Unemployment

  • Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age not being in paid employment or self-employment but currently available for work during the reference period
  • Unemployment is measured by the unemployment rate, which is the number of people who are unemployed as a percentage of the labour force (the total number of people employed added to those unemployed).
  • The National Sample Survey Organization (NSSO),since its inception in 1950, does the measurement of employment / unemployment in India
    • In order to find out whether an individual is employed or unemployed it needs to be first determined whether h/she belongs to the ‘Labour Force’ or not, which in turn depends on the Activity Status of the individual during the chosen reference period
    • Activity Status refers to the activity situation in which the individual is found during the reference period with respect to his participation in economic or non-economic activities
    • The NSSO defines following three broad Activity Status
      1. Working (engaged in an economic activity) i.e. ‘Employed’
      2. Seeking or available for work i.e. ‘Unemployed’
  • Neither seeking nor available for work
  • All those individuals having a broad activity status as i) or ii) above are classified as being in the Labour Force and those having activity status iii) are classified as outside the Labour Force. Thus labour force constitutes of both employed and unemployed

Unemployment rate = (Unemployed  Workers / Total labor force) X 100

  • Further, Estimations of labour force, labour participation rate, unemployment rate, greater labour force, greater labour participation rate and greater unemployment rate – are all computed using the employment / unemployment status of persons of 15 years of age or more
  • Cyclical unemployment
    • Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand (AD)
      • If the decline in aggregate demand is persistent, it is either called demand deficient, general, or Keynesian unemployment
    • When companies experience a reduction in the demand for their products or services, they respond by cutting back on their production, making it necessary to reduce their workforce within the organization. In effect, workers are laid off.
      • Example: Unemployment caused by the recession of 2008-2010
    • Cyclical unemployment is normally a shot-run phenomenon; and are subject to trade cycles
  • Structural unemployment
    • Structural unemployment occurs when certain industries decline because of long term changes in market conditions
    • Drastic changes in the economic structure, affect either the supply of a factor or demand for a factor of production
    • Structural employment is a natural outcome of economic development, technological advancement and innovation that are taking place rapidly all over the world in every sphere
    • For example, as old industries have declined, new industries have emerged, such as higher tech manufacture, IT, computing, insurance, and internet based companies. However, these new industries may require a different skill set to previous manufacturing jobs, and it is this that can cause structural unemployment
  • Classical unemployment
    • Classical unemployment is caused when wages are ‘too’ high.
    • This explanation of unemployment dominated economic theory before the 1930s, when workers themselves were blamed for not accepting lower wages, or for asking for too high a wage
    • Classical unemployment is also called real wage unemployment
  • Seasonal unemployment
    • Seasonal unemployment exists because certain industries only produce or distribute their products at certain times of the year.
    • Industries where seasonal unemployment is common include farming, tourism, and construction
    • Ex: Workers in a ski resort will become unemployed after winter ends, while tourist guides in a hill station in India are likely to lose work after summer when the influx of tourists is low
    • Other example could be in the agricultural sector where the demand for workers is more during harvesting than is required in other months in a year
  • Frictional unemployment
    • Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one.
    • There may be little that can be done to reduce this type of unemployment, other than provide better information to reduce the search time.
    • This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.
  • Voluntary unemployment
    • Voluntary unemployment is defined as a situation when workers choose not to work at the current equilibrium wage rate.
    • For one reason or another, workers may elect not to participate in the labour market
      • There are several reasons for the existence of voluntary unemployment including excessively generous welfare benefits and high rates of income tax
  • Disguised Unemployment
    • It is a situation in which more people are doing work than actually required
    • Even if some are withdrawn, production does not suffer. In other words it refers to a situation of employment with surplus manpower in which some workers have zero marginal productivity
    • Overcrowding in agriculture due to rapid growth of population and lack of alternative job opportunities may be cited as the main reasons for disguised unemployment in India
  • Educated Unemployment
    • Among the educated people, apart from open unemployment, many are underemployed because their qualification does not match the job
    • Shortfalls in education system, mass output, preference for white collar jobs, lack of employable skills and dwindling formal salaried jobs are mainly responsible for unemployment among educated youths in India
  • Technological Unemployment
    • It is the result of certain changes in the techniques of production which may not warrant much labour
    • Modern technology being capital intensive requires fewer labourers and contributes to this kind of unemployment
  • Casual Unemployment
    • When a person is employed on a day-to-day basis, casual unemployment may occur due to short-term contracts, shortage of raw materials, fall in demand, change of ownership etc.
  • Chronic Unemployment
    • If unemployment continues to be a long term feature of a country, it is called chronic unemployment.
    • Rapid growth of population and inadequate level of economic development on account of vicious circle of poverty are the main causes for chronic unemployment

