HOW UNEMPLOYMENT IS MEASURED

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Context: The unemployment rate of India was 6.1% in 2017, according to the Periodic Labour Force Survey (PLFS), the highest ever recorded in India. The PLFS of 2021-22 showed a decline in unemployment to 4.1%, lower than before, but still higher than some developed economies.

Key Points about Unemployment

• Unemployment is a term used to describe a situation in which individuals who are willing and able to work are unable to find suitable employment opportunities. It is an important economic and social indicator that reflects the health of a country's labour market.
• The labour force consists of all individuals who are either employed or actively seeking employment. Those who are not part of the labour force, such as retirees, students, and those who have given up looking for work, are not considered unemployed.
  • Unemployed individuals are those who are currently not working but are actively seeking employment and are available to work. In other words, they are willing and able to work but do not have a job.
• Types of Unemployment:
  • Frictional Unemployment: This type of unemployment occurs when individuals are temporarily between jobs or are transitioning from one job to another. It is often considered natural and even healthy in a dynamic labour market.
  • Structural Unemployment: Structural unemployment arises from a mismatch between the skills and qualifications of the workforce and the available job opportunities. It can be caused by changes in technology, shifts in industries, or changes in the geographical location of jobs.
  • Cyclical Unemployment: Cyclical unemployment is related to economic downturns and business cycles. When the economy is in a recession, businesses may lay off workers due to reduced demand for goods and services.
  • Seasonal Unemployment: This type of unemployment occurs when employment opportunities fluctuate with the seasons. For example, agricultural workers may experience seasonal unemployment during the off-season.
• Unemployment Rate: The unemployment rate is a widely used indicator that expresses the percentage of the labour force that is unemployed. It is calculated by dividing the number of unemployed individuals by the total labour force and then multiplying by 100.

Measuring unemployment in India

• Measuring unemployment in India, as in many developing economies, is indeed a complex task due to the informal nature of jobs, the variability in employment patterns, and the influence of cultural and social norms. Different methods and definitions can lead to varying unemployment rates, making it important to understand the nuances of how unemployment is measured in such contexts.
• Usual Principal and Subsidiary Status (UPSS): This method focuses on an individual's primary economic activity over the course of a year. It considers an individual employed if they spent a relatively long time in economic activity during the previous year, even if they were unemployed for a significant portion of the year. This approach may lead to lower unemployment rates because it takes into account longer-term work patterns.
• Current Weekly Status (CWS): CWS, on the other hand, adopts a shorter reference period of one week. An individual is considered employed if they worked for at least one hour on at least one day during the seven days preceding the survey. This method is more sensitive to short-term employment fluctuations and may result in higher unemployment rates.
• Informal Economy: The definitions used in India are often tailored to capture the informal economy, where employment is characterized by irregular and casual work. This informal sector is a significant part of the Indian labour market, and traditional unemployment measures used in developed economies may not accurately reflect the employment dynamics in this context.
• Rural vs. Urban Disparities: Unemployment rates in rural areas tend to be lower than in urban areas due to the prevalence of agriculture and casual labour opportunities in rural settings. The nature of employment in agrarian economies allows individuals to have intermittent work, which can be captured differently by UPSS and CWS methods.
• Centre for Monitoring Indian Economy (CMIE): CMIE uses a different approach by classifying individuals based on their activity on the day preceding the interview. This approach may yield higher unemployment rates but lower labour force participation rates, as it considers daily variations in employment opportunities.
• Trade-offs in Measurement: There is no one-size-fits-all approach to measuring unemployment in a developing economy like India. The choice of measurement method involves a trade-off between capturing short-term fluctuations in employment (CWS) and recognizing longer-term work patterns (UPSS). Different organizations and researchers may choose different methods based on their specific research objectives and the aspect of employment they wish to highlight.

Picture Courtesy: The Hindu

Unemployment in India can be attributed to various reasons

Population Growth

• India has one of the world's largest and fastest-growing populations. While a young population can be a demographic advantage, it also means that the workforce is constantly expanding. The economy often struggles to generate enough jobs to absorb a large number of people entering the labour market each year.

