Unemployment – Meaning, Types, Causes and Measures to Control
Indian Economy Notes
B.Com 4th Sem and 6th Sem
Meaning of Unemployment
The population of any country consists of two components (i) Labour Force (ii) Non-Labour Force. Labour force means all persons who are working (i.e. being engaged in the economic activity) as well as those who are not working but are seeking or available for work at the current wage rate. It means the labour force consists of both employed and unemployed people. The component of population which is not a part of the labour force is Non-Labour Force. It includes all those who are not working and are neither seeking nor available for work.
Unemployment can be defined as a state of workless ness for a person who is fit and willing to work at the current wage rate. It is a condition of involuntary and not voluntary idleness. Simply stated an unemployed person is the one who is an active member of the labour force and is seeking work, but is unable to find the same. In case of voluntary unemployment, a person is out of job on his own accord or choice, doesn’t work on the prevalent or prescribed wages. Either he wants higher wages or doesn’t want to work at all. The involuntary unemployment on the other hand is the situation when a person is separated from remunerative work and devoid of wages although he is capable of earning his wages and is also anxious to earn them. It is the involuntary idleness that constitutes unemployment.
Types of Unemployment
Unemployment can be divided into two parts – voluntary and involuntary. Involuntary unemployment can be further divided into cyclical unemployment, seasonal unemployment, structural unemployment, frictional unemployment, natural rate of unemployment, disguised unemployment and under employment.
a) Cyclical Unemployment: Cyclical or demand deficient unemployment occurs when the economy is in need of low workforce. When there is an economy-wide decline in aggregate demand for goods and services, employment declines and unemployment correspondingly increases. Cyclical unemployment mainly occurs during recession or depression. This form of unemployment is most commonly known as cyclical unemployment since unemployment moves with the trade cycle. For instance, during the recent global slowdown in late 2008, many workers around the globe lost their jobs.
b) Seasonal Unemployment: This type of unemployment occurs in a particular time of the year or season and thus is known as seasonal unemployment. Seasonal unemployment is most common in industries like agriculture, tourism, hotel, catering etc.
c) Structural Unemployment: Structural unemployment arises when the qualification of a person is not sufficient to meet his job responsibilities. It arises due to long term change in the pattern of demand that changes the basic structure of the economy. The person is not able to learn new technologies used in the new expanding economic sectors and they thus may be rendered permanently unemployed. For instance, when computers were introduced, many workers were dislodged because of a mismatch between the existing skills of the workers and the requirement of the job.
d) Frictional Unemployment: Frictional unemployment occurs when a person is out of one job and is searching for another for different reasons such as seeking a better job, being fired from a current job, or having voluntarily quit a current job. It generally requires some time before a person can get the next job. During this time, he is frictionally unemployed.
e) Disguised Unemployment: The unemployment which is not visible is said to be disguised unemployment. It occurs when a person doesn’t contribute anything to the output even when visibly working. This happens amongst family labour especially in agriculture who are engaged on land but are not contributing to the given level of output. Thus their marginal productivity is zero.
f) Underemployment: When a person is engaged in the economic activity but that fail to provide him fully in accordance to his qualification and efforts. Thus it is a situation in which a person is employed but not in the desired capacity whether in terms of compensation, hours, or level of skill and experience. While not technically unemployed the underemployed often compete for available jobs.
Measurement of Unemployment
Unemployment rate is the percent of the labour force that is without work. It is calculated as below:
Unemployment rate = (Unemployed Workers/Total labour force) × 100
Measurement of unemployment is a difficult task. In India, the most comprehensive and reliable data on employment and unemployment are compiled by the National Sample Survey Organization (NSSO). Based on different reference period (a year, a week, and each day of a week), NSSO provides four different measures of employment and unemployment. The following are some methods of measuring unemployment:
(i) Usual Principal Status Unemployment (UPS): This is measured as the number of persons who remained unemployed for a major part of the year. The persons covered by the survey may be classified into those working and/or available for work in their principal activity, and those working and/or available for work in a subsidiary activity, that is, a sector other than their principal activity. Hence, within the usual status concept, the estimates are now derived on the usual principal status as well as the usual principal and subsidiary status basis. The usual status unemployment rate is a person rate and indicates chronic unemployment, because all those who are found usually unemployed in the reference year are counted as unemployed. This measure is more appropriate to those in search of regular employment, e.g., educated and skilled persons who may not accept casual work. This is also referred to as ‘open unemployment’.
