Labour Market Trends in India: Progress or Precarity?

India’s labour market is characterised by low levels of labour force participation and unemployment, and high levels of informal employment, with a high incidence of self-employment and reliance on agriculture. Labour force participation and employment outcomes are not the same. Being employed refers to taking part in economic activities that contribute to the total value of goods and services a country produces. Unemployment refers to seeking or being available for such activities. Labour force participation captures both employment and unemployment. Whether a worker is male or female and whether they live in rural India or urban India affects their participation and employment outcomes.

According to the Periodic Labour Force Survey (PLFS) 2025, the overall labour force participation rate (LFPR) for the population aged 15 and above is 59.3 per cent, up from 56.1 per cent in 2022. Women largely drive the rise in labour force participation. Female LFPR stands at 40 per cent, up almost 6 percentage points from 2022. Whereas for men, the rate only increased marginally from 78 per cent to 79.1 per cent in the same period. On the face of it, a rise in female labour force participation seems like great news. However, this rise is driven by women in the rural areas who engage in self-employment, which comprises unpaid labour and own-account work, and reliance on agricultural activities.

The improvement in labour force participation is a rural story.

Rural women’s labour force participation rate (LFPR) improved by 8.4 percentage points from 2022 to 45.9 per cent in 2025. Over the same period, the participation of urban women only improved from 24.7 per cent to 27.7 per cent by an addition of 3 percentage points. The gap between rural and urban female LFPR was 12.8 percentage points in 2022, and by 2025, it increased to 18.2 percentage points. Male participation rates moved marginally in the same period; rural male LFPR stands at 80.5 per cent, up from 79.5 per cent, and urban male LFPR stands at 76.2 per cent, up from 74.3 per cent – narrowing the regional gap from 5.2 to 4.3 points.

What this hints at is that the labour market appears to absorb men fairly uniformly across rural and urban areas, with the regional gap narrowing over time. Whereas for women, rural participation has surged due to agricultural and unpaid household enterprise activities, which are unavailable for their urban counterparts; as a result, they continue to face significant structural barriers to entry.

The gender gap is wider in 2025 than it looks.

The gender gap in aggregate LFPR narrowed from 44.1 points in 2022 to 39.1 in 2025, but the trend wasn’t linear. It fell sharply to 37.0 points by 2023, then widened again over the next two years, including a slight uptick from 38.9 in 2024 to 39.1 in 2025. This reversal is driven entirely by women: male LFPR rose steadily throughout, while female LFPR peaked at 41.3 per cent in 2023 and has declined every year since, to 40.0 per cent in 2025. This suggests the 2023 gains in female participation may have been transient rather than structural. It remains to be seen if this is an anomaly or a continuing trend.

Workforce participation closely mirrors labour force participation.

Rural female workforce participation rate (WFPR) rose from 36.7 per cent in 2022 to 44.9 per cent in 2025, an increase of 8.2 points, almost exactly tracking the gains in rural female LFPR, indicating rising labour force participation has translated into actual work. Whereas urban female WFPR moved from 22.8 per cent to 25.9 per cent.

Neither rural nor urban male WFPR showed a significant change, reflecting participation rates already close to their ceiling. This means male labour force participation and employment have already reached a near-saturation point, where almost all working-age men who want to work are already working, leaving little room for further gains regardless of new job creation.
The participation-employment gap (LFPR – WFPR) captures the share of unemployed within the population, and it matters because a widening gap signals that people are increasingly willing to work but unable to find work, pointing to weak job creation rather than weak labour supply.

The participation-employment gap narrowed for every male group and for urban females between 2022 and 2025. The gap between participation and employment narrowed the most for urban males, going from 3.9 points to 3.2.

Rural females, on the other hand, saw the gap between labour force participation and employment widen, where the labour force participation surge marginally outpaced their employment. This means that a slightly higher share of rural women were unemployed and looking for work than those who were employed, indicating that even as more rural women are willing to work, the rural economy may be reaching its absorption capacity where it is unable to generate enough opportunities at the same pace as the surge in women seeking work.

Unemployment remains low and falling, but divisions persist.

The aggregate unemployment rate (UR) stands at 3.1 per cent in 2025, down from 3.6 per cent in 2022. The urban-rural divide remains – urban UR is 4.8 per cent against 2.4 per cent in rural areas, roughly the same two-to-one ratio as in 2022, when the figures were 5.9 per cent and 2.8 per cent.

Urban female unemployment remains the highest of any group at 6.4 per cent, down from 7.7 per cent. This figure remains over three times the rate for rural females, who continue to have the lowest recorded rate for any group due to their overwhelming participation in agriculture and unpaid activities.

While declining levels of already low unemployment look promising, in the case of India’s labour market, they mask the underlying underemployment, where individuals are employed on face value but their participation is not fully utilised. A large share of workers are in the informal sector and are engaged in self-employment and agricultural activities.

India’s labour market story of the past three years is really a rural women’s story whose labour force participation and employment both surged, but largely through unpaid, agricultural, and informal work rather than the creation of new formal jobs. Falling unemployment and a narrowing gender gap therefore mask a more fragile reality — low-quality, low-productivity work absorbing a rising female labour supply, while urban women continue to face the highest joblessness of any group and structural barriers.