Unemployment
“Unemployment is a situation in which individuals are ready & willing to work at the prevailing rate of wages but are not able to get work.”
NSSO defines unemployment as a situation in which all those, owing to lack of work, are not working but either seek work & express their willingness or availability for work under the prevailing condition of work and remuneration.
Labour Force: It consists of the people aged 15 and up to 64 years (working age population), who are employed and unemployed (people who don’t have jobs but are looking for work) and those who are in this age group but not looking for work (like students, housewives or even people who do not want to work).
People below 15 years and above 64 years are dependents and are not part of labour force or working age population.
The Labour force participation rate (LFPR) is calculated by dividing number of employed and unemployed people by total number of people in labour force.
LFPR = (Number of employed people + Number of unemployed people) / Total working age population (labour force)
Work Force: That part of the labour force which is employed.
Employment elasticity: Employment elasticity is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth.
The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process.
An employment elasticity of 1 implies that with every 1 percentage point growth in GDP, employment increases by 1%.
An employment elasticity of 1 denotes that employment grows at the same rate as economic growth.
Elasticity of 0 denotes that employment does not grow at all, regardless of economic growth.
Negative employment elasticity denotes that employment shrinks as the economy grows. This is crucial as it is commonly believed that economic growth alone will increase employment.
The negative employment elasticity in agriculture indicates movement of people out of agriculture to other sectors where wage rates are higher.
However, the negative employment elasticity in the manufacturing sector was a cause of concern particularly when the sector has shown positive growth in output.
Jobless growth means that the high growth in GDP did not accompany a similar growth in employment, resulting in a low Employment Elasticity.
For example, between 2004–05 to 2009–10, employment elasticity of India was as low as 0.01, which implies that with every 1 percentage point growth in GDP, employment increased by just one basis point.
Falling or low employment elasticity is partly the result of large-scale substitution of labour with capital and automation.
In India- the highest employment elasticity has been shown by the Construction and utilities sector (which includes energy, water and waste management). While the farm sector in India has shown negative employment elasticity. This simply indicates that growth in the farm sector is accompanied by reduction in farm employment as more and more people leave this sector and go out for jobs in the non-farm sector.
Employment Rate: Ratio of number employed people to (number of employed people + number of unemployed people)
Unemployment Rate: Ratio of the number of unemployed people to that of the number of employed people and number of unemployed people
Types of Unemployment
Voluntary Unemployment: One is classified as voluntary unemployed, if he or she is not employed and is not willing to join the workforce. It is mostly because people choose not to work below a certain income level after ‘investing’ in education. There has been a dramatic rise of voluntary unemployment across the country.
Structural Unemployment: This kind of unemployment happens when the structure of an economy changes. It essentially occurs because there exists a mismatch of skills between the skills of the unemployed and skills needed for the job.
E.g., when computers came, the people who worked on typewriters became unemployed.
Frictional Unemployment: This kind of unemployment occurs when a person leaves/loses a job and starts looking for another one. This search for a job may take a considerable amount of time resulting in frictional unemployment.
Seasonal Unemployment: This kind of unemployment is expected to occur at certain parts of the year. For example, the people at hill stations may experience seasonal unemployment during the winter months because less people will visit these areas during this time. Another case could be the seasonal unemployment in agriculture.
Cyclical Unemployment: It comes around due to the business cycle itself. It increases during periods of recession/slowdown and falls during periods of economic growth.
Underemployment: This term can be used in multiple connotations but one of the major usages is to showcase a situation where a person with high skills works in a low wage and low skills job.eg a Post graduate scholar working as a peon.
Disguised Unemployment: It occurs when people are employed in a job where their presence or absence does not make any difference to the output of the economy. It is a special kind of case. Here people are apparently employed but their marginal product is zero (contribution to production is nil). Marginal product here refers to the produce added to the existing production due to addition of a new employee/ worker.
E.g., if 4 persons are employed in a factory and they produce 17 units and a fifth person is added and the production increases to 19 units, the additional 2 units is marginal product. Here, we can consider the fifth person as employed. If there is no increase in production, the marginal product is zero and he is disguisedly unemployed. Even if he is removed from the activity, there will be no decline in production.
