When an individual who is actively searching for employment is unable to find work, this constitutes unemployment. It is used as a parameter to measure the health of the economy. This article will discuss the concept of unemployment which is important for aspirants preparing for the UPSC examination.

Concept of Unemployment

• Unemployment is a circumstance in which a person who is actively looking for a job is unable to find work.
• Unemployment is seen as a significant indicator of the economy's health.
• The unemployment rate, which is calculated by dividing the number of jobless persons (unemployed who are willing to work) by the total number of people in the labour force, is the most used measure of unemployment.
• "Unemployed, not wanting to work, and not actively looking for a job" refers to someone who is not employed, is not willing to work, or is not interested in engaging in any economic activity.
• This category typically includes students, stay-at-home moms, retirees, and people who are unemployed.

Types of Unemployment

Unemployment can be grouped into various types based on the nature of work, the structure of the economy, the nature of the seasons, technological advancements in an economy, etc. Various types of unemployment are discussed below.

Frictional Unemployment

• It is when there is the least amount of unemployment prevailing in an economy due to workers quitting their previous jobs and searching for new jobs.
• One of the major causes of occurrence of frictional unemployment is lack of information about the availability of jobs and non-willingness of mobility on the part of workers (it means workers are not willing to travel to a distant place or a new state for employment).
• A frictionally unemployed person remains unemployed for a very brief period of time.

Cyclical Unemployment

• It occurs during the cyclical trends of booms and recessions of a business cycle.
• This type of unemployment occurs mainly due to either deficiency or fall in effective demand from consumers which in turn leads to a fall in production and low demand for labour.
• This type of unemployment occurs for a long period of time and workers remain unemployed during the entire phase of slowdown.
• The unemployment crisis due to the 2008 financial crisis is an example of

Voluntary unemployment

• It is when workers are either not seeking work or are in transition from one job to another.
• Voluntary unemployment is present all the time in an economy.
• As there will always be some workers, who quit their previous jobs in search of new ones

Involuntary unemployment

• It is when workers are actively seeking employment and are willing to work but are unable to get work.
• Involuntary unemployment happens in an economy during the time of depression and decreases in aggregate demand for goods and services.

Structural unemployment

• It refers to a situation that arises as a result of a change in the structure of the economy.
• For instance, when an economy transforms itself from a labour-intensive to a capital intensive economy, structural unemployment happens due to the mismatch of skills.
• As a result, workers who do not know how to operate the new and advanced technologies will be removed.
• This type of unemployment happens as the current workers do not have the skills required by their employers.

Seasonal unemployment

• This happens during specific seasons of the year. It is more prevalent in sectors and occupations such as agriculture, holiday resorts etc., where production activities take place only in some seasons.
• Therefore, they offer employment for only a certain period of time in a year.
• People engaged in seasonal activities may remain unemployed during the off-season

Open unemployment

• It is a condition where people have no work to do. It is also known as naked unemployment.
• Here individuals are able to work and are also willing to work but there is no work for them.
• It is frequently found in larger cities and is less frequent in villages. Most of such individuals come from villages in search of jobs or might originate in cities themselves.
• Such employment can be seen and counted in terms of the number of such persons. Hence it is called open unemployment..

Under-employment

• It is a scenario where employed people are contributing to production less than they are capable of.
• It can be estimated in terms of time, which is visible under-employment or type of work, which is invisible under-employment. Part-time workers come under this category.

Disguised Unemployment

• It occurs when a person is the one who seems to be employed but actually he is not. His/Her contribution to the total output is either zero or negligible.
• When more individuals are engaged in a job than the number actually required it leads to a state of disguised unemployment.
• It is mostly seen in rural areas such as in agricultural activities

Vulnerable Employment

• This means, people, working informally, without proper job contracts and thus get deprived of any legal protection. These persons are regarded as unemployed since records of their work are never maintained. It is one of the main types of unemployment in India.

Technological Unemployment

• It is unemployment that occurs as a result of the loss of jobs due to changes in technological developments.
• According to World Bank data, the proportion of jobs threatened by automation in India is 69% on a year-on-year basis.

Measurement of Unemployment in India

Various approaches have been used for measuring unemployment based on methods by the National Sample Survey Office (NSSO). These include:

• Usual Status Approach: This method considers only those persons as unemployed. That has had no gainful work for a major time during the 365 days preceding the date survey.
• Weekly Status Approach: This method considers only those persons as unemployed who did not have gainful work even for an hour on any day of the week preceding the date of the survey.
• Daily Status Approach: In this method unemployment status of a person is measured for each day in a reference week. A person having no gainful work even for one hour in a day is described as unemployed for that day.
• Unemployment rate: The unemployment rate is the number of people unemployed divided by the working population/people working in the labor force.
• Unemployment rate = (Unemployed Workers / Total labor force) × 100
• LFPR: The labor force participation rate (LFPR) is a measure undertaken to evaluate the working-age population in an economy.
  • The participation rate estimates the total number of people who are currently employed or are in the search of a job.
• Worker Population Ratio: The worker population ratio is defined as the ratio of a country's working population to its population multiplied by 100. Symbolically,
  • Worker population ratio = Total number of Workers / Total Population ×100

Causes of Unemployment

• Despite India’s GDP growth is at about 7-8%, it did not translate into the creation of more employment opportunities for the labour force.
• Preference for large scale industry after independence and the new industrial policy of the 1990s resulted in the decline of small scale industries.
• The joint family system is more prevalent in rural areas and encourages disguised unemployment.
• Various factors such as family loyalty, which people avoid migrating to far-off areas of work. Lower mobility causes greater unemployment.
• The education curriculum is mostly theory-oriented which leads to a mismatch between vocational training and the current economic environment.
• An increase in population is the major reason for increasing unemployment in the country. In the last decade (2006-2016).
• Despite agriculture being the biggest employer in the country contributing to 51% of employment, it contributes only 12-13% to the country’s GDP.
• Skill deficit between the employment opportunities available and the skills.
• The industrial sector in India has not achieved the desired level of growth. Agriculture still remains the biggest employer in the country.
• Decreasing capital investment and therefore a subsequent decrease in industrial growth that in turn provides employment to the labour force.

Jobless Growth

• Jobless growth is a dominant issue in the Indian economy more so because of the decreasing window from when the demographic dividend becomes the demographic burden.
• There is the involvement of a greater population in the agriculture sector even though the sector contributes very little to the overall GDP of the country.
• The tertiary sector contributes the largest to the overall GDP of India, however, the job creation by this sector are mostly of formal type due to which inclusion of informal workforce in this sector is reduced.

Recent Trends Regarding Unemployment In India

• India's unemployment rate reached a high of 7.9% in four months according to the Centre Economic Monitoring Center (CMIE). A decreasing trend started emerging even before the economic activity was impacted by the new Covid 19 restrictions.
• The unemployment rate has risen to 7.9% as compared to 7% last year, whereas the rate in urban areas rose from 8.2% to 9.3%. Rural unemployment increased from 6.4% to 7.3%.
• India's Labor Participation Rate (LPR) decreased from more than 46% in 2016 to just over 40% in 2021.
• Therefore, 60% of the working population was either inactive or not looking for a job and hence dropping out of the labour market.

Conclusion

Unemployment is the phenomenon when individuals despite a willingness to work are not able to find work and employment. This can be attributed to a host of other reasons such as poor education and training, Labour demand-supply mismatch, etc. It can turn the demographic dividend of a nation into a demographic burden.