 

  • There are three measures or estimates of unemployment. These are developed by National Sample Survey Organisation (NSSO). They are:
    • Usual Status Unemployment
      • This measure estimates the number of persons who remained unemployed for a major part of the year.
      • This measure gives the lowest estimates of unemployment
    • Weekly Status Unemployment
      • The estimate measures unemployment with respect to one week.
      • A person is said to be unemployed if he is not able to work even for an hour during the survey period.
      • In other words according to this estimate, a person is said to be employed for the week, even if he/she is employed only for a day during that week
    • Current Daily Status Unemployment
      • It considers the activity status of a person for each day of the preceding seven days. The reference period here is a day.
      • If a person did not find work on a day or some days during the survey week, he/she is regarded as unemployed
      • Normally if a person works for four hours or more during a day, he or she is considered as employed for the whole day.
      • The daily status unemployment is considered to be a comprehensive measure of unemployment

 

  • Post-independence, the issue of employment has had different resonance during different Plan periods.
    • In the initial years of development planning, unemployment was not expected to emerge as a major problem. It was assumed that reasonable growth rate and labour intensive sectors would prevent any increase in unemployment and this expectation continued from one Five Year Plan to another during the 1950’s and 1960’s
    • However, the economy grew at a slower pace (around 3.5% as against the planned rate of 5% per annum) and the labour force grew more rapidly than the increase in employment , doubling the unemployment figures during 1956-1972, from around 5 to 10 million and increasing the unemployment rate from 2.6 to 3.8 per cent
  • 1980s to 2015
    • According to the Indian government’s official statistics between the 1980s and mid-2010s, relying in part on the NSSO data, the unemployment rate in India has been about 2.8 percent
    • In absolute terms, according to the various Indian governments between 1983 and 2005, the number of unemployed persons in India steadily increased from around 7.8 million in 1983 to 12.3 million in 2004–05
    • Using the current daily status definition, the unemployment rate in India had increased from “7.3 percent in 1999–2000 to 8.3 percent in 2004–5”, states the World Bank report
  • 2018-2019
    • According to the Pew Research Centre, a significant majority of Indians consider the lack of employment opportunities as a “very big problem”
      • About 18.6 million Indians were jobless and another 393.7 million work in poor-quality jobs vulnerable to displacement
    • According to the International Labour Organization (ILO) – a United Nations agency, unemployment is rising in India and the unemployment rate in the country stood at 3.5 percent in 2018 and 2019

 

  • Present status
    • Unemployment rate in India rose to 10.3% in 2020, according to a periodic labour force survey by the National Statistical Office (NSO)
    • The rise in the unemployment rate comes in the backdrop of the Covid-19 pandemic, which suspended commercial activities for a long time, leading to people losing jobs countrywide
    • Data from the periodic labour force survey shows the female unemployment rate in urban India at 13.1% for October-December quarter of 2020, which is higher than the national average of 10.3%, while women labour force participation rate stood at 20.6% compared to national average of 47.3%.
    • Further, While 67 per cent of all men of working age are employed, only 9 per cent of all women of working age are employed
    • Overall, Women face a much higher unemployment rate of 17 per cent compared to 6 per cent for men

 