Such type of unemployment is quite common in the agricultural sector in India. Because of the large families in the rural areas several people work on farms and at times, the work of 2-3 people is done by 4-5 people because otherwise it would result in unemployment. But in reality, this is nothing but a case of disguised unemployment.
Open unemployment: This refers to a situation when there are some workers who have absolutely no work to do. They are willing to work at the prevailing wage rate, but they are forced to remain unemployed in the absence of work. These workers are completely idle. Such unemployment is clearly visible as the number of such persons can be clearly counted and therefore it is known as open unemployment.
Reasons for Unemployment
Consequences of Unemployment
1.Unrest in population–especially youth. The jat reservation stir in Haryana is a visible manifestation in violent form of the problem of unemployment. Similarly other locality dominant communities like patels in Gujarat, kapu community in Andhra Pradesh, Gujjar in Rajasthan are also demanding reservations in employment. It also increases crime. It also leads to moral degeneration as a person with empty stomach is likely to develop various types of moral vices like corruption gambling, crime etc.
Measuring Unemployment
Usual Status Approach
Weekly Status Approach
Daily Status Approach
Organized and Unorganized Sectors
Sectors of economy are majorly divided into three categories: primary, secondary and tertiary. Based on the employment conditions, these are further classified as organized and unorganized sectors.
Organized sector: The sector that is registered with the government is called an organized sector. In this sector, the employment terms are fixed and regular and employees have assured work. A number of acts apply to enterprises covered under the organized sector. This sector is governed by various acts such as Factories Act, Bonus Act, Provident Fund Act, Minimum Wages Act, etc. Usually, monthly salary is given.
Benefits of being in the organized formal sector
Unorganized sector
The sector that is not registered with the government and whose terms of employment are not fixed and regular is considered an unorganized sector. In this sector, no government rules and regulations are followed. The sector that comprises small-scale terms enterprises or units which are not registered with the government. It is not governed by any act. Here remuneration is mostly in daily wages.
Indian Context: Nearly 93% of the Indian workforce is in the unorganized sector and only 7% is in the organized sector. Almost all the workforce in the primary sector is part of the unorganized sector. The unorganized sector is not covered of any various laws and thus lacks bare minimum social security benefits such as pension, insurance, etc.
In India, unorganized(informal) employment constitutes a large share of employment and there is growth of informal employment in the organized sector as well (through contract labour). The informal employment within the organized sector increased from 48% in 2004–05 to 54.6% in 2011-12.
The informal employment’s share in total employment remained above 90% throughout this period.
The rate of employment growth in the organised sector has been the fastest, and its share in the total employment has risen from 8.9 per cent in 2004 to 14 per cent in 2017. The pace of growth of the unorganised sector has moderated since 2011, its overall share in the economy has gone up from 37.1 per cent in 2004 to 47.7 per cent in 2017.
Contractual employment: The organised sector in India is now preferring to employ workers without a contract. Indeed, between 2011 and 2017, this resulted in the organised sector coming to employ more people without a contract.
The presence of a contract makes all the difference when it comes to job security, minimum wages, equal pay for equal work, safe working conditions, etc. Without a contract, even a worker employed in the organised sector would not have any means of seeking recourse for any injustice.
Firms (organised or unorganised) preferring non-contractual employment is bad news for India’s bid to make the economy more formal. Firms are doing so to cut the extra costs that come with complying with inflexible and stringent labour laws.
The overall conclusion here is that the trend of ‘jobless growth’ that was till recently confined largely, if not only, to the organised sector has now spread to other sectors of the economy, making it more generalised.
This calls for a thorough re-examination of the missing linkages between growth and employment.
Employment Growth in India
If we see employment growth between 1989 and 2010, informal firms account for most employment growth and nearly all the increase in the number of establishments since 1989. Of the 10.5 million new manufacturing jobs created between 1989 and 2010, only 3.7 million – 35 percent were in the formal sector. This pattern is even starker when looking at growth in establishment counts: total establishment increased by 4.2 million from 1989 – 2013, but the formal sector accounted for 1.2 percent of this growth.
