Unemployment in India: Types, Causes and Measures

Unemployment in India

Back to Basics. What is Unemployment?

Unemployment is a phenomenon that occurs when a person who is capable of working and is actively searching for the work is unable to find work.

People who are either unfit for work due to physical reason or do not want to work are excluded from the category of unemployed.

The most frequent measure of unemployment is unemployment rate. The unemployment rate is defined as a number of unemployed people divided by the number of people in the labour force.

Labour Force: Persons who are either working (or employed) or seeking or available for work (or unemployed) during the reference period together constitute the labour force.

Measure of Unemployment in India

Usual Status Approach Weekly Status Approach Daily Status Approach
Usual Status approach records only those persons as unemployed who had no gainful work for a major time during the 365 days preceding the date of survey and are seeking or are available for work.

The status of activity on which a person has spent the relatively long time of the preceding 365 days prior to the date of survey is considered to be the usual principal activity status of the person.

The weekly status approach records only those persons as unemployed who had no gainful work for a major time during the seven days preceding the date of survey. In the Daily status approach, current activity status of the person with regard to whether employed or unemployed or outside labour force is recorded for each day in the reference week. The measure adopts half day as a unit of measurement for estimating employment or unemployment.
The Usual Status captures long-term unemployment in the economy. The weekly status approach captures both the long-term open chronic unemployment and the seasonal unemployment. The approach is most inclusive than the other two. Since it also captures the days of unemployment of those who are recorded as employed on the weekly status approach.
The Usual Principal Activity status (UPS), written as Usual Status (PS), is determined using the majority time criterion and refers to the activity status on which h/she spent longer part of the year.

Principal usual activity status is further used to classify him in/out the labour force.

For instance, if an individual was ‘working’ and/or was ‘seeking or available for work’ for a major part of the year preceding the date of the survey then h/she is considered as being part of the ‘Labour Force’.

For example, if an individual reports as having worked and sought/available for work for seven months during the year or having sought or available for work for seven months then h/she is classified as being in the Labour Force.

A person is considered to be employed if he or she pursues any one or more of the gainful activities for at least one-hour on any day of the reference week. On the other hand, if a person does not pursue any gainful activity, but has been seeking or available for work, the person is considered as unemployed. A person who works for 4 hours or more but up to 8 hours on a day is recorded as employed for the full day.

A person who works for 1 hour or more but less than 4 hours is recorded as employed for the half day.

Accordingly, a person having no gainful work even for 1 hour in a day is described as unemployed for a full day.

Types of Unemployment

Frictional Unemployment Cyclical Unemployment
The minimum amount of unemployment that prevails in an economy due to workers quitting their previous jobs and are searching for the new jobs is called Frictional Unemployment. Cyclical unemployment is due to deficiency or fall in effective demand from consumers which leads to fall in production and low demand for labour.

Cyclical unemployment is a type of unemployment which is related to the cyclical trends of booms and recessions called as the business cycle.

If an economy is doing good, cyclical unemployment will be at its lowest and will be the highest if the economy faces recession.

The major reasons for frictional unemployment are lack of information about the availability of jobs and lack of mobility on the part of workers (it means workers are not willing to travel to a distant place or a new state for employment). The major reason for this type of unemployment is lack of demand in the economy and slowdown of economic activity.

When the demand for goods and services is low, then the firms stop the production due to rise in the unsold stock. As a result of stopping production, the firms lay off workers and unemployment rises.

Frictionally unemployed person remains unemployed for a very short period of time. This type of unemployment is for a long period of time and worker remains unemployed during the entire phase of slow down or recession.
This type of unemployment is of voluntary nature. This type of unemployment is of involuntary nature.
Voluntary Unemployment Involuntary Unemployment
Voluntary unemployment refers to a situation where workers are either not seeking for work or are in transition from one job to another (quitting one job in search of another better job). Involuntary unemployment refers to a situation where workers are seeking work and are willing to work but are unable to get work.
Voluntary unemployment remains in an economy during all the time. As there will always be some workers, who quit their previous jobs in search of new ones. Involuntary unemployment happens in an economy during the time of depression and fall in aggregate demand for goods and services.
Structural Unemployment Seasonal Unemployment
Structural unemployment refers to a situation which arises due to change in the structure of the economy. Example: An economy transforms itself from a Labour intensive economy to a Capital intensive economy.

Structural unemployment usually occurs due to the mismatch of skills.

Example, due to advance technological progress, the production of cars is done through robotic machines rather than traditional Machines. As a result, those workers who do know how to operate the new and advanced machines will be removed.

The unemployment happened because the current workers do not have the required skills as wanted by their employers.

Seasonal unemployment occurs during certain seasons of the year. In some industries and occupations like agriculture, holiday resorts etc., production activities take place only in some seasons.

Therefore, they offer employment for only a certain period of time in a year.

People engaged in such type of activities may remain unemployed during the off-season.

Technological Advancement, Robotics, Artificial Intelligence, Mechanisation and Automation are the main causes of Structural unemployment. Seasonal unemployment mainly occurs in Agricultural sector, Tourism sector and in factories producing seasonal goods.

Back to Basics: Disguised Unemployment

  • Disguised unemployment is a situation especially prevalent in poor and developing countries.
  • Disguised unemployment is when too many people are employed than what is required to produce efficiently. This kind of employment is not at all productive.
  • It is not productive in a sense that production does not suffer even if some of the employed people are withdrawn.
  • The key point to remember is that the marginal productivity of labourers under disguised unemployment is zero. The labourers are employed physically, but not economically.

Example: In a piece of 5 Acres land, 5 family members are employed to grow 100 Kgs of rice. The maximum rice that can be grown on the land is 100 Kg only. Now, the family decides to employ additional two members of its family on the same land. In such a scenario, the additional two members will not contribute anything in production since maximum production has already been reached. The additional two members will only end up congesting the farm land. Hence, they both are disguisedly unemployed.

Member 1 20 Kg

Member 2 20 Kg

Member 3 20 Kg

Member 4 20 Kg

Member 5 20 Kg

Since maximum output of 100 Kg is already reached.

Member 6 & 7 contribution will be 0 Kg.

The situation of disguised unemployment is most prevalent in the agriculture sector of the underdeveloped countries. The key idea is that the amount of population in agriculture which can be removed from it without any change in the method of cultivation, without leading to any reduction in output.

Back to Basics: Under Employment.

Underemployment is the most dangerous kind of unemployment in an economy. Underemployment is a situation under which People with a higher level of skills are employed in less productive jobs. It simply means that the Labour force of the economy is not fully utilised as per their skills and experience.

Example: an individual with an engineering or management degree working as a clerk or accountant in a firm or a social science graduate working as a pizza delivery boy.

The consequence of Underemployment.

 

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