(ii) Usual Principal and Subsidiary Status Unemployment (UPSS): Here person is considered unemployed, if besides UPS, those available but unable to find work on a subsidiary basis during a year.
(iii) Current Weekly Status Unemployment (CWS): This refers to the number of persons who did not find even an hour of work during the survey week.
(iv) Current Daily Status Unemployment (CDS): This refers to the number of persons who did not find work on a day, or on some days, during the survey week.
Causes of Unemployment in India
a) Slow Economic Growth: During the planning period the trend rate of growth was considerably lower than the targeted rate. Therefore, jobs in adequate number were not created. Further, economic growth by itself does not solve the problem of unemployment. In the recent past there has been deceleration in the growth of employment in spite of the accelerated economic growth. The sectoral composition of growth is also an important determinant of unemployment. Excessive dependence on agriculture and slow growth of non-farm activities limit employment generation.
b) Increase in Labour force: There are two important factors that have caused an increase in the labour force which are as follows:
(i) Rapid Population Growth: Rising population has led to the growth in the labour supply and without corresponding increase in the employment opportunities for the increasing labour force has aggravated the unemployment problem.
(ii) Social Factors: Since Independence, education among women has changed their attitude toward employment. Many of them now compete with men for jobs in the labour market. The economy has however failed to respond to these challenges and the net result is a continuous increase in unemployment backlogs.
c) Rural-Urban Migration: The unemployment in urban area is mainly the result of substantial rural migration to urban areas. Rural areas have failed to provide subsistence living in agriculture and allied activities and so large scale migration is taking place to cities. However, economic development in cities has failed to create enough additional jobs for the new urban entrants to the labour market. Thus only some of the migrants are absorbed in productive activities and the rest join the reserve army of unemployed workers.
d) Inappropriate Technology: In India, though capital is a scarce factor, labour is available in abundant quantity; yet producers are increasingly substituting capital for labour. This policy results in larger unemployment. Despite the abundance of labour, capital intensive technology is adopted in India mainly because of rigid labour laws. It is quite difficult to follow easy hire and fire policy and so right sizing of manpower is difficult for the enterprises. It is difficult to reduce the number of labour-Force. Further, the factors like labour-unrest and lack of work-culture leads to the increased inefficiency of labour and thus provide incentives to follow labour-saving technology by organizations.
e) Defective Educational System: The present educational system has theoretical bias and has limited utility for productive purposes. It lacks the emphasis on the development of aptitude and technical qualifications required for various types of work among job seekers. This has created a mismatch between the need and availability of relevant skills and training, which results in unemployment, especially of youth and educated while shortage of technical and specialized personnel continues.
f) Lack of Infrastructure Development: Lack of investment and infrastructure development limits the growth and productive capacity of different sectors which leads to inadequate generation of employment opportunities in the economy.
g) Lack of employability: India faces poor health and nutrition situation among masses which reduces the capacity of person to be employable and it causes unemployment.
Suggestions/Steps to be taken to control Unemployment problem:
Following are the suggestions to solve unemployment problem in our country:
a) Population control: The first solution for the unemployment is to control the rising population of our country. The growth of population should be checked in order to solve unemployment problem. Government must promote Family planning programme and if possible make hard and fast rule like china to control population.
b) Improvement in Quality of Indian education system: Educational pattern should be completely changed because current education system is not upto the level. Emphasis should be given on technical education. Syllabus must be designed according to the need of the industry. Qualified engineers should be promoted to start their own small units which can improve employability of our country.
c) Change in industrial technique: Production technique should suit the needs and means of the country. It is essential that labour intensive technology should be encouraged in place of capital intensive technology.
d) Increase in Production: Government must take initiative to promote small and cottage industries because these industries are giving maximum employment in our country. To increase employment, it is essential to increase production in agriculture and industrial sectors which is only possible by the growth of small and cottage industries.
e) Development of Agriculture based industry to control migration: Government should promote agriculture based industry in rural areas so that the rural youth don’t migrate to the urban areas. It can reduce unemployment problem to a large extent.
f) Policy regarding seasonal unemployment: Seasonal unemployment is found in agriculture sector and agro based industries. Adoption of multiple cropping and promotion of Plantations, horticulture, dairying and animal husbandry can help in reducing seasonal unemployment.
g) Promotion of Foreign investment: Government should promote foreign capitalist to open their units in India, so that more employment opportunities will be available to Indian youths. The Make in India concept of Indian Government is a big step in this direction.
h) More assistance to self-employed people: In our country, most of the people are self-employed. They are engaged in agriculture, trade, cottage and small scale industries, service sector, professions etc. Financial assistance should be given to these people so that they can expand their business or profession and give more jobs to the candidates.
i) Decentralisation of industrial activity: Decentralisation of Industrial activity is necessary to reduce unemployment. If industrial activities are centralised at one place, there will be less employment opportunities in the under developed areas. So Govt. should adopt such policies which encourage decentralisation of industrial activity.
j) Industries in co-operative sector: Industries in co-operative sector should be encouraged. This is a novel approach to fight against unemployment. Different State Govt. should take necessary steps in this direction. Government of Gujrat has promoted Amul, the biggest co-operative society of India which has given direct appointment to more than 1000 people.
Government schemes to Generate Employment
Employment generation coupled with improving employability in the country including rural areas and small towns is the priority of the Government. Multi-pronged strategies are being taken by the Government to address issues relating to employment opportunity through Centrally Sponsored Schemes:
1. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
2. Deendayal Antyoday Yojana- National Rural Livelihood Mission (DAY-NRLM),
3. Deendayal Upadhyay- Gramin Kaushalya Yojana (DDU-GKY),
4. Pradhan Mantri Gram Sadak Yojana (PMGSY),
5. Shyama Prasad Mukherjee RURban Mission, National Career Service (NCS) etc.
Further, the Government of India has taken various steps for generating employment in the country. The Government of India has announced Aatmanirbhar Bharat package to provide stimulus to business. This package comprises of various long term schemes/ programmes/policies for making the country self-reliant and to create employment opportunities.
The Government launched the Garib Kalyan Rojgar Abhiyaan (GKRA) of 125 days on 20th June, 2020 to boost employment and livelihood opportunities for returnee migrant workers and similarly affected persons including youth in rural areas, in 116 selected districts across 6 States of Bihar, Jharkhand, Madhya Pradesh, Odisha, Rajasthan and Uttar Pradesh.
Prime Minister Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) Scheme has been launched on June 01, 2020 to provide working capital loans to Street Vendors, vending in urban areas, to resume their businesses, which were impacted adversely due to COVID-19.
Pradhan Mantri Mudra Yojana (PMMY) is being implemented by the Government for facilitating selfemployment. Under PMMY, collateral free loans upto Rs. 10 lakh, are extended to micro/small business enterprises and to individuals to enable them to setup or expand their business activities.
PM Gati Shakti is a transformative approach for economic growth and sustainable development. The approach is driven by seven engines, namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways and Logistics Infrastructure. This approach is powered by Clean Energy and Sabka Prayas leading to huge job and entrepreneurial opportunities for all.
The Government of India is encouraging various projects involving substantial investment and public expenditure on schemes like Prime Minister’s Employment Generation Programme (PMEGP)of the Ministry of Micro, Small & Medium Enterprises, Deen Dayal Antodaya Yojana-National Urban Livelihoods Mission (DAY-NULM) of the Ministry of Housing & Urban Affairs etc. for employment generation.
Besides these initiatives, various flagship programmes of the Government such as Make in India, Digital India, Smart City Mission, Atal Mission for Rejuvenation and Urban Transformation, Housing for All, Infrastructure Development and Industrial Corridors are also oriented towards generating employment opportunities.