Accordingly, they have been outside the EPFO net; enterprises may not have registered at all, or may not have admitted that they employ enough people to meet the EPFO threshold.

However, the new Goods and Services Tax regime created a certain incentive for many small enterprises to register themselves on the GST network, and so they may have registered under EPFO as well, he added. Thus, these are not new jobs being created; it is simply that they are newly registered under EPFO.

“Changes in EPFO numbers are not always indicative of a change in employment levels since there are several reasons why EPFO numbers might change without a corresponding change in employment,” Mahesh Vyas, managing director and CEO of the Centre for Monitoring Indian Economy (CMIE), said.

“Some examples are a worker quitting their job to start their own company, a worker being transferred to a foreign branch of an Indian company, employees retiring, and employees quitting once they get married. Of these, only the last two affect employment levels,” he said.

Prime Minister’s Economic Advisory Council member Surjit Bhalla, while saying that the EPFO numbers are a good indicator for formal employment as well as changes in employment, added that they had certain drawbacks.

“For example, a company employing 19 people may not be in EPFO, but as soon as it adds one more employee, all 20 are added to EPFO,” Mr. Bhalla said. “But the actual increase in employment has only been a single person. There are about six crore active members with at least one month of contributions in the year, so if you have a five lakh reduction in the estimate, it’s not a big deal.”

He added that the estimates may include temporary employees whose contributions may not be continuous for the entire year, a point noted by the EPFO as well in its data release.

Another major lacuna in the EPFO numbers, Mr. Sen said, was that it does not make clear whether the additions are to the total number of members (about 150 million) or to the number of active members who actually make payments and who number only about 60 million.

“If this addition is simply people moving from the member to active member category, there is no new job creation, or even new formal job creation, at all,” Mr. Sen said.

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Printable version | Sep 30, 2020 11:05:45 AM |

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