Skill Mismatch

• One of the critical reasons for unemployment in India is the mismatch between the skills possessed by job seekers and the skills demanded by employers. This mismatch occurs due to deficiencies in the education and training system, which often fails to equip individuals with the skills needed in the job market. As a result, many job seekers lack the qualifications or training required for available positions.

Structural Issues

• India's economy has been transitioning from an agrarian-based economy to an industrial and service-based economy. This transition can lead to structural unemployment as people with agricultural skills may not find suitable employment opportunities in other sectors. This mismatch between the demand for labour in different sectors can result in unemployment.

Cyclical Factors

• Unemployment is also influenced by the cyclical nature of the economy. During economic downturns or recessions, businesses may reduce their workforce to cut costs. This cyclical unemployment can lead to temporary job losses until the economy recovers.

Seasonal Unemployment

• Certain industries in India, such as agriculture, construction, and tourism, are highly seasonal. Workers in these sectors often face unemployment during off-seasons when demand for their services or labour decreases. This leads to seasonal unemployment.

Underemployment

• Underemployment refers to a situation where individuals are employed in jobs that do not fully utilize their skills, qualifications, or experience. It can also occur when individuals are working part-time jobs when they desire full-time employment. Underemployment contributes to the overall unemployment problem because people are not able to secure jobs that match their capabilities.

Informal Sector Dominance

• A significant portion of employment in India is in the informal sector, which includes jobs that lack job security, benefits, and decent wages. While these jobs provide some livelihood, they often do not provide stable and well-paying employment opportunities.

Gender Disparities

• Gender-based disparities in employment are prevalent in India. Women often face additional challenges in accessing jobs, and they are frequently underrepresented in the workforce, particularly in certain sectors and industries.

Lack of Infrastructure

• Poor infrastructure in some regions can hinder job creation and economic development. Lack of access to transportation, electricity, and other basic amenities can discourage businesses from operating and expanding, which limits job opportunities.

Policy and Regulatory Barriers

• Complex labor laws, bureaucratic red tape, and regulatory hurdles can discourage businesses from expanding and creating more jobs. Simplifying and streamlining these regulations is crucial to encourage job growth.

Education System

• The education system in India may not always align with the needs of the job market. This misalignment results in a gap between the skills acquired by graduates and the skills required by employers. Upgrading and modernizing the education system to address this gap is essential.

Lack of Entrepreneurship

• The lack of a robust entrepreneurial ecosystem can limit job creation opportunities, particularly in the small and medium-sized enterprise sector. Encouraging entrepreneurship and providing support to startups can lead to more job opportunities.

Impacts of unemployment in India

Poverty

• Unemployment can indeed push individuals and families into poverty. Without a stable source of income, people struggle to afford necessities such as food, shelter, and healthcare. This not only affects their living standards but can also have intergenerational consequences as children growing up in impoverished households may face limited opportunities.

Social Unrest

• High levels of unemployment can lead to social unrest and protests. When a large segment of the population is without jobs and opportunities, frustration and discontent can build up, potentially resulting in civil unrest and protests. This can disrupt the social fabric and stability of a nation.

Economic Loss

• Unemployment results in an economic loss for a country. When people are not employed, they are not contributing to the country's production and GDP. This can lead to lower economic growth and reduced overall prosperity.

Mental Health Issues

• Prolonged unemployment can take a toll on individuals' mental health. The stress and anxiety of not being able to find work, coupled with the social stigma often associated with unemployment, can lead to mental health problems such as depression, anxiety, and a loss of self-esteem.

Brain Drain

• India has experienced a significant brain drain over the years, with many highly skilled individuals seeking better opportunities abroad. When skilled workers emigrate in search of better job prospects, it can deprive the country of talent and expertise that could have been utilized for its development.

Reduced Consumer Spending

• Unemployed individuals have less disposable income, which in turn leads to reduced consumer spending. This decrease in consumer demand can negatively affect businesses, leading to lower sales, layoffs, and potentially a vicious cycle of economic downturn.

