Unemployment In India
Unemployment is a situation where an individual who is willing and able to work but cannot find employment despite actively seeking work.
Definition of unemployment brings out the following features:
- It is not permanent in nature.
- It applies only to able-bodied persons of working age, l.e., persons of age group between 15 and 60 years and who are mentally and physically fit for work.
- Ability to work also implies willingness to work.
- Therefore, an unemployed person is one who has the ability to work, willingness to work and is of working age (15-60 years) but does not get work at current wage rate.
Underemployment
- When persons are employed below their education or skill level it is termed as underemployment.
- It may be of two types-visible and invisible underemployment.
Reasons for Unemployment in India
- Slow economic development.
- Population explosion.
- Improper education system.
- Mismatch between required skills and available skills.
- Limited effect of government planning.
Various Concepts rated to Unemployment
1. Labour Supply-
- It refers to the supply of labour (in man-days) that workers are willing to offer at different wage rates.
- Labour supply is always related towage rate, Supply of labour can increase or decrease even remain constant.
- Normally, 1 man-day refers to when the number of workers 8 hours of work.
2. Labour Force-
- It refers to number of persons actually working or willing to work.
- It is not related to wage rate.
- It is measured in terms of number of persons not in terms of man-days
3. Work Force-
- It refers to only those persons who are actually working.
- It does not take into account those who are willing to work (but not working)
Some definitions
- Number of persons unemployed= Labour Force - Work Force.
- Rate of Unemployment =Number of Persons unemployed/Total Labour Force x 100.
- Proportion of Unemployed = Number of Persons unemployed/Total Population x 100.
- Labour Force Participation Rate (LFPR) = Labour Force/Total Population x 100.
- Work Force participation Rate (WFPR) = Work Force / Total Population x 100.
- Employment Intensity = Number of employed persons per lakh of Real GDP.
Methods to measure Unemployment in India
As recommended by the Prof. M.L. Dantwala Committee set up by the Planning Commission in 1960, there are three methods used by the NSSO (since 1972-73) to measure unemployment using the National Sample Survey data:
1. Usual Principal Status.
2. Usual Principal Subsidiary Status.
3. Current Weekly Status.
4. Current Daily Status
1. The Usual Principal Status (UPS)-
- This method estimates the number of persons who are chronically unemployed for a major part of the reference period (ie., 1 year) preceding the date of survey.
- This measure generally gives the lowest estimate of unemployment.
- This is because only a few people can afford to remain without work over a long period.
2. Usual Principal Subsidiary Status (UPSS) or Usual Status (PS+SS)-
- UPSS is a more inclusive measure as compared to UPS.
- If a person is engaged in any economic activity for a period of 30 days or more during the preceding days, the person is considered as employed under this approach.
3. The Current Weekly Status (CWS)-
- Here the reference period is taken as one week (7 days) preceding the date of survey According to this estimate, a person is termed as employed even if he is employed only for a day during that week for at least 1 hour.
- The percentage of unemployment higher under this measure as compared to the UPS.
4. The Current Daily Status (CDS)-
- The reference period here is a day preceding the date of survey.
- He/she is considered as employed if he/she has worked for at least 4 hours during that day.
- If worked for more than 1 hour but less than 4 hours-half day employed.
- A person who has no gainful work even for 1 hour during that day is considered unemployed
Compared to the other two methods, estimate of unemployment is highest under CDS
Which is the best measure among the above three?
Answer: CDS.
Reasons are:
- It is the broadest measure and is more inclusive captures open unemployment to a great extent-takes care of seasonality-CDS indicates the magnitude of both unemployment and underemployment.
Types of Unemployment
Unemployment can be classified into two categories- voluntary and involuntary unemployment
A. Voluntary Unemployment-
- It is a situation when persons who are able to work but not willing to worker where jobs are available but the people are unwilling to do them.
- In other words, they are voluntarily unemployed, i.e., unemployed by their own choice. Such people are not categorised as unemployed.
B.Involuntary Unemployment-
- It is a situation where able-bodied people are willing to do a job but are unemployed due to unavailability of jobs in the economy.
- Hence, the are unemployed against their wishes.
Following are the different categories of unemployment:
1. Structural Unemployment-
- This type is associated with the economic structure of the country.
- Economic structure implies (i) Rapidly growing population (ii) Slow rate of capital formation, etc.
- In an economy, when the number of job seekers exceeds the number of available jobs, unemployment arises. This is particularly evident in situations where the population grows rapidly and people are unable to relocate for work opportunities.
- This type of unemployment is also caused due to skill mismatches.
- This type of unemployment is long term in nature.
2. Disguised Unemployment-
- If a person does not contribute in the production process or, in other words, if he can be removed from the work without affecting productivity adversely, he will be treated as Disguised Unemployment.
- Here marginal productivity of Labour is equal to Zero and very common in agriculture sector
3. Frictional Unemployment-
- The unemployment here is generated due to change in market conditions.
- Here some workers are temporarily out of work due to reasons such as strikes, layoffs by the company (suspension), time gap between changing/switching jobs, lock-outs, imperfect mobility of labour, etc.
4. Cyclical Unemployment-
- This is a common phenomenon in the industrial sector, It occurs due to the trade cycles, especially recessionary cycles and the cycle of depression.
- The downswing in business activities results in unemployment.
- It is a common phenomenon in developed countries which are capital buyers.
- It is a temporary and short-term phenomenon.
5. Chronic Unemployment-
- When unemployment tends to be a long-term feature of a country it is called chronic unemployment.
- It is due to the vicious circle of poverty, under-utilization of resources, use of traditional techniques or technology, etc.
6. Technological Unemployment
- Due to the introduction of new technology, machinery improvement in method of production, labour-saving devices, etc., some workers tend to be replaced by machines.