However, trends seem somewhat different after 2000: Informal sector establishment counts flatten as employment actually falls, while formal sector employment picks up. This might be related to the increasing use of contract labour.
Sixty years of planned development have been aimed at expansion of the economy through increase in national output and employment. During the period 1950–2010, Gross Domestic Product (GDP) of India grew positively and was higher than the employment growth. However, there was always fluctuation in the growth of GDP. During this period, employment grew at the rate of not more than 2 per cent.
In the late 1990s, employment growth started declining and the gap between the growth of GDP and employment further widened. This means that the Indian economy, without generating employment, was able to produce more goods and services. This phenomenon is known as jobless growth.
Approx. 51 % of India workers are self-employed with 54% in the rural areas and 41% in urban areas. The majority of the so called self-employed are in this category of self-employed not by choice but due to lack of employment opportunities. In fact a large number of poor belong to this category, who engage themselves in petty, part time occupations because industries and services are not able to absorb them & substantial numbers of rural self-employed people also resort to casual labor work in order to supplement their income.
Also, female employees both in rural and urban areas, receive less remuneration than their male counterparts doing similar jobs. There has been an increase in the number of casual labourer. They now constitute 30% of the workforce in the country.
93% of India’s total workforce is in the unorganized sector and this situation hasn’t changed over the last two decades. Unorganized workforce is denied the benefit of minimum wages, health care, due leaves and other benefits.
Thus, the overall employment scenario in a country is mixed after two decades of launching of the liberalization process.
Jobless Growth
It is an economic phenomenon in which a macroeconomic experiences growth while maintaining or decreasing its level of employment. India faced jobless growth from period 2004 -2005 to 2009-10. The robust growth witnessed by India, has been mostly associated with a rapid rise in labour productivity, rather than an expansion in employment. The total employment grew only by 0.1 per cent during 5 years till 2009-10 (from 457.9 million in 2004-05 to 458.4 million in 2009-10), while labour productivity grew by more than 34 per cent in total during this period.
Rather India has been facing jobless growth since economic reforms were brought in early 1990s. The mains reasons for this is,
1.GDP growth arising out of services sector and not from the labor-intensive agriculture and manufacturing sector.
4.Major reason for GDP growth is increase in profits of the firms and there has not been a proportionate increase in the salaries of the employees.
6.Archaic labour laws hinder investment in the manufacturing sector. These labour laws are 50-70 years old and were enacted to protect the interests of labourers.eg. Under Industrial Disputes Act, 1947, a firm which employs more than 100 regular workers, can’t fire a single employee without government permission. This permission generally doesn’t come because it will show the government in bad light (a government which encourages unemployment).
Hence firms keep the number of regular employees below 100 and for the other purposes, hires contractual workers. Moreover, it discourages FDI in manufacturing sector, as FDI would like to hire a large number of workers, but the above act, creates hurdles in the above. Hence FDI doesn’t come to India which results in less opportunities in job creation.
Self-Employment
As per ILO, Self-employed workers are those workers who, working on their own account or with one or a few partners or in cooperative, hold the type of jobs defined as a “self-employment jobs.” and, in this capacity, have engaged, on a continuous basis, one or more persons to work for them as employee(s).Self-employment jobs are the jobs where the remuneration is directly dependent upon the profits derived from the goods and services produced.
As per latest Periodic Labour Force Survey (PLFS) report, self-employment between 2009-10 to 2017-18 among,
In the urban areas, there is a decline in the percentage of self-employed or casual labour due increase in the percentage of people working on regular wage or salary.
Factors contributing to growth of self-employment in India
Issues related to self-employment in India
Gender pay gap is highest in the category of those who are self-employed, where in rural areas, male workers earn 2.67 times more than female workers, and in urban areas, a male worker earns three times what female workers earn.
According to a National Sample Survey Organisation report, 63 million enterprises in India have no registration, out of which 96% are run by individuals and most of them pay no GST as their volume of business is below Rs 20 lakh.
