Date : 08/09/2023

Relevance: GS Paper 3 - Economy- Unemployment

Keywords: ILO, Current Weekly Status (CWS), Usual Principal and Subsidiary Status (UPSS), Periodic Labour Force Survey (PLFS), COVID-19

Context-

• Unemployment is a critical issue that can greatly impact any government's performance. To effectively address it, it is crucial to comprehend how unemployment is defined and measured, particularly in developing economies like India.

Defining Unemployment

• Unemployment is not synonymous with joblessness. The International Labour Organization (ILO) defines unemployment as an individual being out of a job, available to take a job, and actively engaged in searching for work. It encompasses three key criteria:

1. Out of a Job: An individual must lack formal employment.
2. Available for Work: They should be willing and able to take on employment.
3. Actively Job-Hunting: Unemployment is further characterized by active efforts to seek new job opportunities.

This definition excludes individuals who have lost employment but do not actively seek new opportunities.

Measuring Unemployment

It entails several crucial metrics:

1. Labor Force: This comprises individuals who are either employed or unemployed within an economy.
2. Out of the Labor Force: Those neither employed nor actively seeking employment, such as students or individuals engaged in unpaid domestic work, fall into this category.
3. Unemployment Rate: It is calculated as the ratio of the number of unemployed individuals to the labor force. This rate can fluctuate based on factors like job availability and individuals' job-seeking behavior.

Measuring Unemployment in India

• Comparing U.S. and Indian Contexts: While the U.S. and India both measure unemployment rates, their economic structures and methods differ significantly. The U.S. is more industrialized, whereas India possesses a substantial informal sector, making the methods used for measuring unemployment distinct.
• In developing economies like India, social norms can restrict individuals' decisions to seek employment, complicating unemployment measurement. A survey by the National Sample Survey Organisation (NSSO) in 2009-10 revealed that a significant proportion of women engaged in domestic work expressed a willingness to work if opportunities were available within their households. However, these women are not considered unemployed as they are not actively job-hunting. This highlights the limitations of a definition focused on active job-seeking in capturing the true unemployment situation in developing economies.
• In India, informal employment is widespread, and individuals often engage in various economic activities throughout the year. This fluidity challenges unemployment measurement. For instance, an individual may be unemployed one week but employed in casual labor the following month, and as a farmer for most of the year. The question arises: Should they be classified as unemployed?

Measurement Frameworks in India

• India uses two major measures for classifying individuals' working statuses: Usual Principal and Subsidiary Status (UPSS) and Current Weekly Status (CWS).
• Usual Principal and Subsidiary Status (UPSS): An individual's principal employment status is determined by their primary economic activity in the previous year. However, those with subsidiary roles may still be classified as employed if they engaged in economic activities for at least 30 days.
• Example: An individual who was unemployed for five months but worked as a casual laborer for seven months in the previous year would be considered employed according to UPSS.
• Current Weekly Status (CWS): CWS adopts a shorter reference period, focusing on an individual's employment status during the preceding week. This shorter timeframe may result in higher unemployment rates compared to UPSS.
• Example: An individual is considered employed in CWS if they worked for at least one hour on at least one day during the seven days preceding the survey.
• Current Daily Status Unemployment is another method to measure unemployment but it is used rarely in India.
• Some other indicators are also used for Unemployment measurements like PLFS ( periodic labour force survey), LFPR (labour force participation rate), and WPR (worker population ratio).

Challenges in Unemployment Measurement

Unemployment measurement faces inherent challenges, especially in agrarian economies like India:

• Informal Economy Complexity: The prevalence of informal employment in India means that individuals often shift between unemployment and employment, posing measurement challenges.
• Example: The informal nature of employment in rural areas may lead to lower unemployment rates compared to urban areas due to greater opportunities for sporadic work.
• Trade-Offs in Measurement: Measurement frameworks in developing economies, like India, require a trade-off. Longer reference periods may yield lower unemployment rates, while shorter periods may result in higher rates.
• Example: A shorter reference period, such as the one-week timeframe in CWS, can capture fluctuations in unemployment rates but may not represent the broader employment picture accurately.

Impact of Lockdown

The COVID-19 lockdown in India posed a unique challenge to unemployment measurement. While the lockdown's economic disruption was not immediately reflected in the Periodic Labour Force Survey (PLFS) unemployment rates, the longer-term effects were seen in subsequent surveys. Individuals who lost jobs during the lockdown may not be classified as unemployed if they found employment within six months, further complicating the measurement.

Causes of Unemployment

The major causes of unemployment in India are as mentioned below:

• Large population.
• Lack of vocational skills or low educational levels of the working population.
• Labor-intensive sectors suffering from the slowdown in private investment particularly after demonetization
• The low productivity in the agriculture sector plus the lack of alternative opportunities for agricultural workers makes transition among the three sectors difficult.
• Legal complexities, Inadequate state support, and low infrastructural, financial, and market linkages to small businesses make such enterprises unviable with cost and compliance overruns.
• Inadequate growth of infrastructure and low investments in the manufacturing sector, hence restricting the employment potential of the secondary sector.
• The huge workforce of the country is associated with the informal sector because of a lack of required education or skills, and this data is not captured in employment statistics.
• The main cause of structural unemployment is the education provided in schools and colleges is not as per the current requirements of the industries.
• Regressive social norms that deter women from taking/continuing employment.

Impact Of Unemployment

Unemployment in any nation has the following effects on the economy:

• The problem of unemployment gives rise to the problem of poverty.
• The government suffers an extra borrowing burden because unemployment causes a decrease in production and less consumption of goods and services by the people.
• Unemployed persons can easily be enticed by antisocial elements. This makes them lose faith in the democratic values of the country.
• People unemployed for a long time may indulge in illegal and wrong activities for earning money which increases crime in the country.
• Unemployment affects the economy of the country as the workforce that could have been gainfully employed to generate resources actually gets dependent on the remaining working population, thus escalating socio-economic costs for the state. For instance, a 1 % increase in unemployment reduces the GDP by 2 %.
• It is often seen that unemployed people end up getting addicted to drugs and alcohol or attempting suicide, leading to losses to the human resources of the country.

Way Forward

• Promoting Labor-Intensive Industries: To boost job creation, tailored packages for labor-intensive sectors like food processing, leather and footwear, wood manufacturing, textiles, and apparel are essential.
• Decentralization of Industries: Encouraging the dispersion of industrial activities across regions is vital to providing employment opportunities in every area. This approach can also reduce rural-to-urban migration pressures.
• Entrepreneurship Promotion: Fostering entrepreneurship, especially among the youth, is crucial as entrepreneurs play a significant role in job generation.
• Women's Labor Force Participation: Implementing measures to break down social barriers and ensure women's entry and continuous participation in the job market is essential.
• Skilled Workforce Development: Monitoring and enhancing the education system to produce a skilled labor force is imperative.
• Effective Program Implementation: Ensuring the effective implementation of existing initiatives such as Make in India, Skill India, Start-up, and Stand-Up India is vital for job creation.
• National Employment Policy (NEP): Developing a comprehensive National Employment Policy (NEP) is necessary, encompassing multidimensional interventions that address various social and economic issues beyond labor and employment domains.

Conclusion

Unemployment is a significant factor in political and economic contexts, particularly in developing economies like India. Understanding the complexities of unemployment measurement is essential for effective policymaking and addressing the challenges faced by the labor force.

Source- The Hindu