7. Casual Unemployment
- In sectors such as construction, catering or agriculture where the labourers are employed on a day-to-day basis, there are chances of casual unemployment arising due to shortage of raw materials, fall in demand, change of ownership or short-term contracts, which are terminable at any time.
8. Seasonal Unemployment-
- Persons are employed only during particular seasons in some sectors.
- For example, sectors like agriculture where labourers work for a season and are unemployed for the remaining year.
Inequality
- The gap in income between the rich and the poor is referred to as inequality.
- In other words, it indicates the disparity in the distribution of economic assets and income.
Causes of Income Inequality
- Concentration of assets in the private corporate sector.
- Urban bias in private investment.
- High Inflation in goods and services. More focus on capital intensive ways of production, etc.
Methods to Measure Income Inequality
- The concept of relative poverty is used to indicate the level of income inequality of a nation.
- It is measured through Gini Coefficient in mathematical terms and Lorenz curve in graphical terms.
1. Gini-Coefficient or Gini Index
- It was developed by the Italian statistician and sociologist Corrado Gini in 1912.
- It measures the degree of income inequality in a country by calculating the ratio of the area between the diagonal (line of perfect equality) and the Lorenz curve divided by total area of the half square in which the curve lies.
- The value of Gini-Coefficient varies between 0 and 1.
- (zero) represents perfect equality, L.e., it represents a situation where every resident has the same income.
- 1 (one) indicates perfect inequality, Le, one resident earns all the income and the others have no income.
- For understanding it simply-say an increase in value from 0.29 to 0.36 indicates more income inequality which is certainly not good for an economy.
- Higher the Gini Coefficient, the more is the gap between rich and poor in a country, ie, higher level of income inequality.
2. Lorenz Curve-
- It is a curve that measures the relationship between the percentage of income earnest and the percentage of people who earned that particular percentage of income.
- It is a graphical representation of Gini coefficient. In other words, Gini coefficient be represented graphically through the Lorenz curve.
- Cumulative population share (in %) is presented on the X-axis and cumulative income
Lorenz Curve Explained
- Perfect equality is represented by a straight 45 degree curve.
- Curve placed below the line of perfect equality represents the Lorenz curve.
- Closer the Lorenz curve to the perfect equality line, the less is the level of income inequality and vice versa.
Impact of Income Inequality
- Rich becomes richer, poor becomes poorer.
- A continuous class conflict between the 'haves' and 'have nots'.
- Political instability in the nation.
Measures taken by the Government to combat Income Inequality
1. Land reforms.
2. Control over monopolies and restrictive trade practices through the MRTP Act
now) and Competition Act, 2002.
3. Employment generation schemes like the MGNREGS.
4. Progressive taxation system under Direct Tax
5. More equal access to education and well-paying jobs.
Important one Liner Question and answers on Unemployment and Inequality.
What is unemployment?
A situation where an individual who is willing and able to work but cannot find employment despite actively seeking work.
Who does unemployment apply to?
It applies only to able-bodied persons of working age, i.e., persons of age group between 15 and 60 years and who are mentally and physically fit for work.
Is unemployment permanent in nature?
No, it is not permanent in nature.
What is underemployment?
When persons are employed below their education or skill level it is termed as underemployment.
What are the reasons for unemployment in India?
Slow economic development, population explosion, improper education system, mismatch between required skills and available skills, limited effect of government planning.
What is labour supply?
It refers to the supply of labour (in man-days) that workers are willing to offer at different wage rates.
How is labour supply related to wage rate?
Labour supply is always related to wage rate, supply of labour can increase or decrease even remain constant.
What is labour force?
It refers to the number of persons actually working or willing to work.
Is labour force related to wage rate?
No, it is not related to wage rate.
What is work force?
It refers to only those persons who are actually working.
Does work force take into account those who are willing to work but not working?
No, it does not take into account those who are willing to work but not working.
What is the formula to calculate the number of persons unemployed?
Number of persons unemployed = Labour Force - Work Force.
What is the formula to calculate the rate of unemployment?
Rate of Unemployment = Number of Persons unemployed/Total Labour Force x 100.
What is the formula to calculate the proportion of unemployed?
Proportion of Unemployed = Number of Persons unemployed/Total Population x 100.
What is labour force participation rate (LFPR)?
Labour Force Participation Rate (LFPR) = Labour Force/Total Population x 100.
What is work force participation rate (WFPR)?
Work Force Participation Rate (WFPR) = Work Force / Total Population x 100.
What is employment intensity?
Employment Intensity = Number of employed persons per lakh of Real GDP.
How many methods are used by the NSSO to measure unemployment in India?
There are three methods used by the NSSO (since 1972-73) to measure unemployment using the National Sample Survey data.
What are the three methods used by the NSSO to measure unemployment in India?
Usual Principal Status, Usual Principal Subsidiary Status, and Current Weekly Status.
Which method among the above three is considered the best to measure unemployment?
Current Daily Status (CDS) is considered the best method to measure unemployment.
What is frictional unemployment?
Frictional unemployment occurs when people are in between jobs or are seeking better job opportunities.
What is seasonal unemployment?
Seasonal unemployment is a type of unemployment that is caused by fluctuations in demand for labor during different seasons of the year.
What is cyclical unemployment?
Cyclical unemployment is a type of unemployment that is caused by a decline in economic activity during a recession.
What is technological unemployment?
Technological unemployment is a type of unemployment that is caused by advances in technology that replace human labor with machines.
What is open unemployment?
Open unemployment refers to the situation where individuals are unemployed and actively seeking work.
What is hidden unemployment?
Hidden unemployment refers to the situation where individuals are not counted in official unemployment statistics, either because they have given up looking for work or are underemployed.