Casualization of Indian Workforce
The distribution of workforce in different status indicates that over the last four decades (1972-2012), people have moved from self-employment (mostly in agriculture) and regular salaries employment to casual wage work. Yet self-employment continues to be the major employment provider.
Scholars call the process of moving from self-employment and regular salaried employment to casual wage work as casualization of workforce. This makes the workers highly vulnerable.
In rural areas, self-employment is the major source of income for almost half of the households, followed by casual labour.
In urban areas, the proportion of households deriving major income from regular wage or salary earnings is the highest.
Overemphasis on services and neglect of the manufacturing are mainly responsible for this phenomenon. The number of people seeking jobs are growing in India and they need to be constructively engaged to avoid socioeconomic conflict and arrest the increasing informalisation in the economy.
Experts argue that the growth of manufacturing will be the key growth in income and employment for multiple reasons. For every job created in the manufacturing sector, three additional jobs are created in related activities. The other is that manufacturing in India is scalable and has higher labour absorption in comparison to services.
Following steps can be taken to develop and promote the ecosystem of self-employment in the country:
Unemployment Related Issues
India’s problem is not unemployment — this has bounced in the low and narrow range of 4-7 per cent for 50 years — but employed poverty.
Challenges
Solutions
Technology, Globalization and the Good Jobs Challenge
The definition of a good job depends on a country’s level of economic development. It is typically a stable formal-sector position that comes with core labour protections such as safe working conditions, collective bargaining rights, and regulations against arbitrary dismissal. It enables at least a middle-class lifestyle, by that country’s standards, with enough income for housing, food, transportation, education and other family expenses, as well as some savings.
Challenges to the creation of good jobs
Low-skilled labour force: Production is becoming increasingly skill-intensive while the bulk of the labour force remains low-skilled. This generates a gap between the types of jobs that are created and the types of workers the country has.
Technology and globalization have conspired to widen that gap, with manufacturing and services becoming increasingly automated and digitized.
Intensification of economic dualism: Every economy is divided between an advanced segment, typically globally integrated, employing a minority of the labour force, and a low-productivity segment that absorbs the bulk of the workforce, often at low wages and under poor conditions. The former one is often at the safer side.
Demographic change
Currently India is passing through an unprecedented phase of demographic change. The ongoing demographic changes are likely to contribute to an ever increasing labor force in the country. The census report shows that the proportion of the population in the working age group 15 to 59 years is likely to increase from approx. 58% in 2001 to 64% to 2021. It is estimated that by 2025 by India will have 25% of the world’s total workforce.
Currently India has the largest youth force in the world but beyond 2025 the number of the aged will begin to increase even more dramatically and consequently the window of opportunity is between now and 2025.
It is during this period that we will have to tap the demographic dividend. For this, India needs better education and skill providing programs and a much better labor ecosystem. A huge challenge is to train a large number of youth in the skills which are required by the industry.
The government has been attempting to improve basic education through a number of measures, but vocational education and imparting skills remain a critical area of concern.
Skills led employment is the most sustainable employment generation strategy to address the needs of the technology driven employment market in the coming years.
Skill development needs of the following three categories of persons should be looked into:-
1.existing workforce rendered unemployed due to technological obsolescence.
2.Sectoral migrant workers from agriculture to industry to service.
3.Informal sector workers whose quality & productivity needs to be enhanced in order to enhance the employability and income. Both software and hardware facilities, adequate number of trainers and lifelong opportunities need to be given. The fact that only 2% of India’s labour force is skilled and 96% of Norway’s workforce is skilled is a matter of concern. There’s a massive scope for India to transform its vast manpower force to a skilled and globally competitive workforce and emerge as a global leader in this space.
Periodic Labour Force Survey
It was launched in April 2017 by the Ministry of Statistics & Programme Implementation.
It was launched as a new regular employment-unemployment survey with certain changes in survey methodology, data collection mechanism and sampling design vis-à-vis the earlier quinquennial (once in every five years) Employment and Unemployment surveys of NSSO.
Now, NSO conducts PLFS annually, while for urban areas it is done quarterly also. It has been launched with an objective of measuring quarterly changes of various labour market statistical indicators in urban areas as well as generating annual estimates of these indicators both for rural and urban areas, which can be used for policy making. It would supply data not only about the formal sector, but also about the informal sector.
