Unemployment, its types and causes

Unemployment

"An employed existence is a worse negation of life than death itself"

Unemployment - It refers to a situation in which a person who is able and willing to work at a prevailing wage rate fails to find a job.

It includes only involuntary unemployment, i.e., person who is willing to work.

Employment and unemployment are expressed in relation to labour force, which includes people in the working age group usually 15 years to 59 years who are willing and able to work.

Labour force participation ratio (LFPR) - It is an estimate of an economy's active work force. Mathematically, it is the ratio of labour force to the total population.

Work force - one who is working, i.e., employed.

(Labour Force = Work force + no. of unemployed)

As per NSO, LFPR = 36%

Underemployment - It is a situation in which a person is employed in an activity which is not commensurate with his qualifications/experiences.

It can also be defined as, a situation in which a person fails to find a full-time job, i.e., working in part-time jobs.

Types of Unemployment 

1. Disguised/Hidden unemployment
2. Open unemployment
3. Structural unemployment
4. Seasonal unemployment
5. Cyclic unemployment
6. Keynesian unemployment 
7. Frictional unemployment
8. Technological unemployment
9. Educational unemployment 

Disguised Unemployment - It is a situation in which more people are engaged in an activity than actually/optimally required.

It is usually found in Agricultural sector

Here, engagement of more person does not lead to increase in production. Therefore, Marginal product is zero.

Open Unemployment - It is the opposite of Disguised Unemployment. Its definition is same as unemployment.

Structural Unemployment - It is caused due to structural deficiency of an economy like scarcity of capital, inadequate infrastructure, lack of skill building programs, etc.

Seasonal Unemployment - It is associated with change of season, i.e., it exists during lean season (period between planting and harvesting when job opportunity is scarce specially in Agriculture Sector).

Cyclic Unemployment - It is caused due to business cycle, i.e., it exists during recession or depression.

This type of unemployment is mainly associated with developed countries/capitalist economies (for example - Great depression of 1930s).

Keynesian Unemployment - It was given by J.M. Keynes. It is caused due to deficiency of aggregate demand in the economy.

Low demand → low production → lay off of workers → unemployment → low income → low demand

J.M. Keynes put forwarded his Fiscal Policy in which he highlighted the importance of government intervention in the market.

Government must create demand by giving/supplying capital in the form of subsidies, jobs, employment generation programs (such as MGNREGA), etc. which creates income which in turn increase demand in the market.

Impact of demonitisation in India 

Demonitisation → entire money was sucked down → low demand in market → low production → unemployment

Frictional Unemployment - It is a temporary unemployment which exists during shifting of labour from one job to another.

It is also known as 'Between job unemployment'.

It is mainly associated in developed countries.

Technological Unemployment - It is caused due to adoption of labour saving technology or automation.

Educational Unemployment - It is a situation in which an educated/trained person is unemployed.

It is mainly associated in developed as well as in developing countries.

Note - In India, there are majorly two types of unemployment exists - Structural and Disguised unemployment.

Types of Employment 

1. Formal Employment
2. Informal Employment
3. Organised Sector Employment
4. Unorganised Sector Employment

Formal Employment - It is a permanent employment with employment related benefits like pension, provident fund, job security, etc.

Informal Employment - Temporary/time bound employment which may or may not have other benefits.

Various different kinds of informal employment are given below -

1. Casual employment - Irregular daily wage labours
2. Contractual employment - employment as per the terms and conditions of work contract. Here, employment period is fixed.
3. Self employed - employment in own ventures in unorganised sector.

Organised sector Employment - Employment in organised sector (i.e., registered firms, PSUs, Government jobs, etc). Generally most of the formal employment is in Organised sector.

Unorganised sector Employment - Employment in unorganised sector (unregistered firms). Its major portion includes informal employment.

Data of NSSO (2011-12)

Formal Sector - (8.1%)

• Organised Sector - 7.7%
• Unorganised Sector - 0.4%

Informal Sector - (91.9%)

• Organised Sector - 9.3%
• Unorganised Sector - 82.6%

From the above data, it is evident that in India informal employment accounts for approx. 92%, therefore it can be said that there is an informalisation of employment in India.

