Unemployment in India

This is a guest blog by Swati.

Understanding Unemployment

Unemployment is a phenomenon which indicates the people who are willing and able to work but are not getting work. In India the age bracket for the surveys is taken as 16-64 years.  Unemployment rate is defined as a percentage of the number of unemployed to the total labor force. Labor force includes people who are working (or employed) and people who are available or seek to work (or unemployed). Major causes of unemployment are –

•Frictional unemployment occurs when people switch between jobs in the hope of getting a better one.

•Structural unemployment occurs due to the mismatch between the available skills with the people and those required by the employers.

•Disguised unemployment occurs when marginal productivity of some workers is zero i.e. they are not adding any value to the work done. This is phenomenon prevails maximum in the agriculture sector.

•Seasonal unemployment occurs due to seasonal nature of work. This is very common in the agriculture sector-sowing and harvesting season; in tourism sector-peaks in summer and Diwali holidays.

•Cyclical unemployment occurs when the economy goes through a contraction or slow down.

Other Relevant Terms

  • Underemployment is quite similar to unemployment. It can be of the following types:
    • Disguised unemployment or over-staffing. This happens when a person is not unemployed but his/her full work potential is not used. The biggest problem area is the agriculture sector which employs 47% of the population and contributes a mere 17% to the GDP.
    • Over-qualification is also a form of underemployment. Examples are engineers driving taxis and taking up peon jobs.
    • Involuntary part time work being performed by a worker who is willing to work full time is also underemployment. This happens because of low economic activity, lack of child care, public transport and so on.
  • Jobless Growth: In India we are witnessing the phenomenon of ‘jobless growth’. The reasons are given under “Major Reasons for Unemployment’ below.

Recent News

A leaked NSSO report has marked unemployment rate at 6.1% for the FY18 which is the highest in 45 years. This is the first major report about unemployment since demonetization. The report states that the male workforce participation rate in urban areas has decreased from 89.15% to 84.92% in the 2012-18 period. Similarly, the female workforce participation rate in rural areas has decreased from 93.92% to 64.80% in the same time period.

Modi government had withheld this report and states that it is incorrect. (https://www.ndtv.com/business/arun-jaitley-junks-unverified-employment-report-jobs-dipping-amid-7-5-growth-1987089).

Modi’s Arguments Against Data Being Incorrect

Jaitley, speaking on the subject stated that the report is incorrect because the World Bank & IMF accept India’s GDP growth at 7.5%. Other reasons quoted by the government to not accept the report are:

  • There would have been great social unrest if this was true.
  • High tax collections in 2016-17 and 2017-18 indicated high growth.
  • Jaitley spoke against the 108 economists who alleged political interference in economic data by the government and said, “compulsive contrarians can hardly be objective”. He called it a fake campaign. (https://www.thehindubusinessline.com/economy/jaitley-slams-108-economists-for-doubting-govts-economic-data/article26582545.ece).
  • Jaitley said that the World Bank & IMF have accepted Indian data on growth.
  • Jaitley said that the EPFO data corresponds with government’s views on the subject.
  • Jaitley also said, “This is corroborated by a study by Mohandas Pai, which calculated that 1.08 crore jobs have been created in just three professions – CAs, lawyers and doctors in 2017,”.

Reasons to Support that NSSO Report is Correct

The report is widely believed to be correct. The reasons are as follows:

  • Demonetization lowered the GDP by 1.5 to 2%. It caused losses of jobs and shut downs of numerous small industries and ruined a large amount of the informal sector. I am not quoting any evidence because you can find evidence through people involved in such jobs all around you.
  • Make in India and ‘Mudra loan’ schemes are, like most Modi schemes more propaganda than substance. These have failed.
  • Suppressing the uncomfortable truth and replacing it with false propaganda is Modi’s customary method to remain in power. As usual he has taken the argument that the people who support this truth are anti- Modi government without offering any serious rational arguments because there are none.

Major Reasons for Unemployment

  • Population growth is approximately 2% in India and investment is not keeping pace with it hence unemployment problem is and will remain a major issue in the next 10-20 years as well.
  • Capital intensive industries have lower cost of production vis-à-vis labour intensive ones. Formal Indian corporate has to shift to capital intensive methods and labour intensive industries will keep closing down in keeping with the market forces. Low cost of capital globally over a large number of years since 2008 has made the shift towards capital intensive work attractive. This is an irreversible and all pervasive trend.
  • Inequitable distribution of land, small land holdings and landless labourers have caused numerous people to be at the mercy of rain and market forces. They often remain unemployed or under employed.
  • Reforms are required in labour laws. With the existing socialistic laws corporate prefers to contract work force rather than employ them.
  • Poor infrastructure has kept the rate of employment generation low.

( Please read: http://www.economicsdiscussion.net/unemployment/causes/top-6-causes-of-unemployment-in-india/10407).

Major Setbacks to Economy and Employment by Modi

Solutions to Unemployment Problem

• Agriculture activities should be supplemented with forestry, dairy, animal husbandry so that these serve as income source in lean seasons. Plantation, horticulture, multiple cropping etc. can be encouraged. Agro-based industries like food processing industries can be set up in rural areas. MSME sector which demands low skills can be a solution to disguised unemployment.

• Government policies, infrastructure, company rules and funding availability should be conducive to growth of entrepreneurs.

• Labor intensive industries like leather, apparels, wood etc. should be promoted. The stupid cow politics should be ended.

• Education system should be reformed and apprenticeship programs should be promoted to minimize the mismatch between skills being imparted to the students and demands of the industry.

• People should be made aware of family planning to curb increasing population.

• Government should fill vacancies in government jobs.

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