The PLFS is designed to generate the indicators of labour market operations using two approaches:
Usual Status (US) approach: This approach records only those persons as unemployed who had no gainful work for a major time during the 365 days preceding the date of survey and are seeking or are available for work. Thus, the estimates of unemployment obtained on the basis of usual status approach are expected to capture long-term open unemployment.
Current Weekly Status (CWS) approach: In this approach current activity status relating to the week preceding the date of survey is recorded. Those persons are classified as unemployed who did not have gainful work for even an hour on any day in the preceding week and were seeking or were available for work. Thus, a weekly status approach would capture not only open chronic unemployment but also seasonal unemployment. In this survey, the Computer Assisted Personal Interviewing (CAPI) Method has been adopted with field operators using tablets to enter the data. This would generate more accurate and timely information.
The first Annual Report (July 2017- June 2018) covering both rural and urban areas giving estimates of all important parameters of employment and unemployment in both usual status and current weekly status was released in May 2019. PLFS 2020 is the second Annual Report being brought out by NSO on the basis of the Periodic Labour Force Survey conducted during July 2018-June 2019.
As per the PLFS 2018-2019, unemployment rate is 5.8% and LFPR is 37.5%. Male unemployment is 6% and female unemployment is 5.2%. Urban unemployment is 7.7% while rural unemployment is 5%. 22% of women in India above 15 were part of the labour force, as against 71.2% men between July 2017 and June 2018. Youth in the age bracket of 15-29 years and educated persons have unemployment rate in the double digits with 17.3 per cent and 11 per cent respectively. The worst affected are urban youths with 20.7 per cent unemployment and among urban females it is 25.7 per cent.
Oxfam Report and CMIE Report
Oxfam, an international non-profit organisation has released its report Mind the Gap – State of Employment in India.
The report has based its estimates on employment unemployment survey (EUS) 2011-12, done by the National Sample Survey Organisation (NSSO), International Labour Organization (ILO) studies and also builds on the first inequality report launched by Oxfam in 2018.
General
92 per cent of women and 82 per cent of men were earning a monthly wage less than ₹10,000, far below the 7th Central Pay Commission’s recommendation of minimum salary of ₹18,000 a month. The formal social security system in India is accessible to only a small percentage of workers and this access is extremely inequitable across sex, social group, religion, and economic class.
There has been an increasing informalisation in formal manufacturing through the rise of contractual labour and increasing wage differences between regular workers and contractual workers.
Job generation was adversely impacted after demonetisation and hit the women workforce the most. Women were forced to move out of the labour force to make way for men to get the few jobs that were available.
Gender Inequities
Women’s labour force participation in India is one of the lowest in the world and women’s unpaid care work and household work is not even categorised or counted as work. As per the NSSO, the female labour force participation rate (FLFPR) is 20.5 Three in four Indian women do not work in the country.
If women’s unpaid care and household work is included in the NSSO’s definition of work, then the FLFPR would rise from 20.5% to 81.7%, which would surpass that of men. Women’s participation is lowest among BRICS nations and India is only better than Saudi Arabia, among G20 countries.
Irrespective of employment category (casual and regular/salaried), organised or unorganised sector, and location (urban and rural), women workers in India are paid a lower wage rate. The gender pay gap was 34 % in India, that is, women get 34 per cent less compared to men for performing.
Further, the wage difference is lesser for more skilled workers and more for semi-skilled or unskilled workers.
While inequality in jobs has increased, inequality in education has decreased between boys and girls. But this situation further exacerbates the crisis in jobs when it comes to women. Even as girls frequently outperform boys in school examinations, they are not finding suitable jobs for the skills that they have.
Factors underlying the weak situation of women in the work force include a decline in rural jobs, transforming urban areas, the burden of unpaid care work and the stubborn presence of regressive social practices.
Agriculture
The report also talks about the feminisation of agriculture and why it should not be celebrated. While both men and women are diversifying out of agriculture, almost 75 % of rural women are still engaged in it. Within agriculture, women are relegated to low-wage roles such as weeding, threshing and paddy transplantation.
A patriarchal ideology and local socio-cultural traditions confine women to the village where agriculture continues to be their most important (but insufficient) source of food and income. Male out migration has also pushed women into taking on more responsibility of cultivation and to perform wage labour to ensure households’ daily survival
Caste and Religion
Caste-determined occupations continue to be rigid in rural and urban India. Scheduled caste women are seen concentrated in the construction sector and in waste collection jobs whereas non-scheduled caste women are more likely to work in health or education. Discrimination also exists in terms of market participation; milk produced by dalit families, for instance, fetches a lower price.
There is no major divergence in urban FLFPR in terms of religion; it is similar in terms of caste but occupational segregation exists with muslim women concentrated in household manufacturing
Way Ahead
It is important to shift development focus towards labour-intensive sectors to create more jobs, along with substantially higher investments in health and education to improve productivity, as these sectors could be large employment generators in the future
CMIE Report on Joblessness
The Centre for Monitoring Indian Economy (CMIE) has released a report on Unemployment in India.
India’s unemployment rate in October rose to 8.5%, the highest level since August 2016.Urban unemployment rate at 8.9%, is more than the rural unemployment rate of 8.3%. Highest unemployment rate in Tripura and Haryana, at more than 20%. Lowest in Tamil Nadu at 1.1%.
CMIE findings are in line with the findings of the latest Periodic Labour Force Survey, which had estimated an unemployment rate of 6.1% between July 2017 and June 2018, the worst in 45 years.
Another research estimates that between 2011-12 and 2017-18, employment declined by an unprecedented nine million jobs (a 2% drop), with agricultural employment declining by 11.5%. In the same period, employment in the service sector increased by 13.4%, while manufacturing employment dipped by 5.7%.
While employment has been declining, the number of working age people who are “Not in Labour Force, Education and Training” has continued to increase — from about 84 million in 2011-12, it has now crossed 100 million.
Most of the decline in employment has happened due to the fall in the number of workers in agriculture and a sharp fall in the absolute number of female workers.
Stagnant wages and jobless growth are not just indicators of a weakening economy, but also a recipe for political instability. The least that is expected of the government is an acknowledgement of the extent of the problem and then try to address it.
To sustain the growth of income, employment opportunities in manufacturing and construction (although a transitory sector) is necessary.
India Skills Report 2020
It is a joint initiative of Wheebox (a global talent-assessment company), People Strong and Confederation of Indian Industry (CII) in collaboration with UNDP, AICTE and Association of Indian Universities.
India Skills Report 2020 aims to provide an overview of the supply of talent and the demand from industry.
The report brings together the readiness of our present talent pool for new-age jobs or job types and the skills that employers are today seeking in prospective employees.
Skilling in India: Status
According to NSSO Report 2011-12, India’s formally trained workforce stand at merely 2.3% in comparison to economies like South Korea which are at a mammoth share of 96%.
According to Periodic Labour Force Survey (PLFS) 2017-18, only 1.8% of the population reported receiving formal vocational/technical training. 5.6% reported receiving informal vocational training (such as hereditary, self-learning, and on the job training). The bulk of the trainees were in the fields of electronics, IT/ ITeS sector, apparels, and mechanical engineering.
Moreover, around 33% of the formally trained youth was unemployed in 2017-18. Nearly a third of trained young men and more than a third of trained young women were unemployed.
Key Findings of India Skills Report
Employability of India’s youth has remained stagnant for the past three years, lingering at 46.21% of participants who are job-ready.
Female employability witnessed an upward trend at 47% while that of male workforce declined from 47.39% in 2019 to 46% this year. This reflects the opportunity for the industries to leverage female resource pool.
It also indicates the rising share of gig workers in the economy .
Top 5 skills that Employers emphasize on are domain knowledge, adaptability to the environment, learning agility, positive attitude and interpersonal skills.
Only 60% of students were aware of the National Apprenticeship Promotion Scheme (NAPS).
About 50% of employers acknowledge the role of government-initiated programmes in recruitments, of which almost 9 in 10 employers admit that candidates meet their requirements.
