Introduction & Overview
What is Unemployment?
Unemployment is a critical socio-economic issue referring to a situation where individuals who are able and willing to work at the prevailing wage rate cannot find gainful employment. It represents a significant loss of potential output, contributes to poverty and inequality, and can lead to social unrest.
For India, with its large and youthful population, tackling unemployment is paramount for leveraging its demographic dividend and achieving inclusive, sustainable development. Understanding its various facets, causes, consequences, and policy responses is crucial for UPSC aspirants. This document synthesizes information from various standard sources to provide a comprehensive overview.
(Information synthesized from NCERT Class XI: Indian Economic Development, NCERT Class XII: Macroeconomics, IGNOU BA Economics & MA Economics material, Ramesh Singh's "Indian Economy", Sanjiv Verma's "The Indian Economy", Economic Survey, NSO (PLFS Reports), PIB, Ministry of Skill Development & Entrepreneurship, Ministry of Labour & Employment websites.)
Concepts & Types of Unemployment
Open Unemployment
Individuals are able to work and are actively seeking work but are unable to find any. This is the most direct form of unemployment.
Source: NCERT Class XI Indian Economic DevelopmentDisguised Unemployment
Occurs when more people are employed in an activity than actually required (marginal productivity of labour is zero or negative). