Daily News Analysis

Unemployment Rate

13th July, 2021 Economy

Context:

The unemployment rate for the week ended July 11 rose 34 basis points (bps) from the previous week to 7.64%, as improved labour participation raised the need for jobs.

Labour Force participation rate:

The LPR is an age-specific proportion between persons either working or actively seeking work and the total population in the working age group, usually 15 years and above.

Unemployment rate:

Unemployment rate is a ratio between persons who are not currently employed but are actively searching for a job, and the total labour force.

Types of Unemployment

 

Disguised Unemployment

  • It is a condition where more people are working than is necessary. And if some are removed, output is unaffected.
  • People are apparently engaged in agricultural activities in Indian villages, for example, where the majority of the unemployment is in this type.

Underemployment

  • It is a condition in which people who are working but contribute less to production than they are capable of.
  • For example, a diploma holder in engineering who, due to a lack of suitable employment, begins selling shoes may be considered underemployed.

Open Unemployment

  • Under this category, all those who have no work to do fall in this.
  • They are able to work and also willing to work, but there is no work for them.
  • This unemployment is in the nature of involuntary idleness.
  • Such unemployment can be seen and counted in terms of the number of such persons. Hence, it is called open unemployment.

Cyclical Unemployment

  • It is a result of the business cycle, where unemployment rises during recessions and declines with economic growth.
  • Associated with the downswing and depression phases of the business cycle, it is to be found in capitalist or marketoriented developed economies.
  • Falling income lowers the demand for goods and services. As a result, the economy produces less than it is capable of, aggravating further the employmentincome situation.

Frictional Unemployment

  • Frictional unemployment happens due to improper adjustment between the supply of labour and demand for labour.
  • This type of unemployment characterizes developed economies as they push towards further development. At a higher level of development, many changes take place in the industrial structure of these economies, with old industries, contracting and dying out, and new industries coming up.
  • Individuals by choice go unemployed as they expect better job prospects than what are available to them and which they consider below their qualification and less remunerative.
  • In such situation, it is necessary that workers move from industry to industry. In between the time of leaving and joining, the time for which the workers get no work is a period of unemployment, known as frictional unemployment.

Seasonal Unemployment

  • Seasonal unemployment is the unemployment caused by seasonal variations in production or demand or both.
  • When the workers engaged in a particular work or occupation, get employment only for a limited period and remain idle for the remaining period, it is called seasonal unemployment. It is very common in Indian agriculture.

Demographic Unemployment

  • Demographic unemployment occurs when the number of new workers entering the labour force through the natural increase or inward migration exceeds the number leaving the workforce.
  • Demographic unemployment is, to a great extent, similar to structural unemployment and is very common in India. It is so because the rate of growth of population in India is much higher than that of employment opportunities.

Technological Unemployment

  • Technological unemployment is the unemployment caused by technical progress; the skills of particular types of worker are made redundant due to the changes in the methods of production, usually by substituting machines for manual services.

Causes of Unemployment in India

 Important causes of unemployment in India may be summarized as follows:

 Jobless Growth

  • Economic growth is usually expected to generate employment.  However, in India, most of the economic growth has been jobless.
  • Economic growth could not create many jobs in India.

Increase in Labour Force

  • Over the years, the mortality rate has declined rapidly without a corresponding fall in birth rate and the country has, thus, registered an unprecedented population growth.  This was naturally followed by an equally large expansion in the labour force.

Inappropriate Technology

  • In India, while capital is a scarce factor, labour is available in abundant quantity.
  • Under these circumstances, the country should have labor-intensive techniques of production not only in industries but also in agriculture.  In western countries, where capital is in abundant supply, use of automatic machines is both rational and justified, while in India, on account of the abundance of labour, this policy results in large unemployment.

Inappropriate Education System

  • The education system in India is defective and it does not aim at the development of human resources.  The curriculum and syllabus taught in schools and colleges, is not as per the current requirements of the industries.

 

Consequences of Unemployment In India

 Unemployment is the root of a number of social and economic problems. Some of the vital problems are as under:

Poverty

  • Poverty is the immediate consequence of unemployment because when a person is unemployed, he earns nothing and becomes poor.

Income Inequalities

  • Unemployment causes income inequalities also.
  • Indian economy is beset with gross economic inequalities. There are inequalities in income, consumption etc.

Under–Utilization of Resources

  • An important economic consequence of unemployment is that a lot of resources available in the country remain under-utilized.  India has vast natural resources, but we are unable in utilizing these resources to the desired Extent.

Social Problems

  • Unemployment is the cause of a number of social problems, mainly because of two reasons: firstly, an unemployed person has nothing to do. He has no work to engage with. This situation causes dispute, misunderstanding, quarrels, etc.  Secondly, an unemployed person has no source of income. In most of the cases, such persons fail to provide required food, clothes, shelter, medicines, etc. for themselves and their family. It forces them to do what they do not like to do and should not do. It causes crimes of theft, dacoity, robbery etc.

 

Remedial Measures

The measures that can help us in eradicating or minimizing Unemployment:

Expanding Volume of Work

  • Solution to the problem of unemployment lies in enlarging the opportunities for work. This needs to be completed to clear the backlog of unemployment and to provide jobs to the large additions being made to labour-force.
  • The work to be expanded has to be both in the sphere of wageemployment and self-employment.
  • The ultimate avenue of more employment has to be found in the industrial sector, as also in the service sector.

Raising Capital Formation

  • It is also necessary that the accumulation of capital is stepped up.
  • It helps employment expansion in two principal ways: One, it becomes possible to maintain the existing activities, as also to expand the current activities and to set up new ones.
  • Secondly, capital formation directly generates employment in the capital goods sector. This also provides capital goods for the production of consumer goods and services.

Appropriate Mix                of Production Techniques

  • It is also necessary to choose such a combination of capital-intensive and labor-intensive technologies of production may generate maximum employment.
  • Labour-intensive activities such as cottage/household activities and also many agricultural operations, provide employment but capital-intensive technologies, are, by and large, more employment-creating, labour when employed in capital intensive industries, give rise not only to capital goods but also generate employment in industries which provide inputs to them.
  • Hence, the right mix of technologies which may provide maximum employment at a higher wage rate and provide a surplus for further investment.

 Special Employment Programmes

  • Till the economy matures to a level where everyone finds the job as described above, it is necessary, as an interim measure, to undertake special employment programmes for those who do not get benefit from this type of growth in the short run.  The need for supplement programmes is all the more important for poor people, residing mostly in rural areas and small towns.  Specific employment programmes to suit specific group of people and specific areas.