Steps taken by India

• Skill Development Programs (Skill India): The Skill India Mission is a flagship program that focuses on providing skill training to millions of Indians across various sectors and industries. By enhancing the employability of the workforce and aligning their skills with industry needs, this initiative aims to reduce unemployment and underemployment.
• Make in India: The Make in India campaign promotes manufacturing and aims to transform India into a global manufacturing hub. By attracting both domestic and foreign investments in manufacturing, it seeks to create job opportunities in the industrial sector and boost economic growth.
• Rural Employment Schemes (MGNREGA): The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantees 100 days of wage employment to rural households in India. This program provides a safety net for rural populations and offers employment opportunities in various development projects, thus reducing seasonal unemployment and distress migration from rural areas.
• Startup India: The Startup India initiative is designed to encourage entrepreneurship and support the growth of startups. By fostering innovation and providing financial incentives, regulatory support, and mentorship, this program aims to create jobs and stimulate economic growth through the startup ecosystem.
• Labour Reforms: The Indian government has undertaken labour law reforms to streamline and modernize the labour market. These reforms seek to make it easier for businesses to hire and create jobs by simplifying labor regulations, improving the ease of doing business, and reducing compliance burdens.

Key challenges that India faces in its efforts to combat unemployment

Population Growth

• India's large and rapidly growing population is a significant challenge when it comes to creating enough jobs. The workforce is expanding, and the economy needs to generate sufficient employment opportunities to absorb this growing labour force. Failure to do so can lead to rising unemployment rates and underemployment.

Skill Mismatch

• There often exists a gap between the skills possessed by job seekers and the skills demanded by employers. This mismatch can make it difficult for individuals to find suitable employment and can also hinder economic productivity. Bridging this gap through effective skill development and education is essential.

Informal Sector Dominance

• A significant portion of employment in India is in the informal sector, which lacks formal job security, and benefits, and often pays lower wages. The informal sector includes activities such as street vending, small-scale agriculture, and unregistered small businesses. Transitioning workers from the informal sector to the formal sector is a complex challenge.

Gender Disparities

• Gender-based disparities in employment persist in India. Women often face additional barriers to accessing jobs, including cultural norms, safety concerns, and limited opportunities for skill development. Addressing these disparities and promoting gender equality in the workforce is crucial for sustainable economic growth.

Lack of Infrastructure

• Inadequate infrastructure, particularly in rural areas, can hinder job creation and economic development. Lack of reliable transportation, access to basic amenities, and digital connectivity can limit the growth of industries and businesses in these regions, making it difficult to generate employment opportunities.

Steps to Address Unemployment Effectively

Invest in Education and Skill Development

• A well-educated and skilled workforce is crucial for addressing unemployment. Investing in education and skill development programs that align with industry needs can help reduce the skill gap and enhance the employability of job seekers. This can include vocational training, apprenticeship programs, and initiatives like the Skill India Mission.

Promote Entrepreneurship

• Entrepreneurship can be a powerful driver of job creation. Encouraging individuals to start their businesses and supporting the growth of small and medium-sized enterprises (SMEs) can lead to the creation of new jobs and reduce reliance on formal employment. Providing access to finance, mentorship, and a conducive regulatory environment for startups can foster entrepreneurship.

Labor Market Reforms

• Ongoing labour market reforms are essential to strike a balance between worker protection and the ease of doing business. Streamlining labour laws can make it easier for businesses to hire and expand, which can lead to job creation in the formal sector. Flexibility in labor regulations can encourage businesses to employ more workers.

Infrastructure Development

• Investing in infrastructure projects, particularly in rural and underserved areas, not only creates jobs directly in construction and maintenance but also stimulates economic growth in related industries. Improved infrastructure can attract businesses and investments, leading to sustained employment opportunities.

Gender Equality

• Promoting gender equality in the workforce is crucial. Policies and initiatives that empower women economically, provide equal access to education and employment opportunities, and address gender-based discrimination can help reduce gender disparities in employment and enhance overall economic productivity.

Diversification of the Economy

• Reducing dependence on specific sectors and diversifying the economy can make it more resilient to economic shocks. By promoting growth in a variety of industries, such as technology, manufacturing, services, and agriculture, India can create a more stable job market with diverse opportunities 

Conclusion

• Unemployment is a multifaceted challenge in India, and addressing it requires a comprehensive and sustained effort involving government policies, private sector participation, and societal awareness. By focusing on skill development, entrepreneurship, labour market reforms, and infrastructure development, India can work towards reducing unemployment and fostering inclusive growth.

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