  • The Caste System
    • The caste system, a structure of social stratification that can potentially pervade virtually every aspect of life in India is a major factor in generating unemployment
    • In some locations, certain kinds of work are prohibited for members of particular castes. This also leads to the result that work is often given to members of a certain community, rather than to those who truly deserve the job those who have the right skills
    • The result is higher levels of unemployment
  • Inadequate Economic Growth
    • Indian economy is underdeveloped and role of economic growth is inadequate
    • This slow growth fails to provide enough unemployment opportunities to the increasing population
    • This means that as the population increases, the economy cannot keep up with demands for employment and an increasing share of people are unable to find work. The result is insufficient levels of employment nationwide.
  • Increase in Population
    • India’s population is predicted to exceed China’s by the year 2024; it will, furthermore, probably be the most populous country for the entirety of the 21st century.
    • As the country’s economic growth cannot keep up with population growth, this leads to a larger share of the society being unemployed
  • Agriculture is a Seasonal Occupation
    • Agriculture offers unemployment for a large segment of the population, but only for several months out of the year.
    • The result is that for a considerable portion of the year, many agricultural workers lack needed employment and income
  • Loss of Small-Scale/Cottage Industries
    • Industrial development has made cottage and small-scale industries considerably less economically attractive, as they do not offer the economies of scale generated by large-scale mass production of goods.
    • Oftentimes the demand for cheap, mass-produced goods outweighs the desire for goods that are handcrafted by those with very specific skill and expertise.
    • The result is that the cottage and small-scale industry have significantly declined, and artisans have become unemployed as a result.
  • Low Rates of Saving and Investment
    • India lacks sufficient capital across the board. Likewise, savings are low and the result is that investment—which depends on savings—is also low.
    • Were there higher rates of investment, new jobs would be created and the economy would have kickstarted
    • Also, there is lack of investment in rural areas and tier 2 and tier 3 cities as well, as a result of which there is exists large untapped employment potential
  • Ineffective (or absent) Economic Planning
    • Problematically, there have been no nationwide plans to account for the significant gap between labor supply (which is abundant) and labor demand (which is notably lower)
    • It is crucial that the supply and demand of labor are in balance, to ensure that those who need jobs are able to get them; otherwise, many individuals will compete for one job.
  • Labor Immobility
    • Culturally, attachment and maintenance of proximity to family is a major priority for many Indian citizens. The result is that people avoid traveling long distances from their families in pursuit of employment.
    • Additionally, language, religion, and climate can also contribute to low mobility of labor
    • As one might expect, when many of those who might otherwise be suited to jobs are unable to travel to reach them, unemployment is magnified
  • Job Specialization
    • Jobs in the capitalist world have become highly specialised, but India’s education system does not provide the right training and specialisation needed for these jobs. Thus many people who are willing to work become unemployable due to lack of skills.
  • Lack of essential skilling
    • A study reveals that 33% of educated youth in India are unemployed due to a lack of future skills
    • Millions of students in our country even after finishing schooling, remain devoid of hands-on learning and robust practical knowledge.
Programme/PolicyYearObjectives/Measures
Training of Rural Youth for Self-Employment (TRYSEM)1979This scheme was started in 1979 with objective to help unemployed rural youth between the age of 18 and 35 years to acquire skills for self-employment
Integrated Rural Development Programme (IRDP)1980The aim of the program is to provide employment opportunities to the poor as well as opportunities to develop their skill sets so as to improve their living conditions.
National Rural Employment Programme1980This was a restructured version of the Food For Work Programme

·         It aimed at the implementation of additional employment to under employed persons

RSETI/RUDSETI1982Launched with the aim of mitigating the unemployment problem among the youth,  jointly by Sri Dharmasthala Manjunatheshwara Educational Trust, Syndicate Bank and Canara Bank in 1982, which was the setting up of the “RURAL DEVELOPMENT AND SELF EMPLOYMENT TRAINING INSTITUTE” with its acronym RUDSETI near Dharmasthala in Karnataka

·         Presently, these are now managed by Banks with active co-operation from the Government of India and State Government.