Reason for the low formal employment (approx. 8%) → Rigid labour laws (rigid firing and hiring policy & other rigid provisions, Also there are too many laws related to labour and employment) → So, firms mostly hire informal employmers.

So, tackle this problem Government introduced 4 new Labour codes replacing/subsuming 29 existing laws. They are given below -

1. Code on wages 2019 (replaces 4 Acts)
2. Industrial relation code 2020 (replaces 3 Acts)
3. Code on Social security 2020 (replaces 9 Acts)
4. Occupational safety, health and working conditions code 2020 (replaces 13 Acts)

Impact of informalisation of employment on global level - It leads to low rank in Ease of doing business as it discourages Foreign direct investment.

Ease of doing business 

• It was released by World bank.
• Rank of India in 2022 - 63 
• Top - Singapore

Impact of informalisation of employment in India 

• On employees
• Low salary
• No job security
• On employers/firms
• Positive impact - flexibility in hiring and firing & low salary to employees → cost of manufacturing reduced
• Negative impact - cost of hiring, less attachment and loyalty of the workers towards the company

Measurement of Unemployment 

1. Usual Status
2. Current Weekly Status (CWS)
3. Current Daily Status (CDS)

Usual Status - Under this, those people are included in the labour force who are available and willing to work for major part of the survey year, i.e., the labour force is considered if he/she works for at least 182 days (more than 6 months/ half of the time available).

Those people are regarded as employed on the principal basis who work for major part of the time period for which they were available for work.

Those people who are employed on subsidiary basis who work for at least 30 days during the survey year are classified as unemployment or outside the labour force as per the principal status.

It is of two types - Usual Principal Status (UPS) & Usual Principal and Subsidiary Status (UPSS).

As per NSSO (2011-12)

• UPS - 2.7%
• UPSS - 2.2%

Usual Status (2018)

• Urban - 7.8%
• Rural - 5.3%

Usual Status measures Chronic unemployment, i.e., in long term basis.

Current Weekly Status - Under this, those people are regarded as employed who worked for atleast 1 hour in at least 1 day of the surveyed day.

It also measured chronic unemployment but with reduced time period (a week).

As per NSSO, periodic labour force survey -

• 2011-12 → CWS = 3.7%
• 2017-18 → CWS = 8.9%

Current Daily Status - It is measured in man day/person day. It takes into account the activity status of labour force for each day of the survey week.

If worked for -

• Less than 1 hour → unemployed
• 1 to 4 hours → half man day employed
• more than 4 hours → 1 man day employed

It is the most comprehensive method of measuring unemployment as it takes into account unemployment as well as under employment (part-time jobs).

CDS - 5.6% 

Unemployment Rate (UR) - It is the ratio of unemployed man day to the total man day.

5th annual employment-unemployment survey (2015-16)

It was released by Labour bureau, ministry of labour and employment. Its findings are -

Labour force participation ration (LFPR) 

• Rural -53%
• Urban - 43.5%
• Overall - 50.3%
• Men - 75%
• Women - 23.7%

Reason for more labour force participation ratio in Rural areas - 

• less number of educational years as compared to Urban areas
• disguised unemployment
• women participation in labour force is more in rural areas specially in agricultural and animal husbandary activities.

Workers population ratio (WPR) 

• Overall - 47.8%

Population unemployment (PU) 

• Overall - 2.4%

Unemployment rate (UR) 

• Rural - 5.1%
• Urban - 4.9%
• Overall - 5%
• Men - 4%
• Women - 8.7%

Reason for more Unemployment rate in rural areas 

• limited jobs
• less skill education
• more labour force participation ratio

Reason for more Unemployment rate for women

• less education/skill development/training
• Social stigma
• Security and safety concerns
• household works
• firms prefer male employees

