Measurement of Unemployment In India | 08 Sep 2023

Source: TH

Why in News?

In 2021-22, India's Unemployment rate dropped to 4.1% according to Periodic Labour Force Survey (PLFS) of 2021-22, but higher than the US (Fluctuating between 3.5% and 3.7%), highlighting the contrasting economic landscapes between the two countries and thus are differing methods to measure unemployment.

What is Unemployment?

• ILO's Definition: 
  • Unemployment, as per the International Labour Organization (ILO), involves being out of a job, being available for work, and actively seeking employment. 
  • A crucial aspect is that those not actively searching for work are not considered unemployed.
• The Labour Force: 
  • It comprises the employed and the unemployed. Those not in these categories (e.g., students, unpaid domestic workers) are categorized as out of the labour force. 
  • The unemployment rate is calculated as the ratio of the unemployed to the labour force.
    • The unemployment rate could also fall if an economy is not generating enough jobs, or if people decide not to search for work.
• Types of Unemployment:
  • Disguised Unemployment:
    • It is a phenomenon wherein more people are employed than actually needed.
    • It is primarily traced in the agricultural and the unorganised sectors of India.
  • Seasonal Unemployment:
    • It is an unemployment that occurs during certain seasons of the year.
    • Agricultural labourers in India rarely have work throughout the year.
  • Structural Unemployment:
    • It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.
    • Many people in India do not get jobs due to lack of requisite skills and due to poor education level, it becomes difficult to train them.
  • Cyclical Unemployment:
    • It is a result of the business cycle, where unemployment rises during recessions and declines with economic growth.
    • Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies.
  • Technological Unemployment:
    • It is the loss of jobs due to changes in technology.
    • In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year-on-year.
  • Frictional Unemployment:
    • The Frictional Unemployment also called as Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.
  • Vulnerable Employment:
    • This means, people working informally, without proper job contracts and thus sans any legal protection.
    • These persons are deemed ‘unemployed’ since records of their work are never maintained.
    • It is one of the main types of unemployment in India.

How is Unemployment Measured in India?

• NSSO Classification Methods:
  • Usual Principal and Subsidiary Status (UPSS): Principal status is determined based on the activity one spent the most time on in the previous year. 
    • Subsidiary roles lasting at least 30 days are also considered employment. This method tends to lower unemployment rates.
• Current Weekly Status (CWS): 
  • A shorter reference period of a week is adopted. Individuals are counted as employed if they have worked for at least one hour on at least one day in the preceding seven days. 
    • CWS often results in higher unemployment rates than UPSS due to the shorter reference period.

• Complexities in Measuring Unemployment in India:
  • Constraints from Social Norms:
    • In developing economies, social norms significantly influence work-seeking decisions, leading to variations in labour force participation rates.
    • For instance, a 2009-10 NSSO survey revealed that 33.3% of rural women and 27.2% of urban women aged 15 and above  engaged in domestic work would be willing to work if it were available within the premises of the households, but they are not counted among the unemployed because they aren't actively job-hunting.
• Informal Sector Complexity: 
  • In contrast to developed economies, the informal nature of jobs in India complicates measurement. 
    • Unlike developed economies, individuals do not hold one job year-round. 
  • People often engage in various economic activities throughout the year, making it challenging to categorize them as employed or unemployed at any given time.
    • An individual may be unemployed this week, but may have worked as a casual labourer last month, and as a farmer for most of the year. 
• Rural vs. Urban Disparities: 
  • The low threshold for employment in UPSS explains why unemployment rates are typically lower in rural areas than in urban areas. 
  • In agrarian economies, access to family farms or casual agrarian work increases the likelihood of finding some work.

What are the Major Causes of Unemployment in India?

• Social Factors:
  • In India, the caste system is prevalent. The work is prohibited for specific castes in some areas.
  • In big joint families having big business, many such persons will be available who do not do any work and depend on the joint income of the family.
• Rapid Growth of Population:
  • Constant increase in population has been a big problem in India.
• Dominance of Agriculture:
  • Still in India nearly half of the workforce is dependent on Agriculture.
    • However, Agriculture is underdeveloped in India.
    • Also, it provides seasonal employment.
• Fall of Cottage and Small industries:
  • The industrial development had adverse effects on cottage and small industries.
  • The production of cottage industries began to fall and many artisans became unemployed.
• Immobility of Labour:
  • Mobility of labour in India is low. Due to attachment to the family, people do not go to far off areas for jobs.
  • Factors like language, religion, and climate are also responsible for low mobility.
• Defects in Education System:
  • 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 unemployed due to lack of skills.

Way Forward

• Unemployment measurement in developing economies like India involves intricate challenges stemming from the informal job market, variations in labour force participation, and differing measurement criteria. 
• Understanding these complexities is vital for addressing unemployment effectively and making informed policy decisions.