Unemployment

Topic: Employment, Unemployment and Informalisation · NCERT: Class 11, Ch 6 "Employment: Growth, Informalisation and Other Issues"; Class 11, Ch 1 "Introduction (Statistics for Economics)"; Class 11, Ch 2 "Collection of Data"

Meaning

Unemployment (NSO definition) means a person is not working because no work is available, and at the same time is either seeking work or available for work at the usual wage and conditions in the area. Economists also give a stricter test: a person is unemployed if they cannot get even one hour of work in half a day.

It matters because it shows how many people who want to work cannot find a job. It also shows how well the economy turns growth into jobs.

Formula:

• Unemployment Rate (UR) = Unemployed ÷ Labour force × 100
• Labour force = Employed + Unemployed

Explanation

Who counts as unemployed

• All the conditions must hold:
• the person is not working;
• the reason is lack of work, not their own choice;

• they are seeking work (through employment exchanges, middlemen, friends or relatives, or by applying to employers) or are available for work at the prevailing conditions and pay.

• Who is NOT unemployed: a student, a homemaker, a retired person, or anyone who does not want a job. They are outside the labour force, so they are not counted in the UR at all.

• Labour force means everyone who is working plus everyone who is seeking or available for work.

How it is measured: three ratios and two time windows

• LFPR (Labour Force Participation Rate): % of the population that is in the labour force [2].
• WPR (Worker Population Ratio): % of the population that is employed [2].
• UR (Unemployment Rate): % of the labour force that is unemployed [2].
• Worked example:
• A village has 1,000 people aged 15+. 580 work, 20 are seeking work, and 400 are students, homemakers or retired people.
• Labour force = 580 + 20 = 600, so LFPR = 600/1000 = 60%.
• WPR = 580/1000 = 58%.
• UR = 20/600 = 3.3%.

• Trap: the denominator is the labour force (600), not the whole population (1,000).

• Usual Status (ps+ss): reference period of the last 365 days [2].

• Principal status (ps): the activity the person spent the most time on during the year.
• Subsidiary status (ss): an extra economic activity done for 30 days or more in the year.

• A person who was unemployed for most of the year but worked 30+ days on the side is counted as employed.

• Current Weekly Status (CWS): reference period of the last 7 days [2].

• CWS UR is higher than usual-status UR. The 7-day window catches short spells without work that the 365-day window hides.

Types of unemployment

• Open unemployment: visible. The person has no work at all and is clearly looking for it.
• Examples: reading job advertisements, waiting at labour chowks (labour points), registering at employment exchanges.

• It is mostly an urban and educated problem.

• Disguised unemployment: more people work on a task than the task needs.

• The marginal product (the extra output from one more worker) of the extra workers is zero, so removing them does not reduce output.
• It is hidden, because everyone looks busy. It is common on family farms.
• Example: 3 workers on 4 acres produce 60 quintals. With 4, 5 or 6 workers, output is still 60 quintals. So workers 4, 5 and 6 are disguisedly unemployed.

• A late-1950s study found about one-third of farm workers were disguisedly unemployed.

• Seasonal unemployment: farm work stops for part of the year, mostly between harvest and the next sowing.

• Lean season → villagers migrate to towns for work.

• Rains begin → sowing brings farm work again → they return home.

• Educated unemployment: unemployment among people with secondary or higher education.

• Skill mismatch: what colleges teach does not match what employers need [4].

• Queuing: educated people wait for scarce regular or government jobs instead of taking informal work.

• Youth unemployment: unemployment in the 15-29 age group in Indian surveys. The international (UN/ILO) convention uses 15-24.

What makes it rise or fall

• Poverty keeps open UR low. The poor "cannot remain completely unemployed for very long".
• They have no savings and no unemployment allowance.
• So they take any work, even unpleasant, unclean or dangerous jobs.

• Result: open UR stays low, but job quality is poor.

• Education raises UR. Families who can afford it support educated youth while they wait for a good job.

• Shocks move hidden unemployment around.
• Lockdown → urban informal jobs lost → migrants go back to their villages.
• Back home → they join family farms → disguised unemployment rises.
• In the data → UR looks lower, but job quality falls [4].

In India

• Who measures it: the Periodic Labour Force Survey (PLFS), run by the National Sample Survey Office (NSSO) under MoSPI. It was launched in April 2017 [2].

• PLFS 2023-24 covered July 2023 to June 2024. It surveyed 1,01,920 households and 3,19,773 persons aged 15 years and above [2].