Jawahar Rozgar Yojana (JRY)1989This was launched by merging National Rural Employment Programme and Rural Landless Employment Guarantee Programme

·         This was a consolidation of the previous employment programs and it was largest National Employment Program of India at that time with a general objective of providing 90-100 Days Employment per person particularly in backward districts

·         People below Poverty Line were main targets

Sampoorna Grameen Rozgar Yojana2001This was launched by merging the provisions of Employment Assurance Scheme (EAS) and Jawahar Gram Samridhi Yojana (JGSY)

·         The programme is self-targeting in nature and aims to provide employment and food to people in rural areas who lived below the poverty line.

Mahatma Gandhi National Rural Employment Guarantee Act 2005It is an employment scheme that was launched in 2005 to provide social security, by guaranteeing a minimum of 100 days paid work per year to all the families whose adult members opt for unskilled labour-intensive work.

·         The act provides Right to Work to people

Deen Dayal Antyodaya Yojana – National Livelihoods Mission (NRLM)2013The mission of the scheme is

“To reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable improvement in their livelihoods on a sustainable basis, through building strong grassroots institutions of the poor.”

 

National Skill Development Mission2014This was launched to drive the ‘Skill India’ agenda in a ‘Mission Mode’ in order to converge the existing skill training initiatives and combine scale and quality of skilling efforts, with speed
Pradhan Mantri Kaushal Vikas Yojana (PMKVY)2015To enable a large number of Indian youth to take up industry-relevant skill training that will help them in securing a better livelihood
National Career Service (India)2015National Career Service (NCS) project is a Mission Mode Project launched by the Ministry of Labour and Employment (India)Government of India for establishing quick and efficient career related services across the country by revamping the existing nation-wide set-up of Employment Exchanges into IT-enabled Career Centers

·         It was launched as part of the government’s focus on providing right skills and generating employment

·         The Career Centres are a modified version of Employment Exchanges which serve as a platform for addressing all career-related needs of the youth and students.

Pradhan Mantri Mudra Scheme2015The scheme aims to enable Micro Finance Institutions (MFIs), Non-Banking financial institutions/Companies (NBFCs), Small Finance Banks, RBRs, Commercial Banks, Cooperative Banks, etc. to provide Low Rate Loans to eligible entities

·         One of the objectives of this scheme is to  help generate sources of employment and increase the overall GDP by providing micro-enterprises with credit facilities

Start Up India Scheme2016The primary objective of Startup India is the promotion of startups, generation of employment, and wealth creation. The Startup India has initiated several programs for building a robust startup ecosystem and transforming India into a country of job creators instead of job seekers
Pradhan Mantri Rojgar Protsahan Yojana2016-17The scheme is aimed at incentivising employers to generate employment, where the Government pays the employers’ Employee Pension Scheme share of 8.33 percent, for new employees for the first three years of their job

·         The scheme targets workers who earn wages of less than INR 15000 on a monthly basis. It encourages employers of Small and Medium Enterprises and Micro Businesses to avail the benefits of this project