Labour force participation ratio - Ratio of labour force to total population

Worker population ratio - Ratio of work force to total population

Population unemployment - Ratio of number of unemployed to total population

Unemployment rate - Ratio of number of unemployed to labour force

Time Use Survey

Share of women in unpaid work

• World - 3 times of men
• India - 9.6 times of men

Gender disparity → measured on 15 parameters → India is improving in all parameters except 2 

1. Unemployment of women
2. Meta son preferance
• Unwanted girls
• Missing women
• High morality rate, low education among girls, etc

ILO report

Number of unemployed in India (in Millions) -

• 2017 - 18.3 (UR - 3.5%)
• 2018 - 18.6 (UR - 3.5%)
• 2019 - 18.9 (UR - 3.5%)

ILO puts India in Lower-middle income country category.

Centre for monitoring Indian Economy

In initial 4 months of 2017 → 1.3 millions of jobs were lost

EPFO → 7 to 7.7 millions of jobs were being created every year.

Trend since 1991 

Growth of employment -

• 1980s - 2.5%
• 1990s - 1.1%
• 2000s - 1.4%

Employment elasticity - it is the responsiveness of employment to the economic growth. It shows the relationship between employment growth and GDP growth. Mathematically, it is equal to the ratio of growth of employment to the growth of GDP.

Employment elasticity -

• 1980s - 0.48 
• 1990s - 0.16
• 2000s - 0.2

From the above data, it can be concluded that India is in a situation called 'Jobless growth'. Therefore, to make growth growth inclusive, India has to focus on job creation.

Jobless growth - It is the situation in which the economic growth does not result in the growth in employment.

Decline in employment elasticity also reflects jobless growth.

Reason for India's jobless growth -

1. Economic growth was mostly led by service sector which fails to create proportionate jobs.
2. Adverse impact of economic policies on MSMEs. MSMEs were exposed to too much competitions from large MNCs and foreign and Indian companies as well as from imported commodities.
3. Capital intensive investment by private and foreign firms (because of LPG and rigid labour laws).
4. Automations/new technologies replaces labour force.
5. Austerity measures →  the government reduced developmental expenditures to reduce budgetary deficit as per conditions of IMF.
6. Government eliminate expenditure on public sectors and government initiated disinvestment of PSUs, that led to low job creation.

All these factors lead to low growth of employment and increase in labour force which results in increase in Unemployment rate.

• Growth of employment ↓ → UR ↑
• Growth of labour force ↑ → UR ↑

as labour force participation ratio is expected to increase in India because of demographic dividends (share of young people in total population) → government should focus on new job creation.

Causes of Unemployment 

1. 1 to 6 same as in job growth in India
2. Defective education system, i.e., lack of emphasis on vocational education, skill development, training, etc.
3. High growth rate of labour force (because of high population growth and demographic dividends).
4. Defective economic planning by the government (government gives more emphasis on providing subsidies rather than provisions for providing basic services).
5. Over relying on trickle down policy (which does not create much jobs).
6. Scarcity of capital.

Government measures 

1. Poverty alleviation programs
1. Wage employment program - Government initiated labour intensive public work programs like construction of rural roads, minor irrigation projects, plantation of trees, etc. This lead to the creation of jobs to unskilled labours as well as also developed infrastructure. For example - MGNREGA, PM Awas Yojana, etc.
2. Self employment program - Unemployed people are provided training/skill development as well as finance in the form of bank loans and government subsidies to enable them to establish micro enterprises. For example - Kaushal vikas yojana, Bhumiyaan yojana, Deen Dayal Antodya yojana (formerly known as National rural livelihood mission), PM employment generation program (PM rojgaar yojana + Rural employment generation program), etc.
2. Promote investment (by improving ease of doing business ranking). Government Make in India program promote investment in India.
3. Support MSMEs (Gramodya Vikas yojana)
4. Entrepreneurship development (Startup India, Stand up India program)
5. Promotion of labour intensive sector such as food processing industry, textile industry, leather industry, construction, etc.

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Note - This is my Vision IAS Notes (Vision IAS Class Notes) and Ashutosh Pandey Sir's Public Administration Class notes. I've also added some of the information on my own. 

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