Rising unemployment Paper 3 "EMPOWER IAS"

 

Context

• India’s unemployment rate in August was 8.3 per cent. This was higher than the 7 per cent recorded in July. The month-to-month variations notwithstanding, these are all very high unemployment rates.

 

What is Unemployment?

• Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequent measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labor force.

 

Types of Unemployment in India

• Disguised Unemployment: It is a phenomenon wherein more people are employed than actually needed. It is primarily traced in the agricultural and the unorganised sectors of India.
• Seasonal Unemployment: It is an unemployment that occurs during certain seasons of the year. Agricultural labourers in India rarely have work throughout the year.
• Structural Unemployment: It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market. Many people in India do not get job due to lack of requisite skills and due to poor education level, it becomes difficult to train them.
• Cyclical Unemployment: It is result of the business cycle, where unemployment rises during recessions and declines with economic growth. Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies. Technological Unemployment: It is loss of jobs due to changes in technology. In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year-on-year.
• Frictional Unemployment: The Frictional Unemployment also called as Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs. In other words, an employee requires time for searching a new job or shifting from the existing to a new job, this inevitable time delay causes the frictional unemployment. It is often considered as a voluntary unemployment because it is not caused due to the shortage of job, but in fact, the workers themselves quit their jobs in search of better opportunities.
• Vulnerable Employment: This means, people working informally, without proper job contracts and thus sans any legal protection. These persons are deemed ‘unemployed’ since records of their work are never maintained. It is one of the main types of unemployment in India.

 

Why inflation gets more attention in India than unemployment?

• Periodic Labour Force Survey (PLFS) results showed the historically high unemployment rate of 6.1 per cent for 2017-18 (July to June). It was at a 45-year high.
• New norm at 7-8 per cent: Till then, India was used to recording an unemployment rate of around 3 per cent. 
• Today, an unemployment rate of 7-8 per cent seems to be the norm and such levels do not seem to matter.
• The unemployment rate is not the most important labour market indicator for a country like India.
• Why inflation gets preference: Between inflation and unemployment, the two economic indicators conjoined theoretically by the Phillips curve, it is inflation that wields political power.
• Inflation hurts almost the entire population.
• Equally importantly, high inflation rates can upset financial markets that in turn exert pressure on regulators to keep inflation in control.
• Unemployment directly impacts only the unemployed, who don’t count much.
• Worse still, society perceives being unemployed as an individual shortcoming, and not an outcome of a macroeconomic malaise.

What does low labour force participation rate (LFPR) indicate about the labour market in India?

• The unemployment rate is a measure of the economy’s inability to provide jobs only for those who seek work.
• But, in India, very often people do not look for jobs in the belief that none are available which is reflected in a low labour force participation rate (LFPR).
• India’s LFPR is at around 40 per cent when the global rate is close to 60 per cent.
• It is important that this belief in the futility of a job hunt is overcome by an explosive creation of new good quality formal jobs.

Why employment rate is a useful indicator for India

• A useful labour market metric for a country like India is the employment rate.
• This measures the proportion of the population over 14 years of age that is employed.
• The definition of employment needs to be changed, at present, engaging in some economic activity for just one hour in any of the past seven days is counted as employment.
• India’s record in providing employment to its people has been abysmally poor.
• CMIE’s definition of employment indicates that in 2016-17, only 42.8 per cent of the working-age population was employed.
• In the year of the pandemic, it fell to 36.5 per cent.

Reverse migration in employment from manufacturing to low productivity employment

• People are moving away from factories as manufacturing jobs shrink, to farms that provide shelter largely in the form of disguised unemployment.
• It cannot be the desire of a nation to move people away from high productivity, better quality jobs in manufacturing to low productivity employment in agriculture or as gardeners or security guards in the household sector.
• Employment opportunities need to expand in areas where labour is deployed to deliver higher productivity for enterprise and higher returns to labour.

Way forward

• Increase investment: A large part of the solution to this lack of adequate jobs is in increasing investments.
• Focus on demand size: For this, the investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.