  • Despite the Government devolving power and funds to implement projects, most of the schemes contribute to follow a top-down model
    • This is the Irony with Jawahar Rozgar Yojana (JRY)
      • The government sets financial and physical limits for schemes to be executed by panchayats and determines priorities for funding
      • This, observers say, has led to the creation of mostly non-productive assets such as school boundary walls and panchayat halls.
      • Corruption continues to flourish, though it has shifted from a bureaucrat-contractor nexus to one linking the sarpanch and contractor
  • The government introduced Pradhan Mantri Rojgar Protsahan Yojana(PMRPY) to generate new employment by incentivising employers
    • Under the scheme, the central government provides the entirety of the employers’ contribution towards the Employers Provident Fund, or EPF, scheme—12 percent—for a period of three years for new employees who earn less than Rs 15,000 a month
    • But, at least 40 percent of the eligible employees in the country are still outside this scheme
    • A case study based on a sectoral analysis of the power loom industry in Solapur district of Maharashtra showed that lax implementation of the scheme is one of the major reasons behind its inefficacy
  • The Mudra scheme was launched to provide loans to target Enterprises
    • However, data from public-sector banks shows that loans given under the scheme since 2015—over three crore loans, worth Rs 1.5 lakh crore, were disbursed in 2018 alone—have added to the Non Performing Assets, or NPA crisis
  • The Government in 2015, announced that 40 crore people would be imparted skill training by 2022 under the aegis of Skill India
    • In regards to this, there have been reports of bogus enrolments by private partners who are entitled to 75 percent of government subsidy on the sanctioned cost of Rs 10,000 per candidate
    • Also, the data from Skill India is hardly credible because all these figures are self-reported and there is no authentication process for enrolment and certification.
    • There is no monitoring of the skill centres to see whether the courses are even conducted
  • Pradhan Mantri Kaushal Vikas Yojana (PMKVY) has been criticised for training lakhs of women in conventional sectors such as weaving, bakery, apparel, and retail, instead of imparting skills that help them enter new job sectors such as construction, electronics, IT services and financial services
    • There is also the lack of support to the handicrafts sector, which could enhance existing skills in an ecological manner in India’s rural areas
  • The following new schemes were to boost employment in India. However, these schemes have not so far yielded the expected results:
    • The main aim of the Make in India programme was to generate employment in the manufacturing sector
      • Stringent land acquisition laws and inflexible labour regulations make it difficult for India to attract investors in the manufacturing sector.
      • Local apparel, footwear, textiles and leather industries did not receive any support from the government in the form of funding.
    • The government aimed to stress on automation through the introduction of Digital India
      • Combined with Demonetisation, the switch to online transactions resulted in the closing down of many local kirana stores that accepted only cash payments
    • Under Startup India, the Government encouraged banks to provide finance to young entrepreneurs to start their own business ventures
      • However, lack of innovation and lack of skilled labour resulted in the shutdown of many new startups
      • It could be suggested that not only did Startup India fail to create more jobs, it may have actually resulted in a lot of individuals losing their jobs.
  • Use of Labour-intensive Technology
    • Both the organised and un-organised sectors must adopt labour-intensive technology if sufficient employment opportunities are to be generated in both the rural and urban sectors of the economy.
    • Increasing mechanization of agriculture in various states has lowered the employment elasticity of growth of agricultural output.
    • Of course, the use of labour-intensive techniques with lower productivity of workers in the industry and agriculture may lower the growth of output.
      • Thus, there might be same trade-off between employment and growth of output. In our view due to the seriousness of unemployment problem some output growth should be sacrificed for the sake of more employment.
  • Accelerating Investment in Agriculture
    • An important reason for slow growth of employment in agriculture and rural sector has also been a shortfall in investment or capital formation in agriculture
    • It is worth noting that investment not only generates employment directly but also has a multiplier effect which operates through backward and forward linkages
  • Diversification of Agriculture
    • There is an urgent need for a relative shift from growing of crops to horticulture, vegetable production, floriculture, animal husbandry, fisheries etc. which are more labour absorbing and higher income-yielding.
    • In addition to this, promotion of agro-processing industries for export purposes has a large employment potential
  • Education, Health and Employment Generation
    • The expansion of education and health care not only promotes accumulation of human capital and thereby contributes to growth of output, it will also generate a good deal of employment opportunities
  • Development of the rural areas
    • This will help mitigate the migration of the rural people to the urban areas thus decreasing the pressure on the urban area jobs
  • Overhaul of Education system
    • Government needs to keep a strict watch on the education system and should try to implement new ways to generate skilled labour force.
    • Industry collaboration, Vocational training, Upgrading the standards of Education could be the way forward in this perspective
  • Need for National Employment Policy (NEP)
    • This would encompass a set of multidimensional interventions covering a whole range of social and economic issues affecting many policy spheres and not just the areas of labour and employment.
    • The policy would be a critical tool to contribute significantly to achieve the goals of the 2030 Agenda for Sustainable Development
  • Decentralised Development
    • It has been observed that unemployment is especially concentrated in certain regions.
    • In order to overcome this geographical disparity, the government could incentivize firms to set up operations in these areas by giving tax breaks.
  • Urban MGNREGA needed
    • India needs to formulate an urban national job guarantee scheme on the lines of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to help people recover from massive job and income loss following the coronavirus outbreak, a parliamentary standing committee has recommended to the Union government