• Latest figures (PLFS 2023-24, age 15+) [2]:

Indicator	2017-18	2023-24
UR, usual status (ps+ss)	6.0%	3.2%
UR ps+ss, rural / urban	5.3% / 7.7%	2.5% / 5.1%
UR ps+ss, urban female	10.8%	7.1%
UR, CWS	8.7%	4.9%
LFPR ps+ss	49.8%	60.1%
LFPR ps+ss, female	23.3%	41.7%
WPR ps+ss	46.8%	58.2%

• Urban UR is roughly double rural UR. In villages, people fall back on family farms, so their unemployment is hidden as disguised unemployment.
• Seasonal effect in the data: rural CWS UR (4.2%) is higher than rural ps+ss UR (2.5%) in 2023-24, because CWS can catch a person in an idle week [2].
• Youth (15-29): youth UR was 10.2% in PLFS 2023-24 [3]. The government says this is lower than global levels [3].
• Long-run trend: youth UR rose nearly threefold, from 5.7% (2000) to 17.5% (2019). It then fell to 12.1% (2022) and to about 10% (2023) [4][5].

• Youth UR is higher in urban areas, and among 15-19 year-olds than among 20-29 year-olds [4].

• UR rises with education: in 2022, youth UR was 29.1% for graduates, 18.4% for those with secondary or higher education, and only 3.4% for youths who cannot read and write [4]. Graduate youth UR was about nine times the rate for illiterate youth [4]. Educated young women face higher UR than educated young men [4].

• NEET (Not in Employment, Education or Training): about one in three Indian youths was NEET in 2022. The rate was 48.4% for young women against 9.8% for young men [4], and women were about 95% of all NEET youth [4].
• Low UR, poor jobs: UR was only 3.2% in 2023-24 [2]. Yet nearly 82% of the workforce is in the informal sector, and nearly 90% is informally employed (no written contract and no social security) [4].
• COVID reverse migration (2020): migrants went back to their villages on a huge scale. MGNREGA (a legal guarantee of 100 days of wage work a year to rural households) acted as a cushion. The move of workers out of farming slowed and then reversed in 2019-22 [4].

Don't confuse with

• Underemployment: the person has work, but less work, or poorer work, than they could do. Victor (Class 11) works 2 hours a day. Under CWS he counts as employed, not unemployed, but he is really underemployed.
• Disguised unemployment: these people look employed, because they work on the family farm, but their marginal product is zero. Open unemployment is visible, because the person has no work at all.
• Not in the labour force: students, homemakers and people who do not want a job are not unemployed. They are left out of both the top and the bottom of the UR formula.
• Usual status vs CWS UR: usual status looks back 365 days and gives a lower UR (3.2%). CWS looks back 7 days and gives a higher UR (4.9%) (both 2023-24) [2].

Prelims Hooks

• UR = Unemployed ÷ Labour force × 100. The denominator is the labour force, not the total population [2].
• Usual status (ps+ss) covers the last 365 days. Subsidiary status needs 30 days or more of economic activity. CWS covers the last 7 days [2].
• PLFS was launched by NSSO (MoSPI) in April 2017. In 2023-24, UR (age 15+) was 3.2% (ps+ss) and 4.9% (CWS), down from 6.0% and 8.7% in 2017-18 [2].
• Youth (15-29) UR was 10.2% in PLFS 2023-24 [3].
• Disguised unemployment: the marginal product of the extra workers is zero, so removing them does not reduce output.
• Trap: the India Employment Report 2024 was published by the ILO with the Institute for Human Development (IHD), not by the Government of India [4][5].

Mains Points

• Low UR does not mean good jobs.
• UR was 3.2% in 2023-24 [2], but about 90% of employment is informal [4].
• The poor cannot afford to stay unemployed, so their unemployment shows up as disguised unemployment and underemployment instead.

• Policy should track job quality (wages, contracts, social security) together with UR, not UR alone.

• Education-employment mismatch.

• Graduate youth UR was 29.1% in 2022, and about one in three youths was NEET, mostly women [4].

• Remedies: vocational training and apprenticeships, labour-intensive manufacturing, and more jobs suited to women to raise female LFPR.

• Stalled structural change and weak safety nets.

• The shift of workers out of farming reversed in 2019-22, because people went back to subsistence farming when non-farm jobs were scarce [4].
• The 2020 reverse migration showed that circular migrants have little social protection. MGNREGA worked as a buffer.
• This links to labour-intensive industry (the Lewis-model route), portable benefits for migrants, and urban employment schemes (GS-II and GS-III).

Related concepts

• Open unemployment
• Disguised unemployment
• Underemployment
• Seasonal unemployment
• Educated unemployment
• Youth unemployment
• Rural-urban migration
• Circular migration
• Distress migration
• Reverse migration

Read more

• Unemployment in India: definitions, forms and migration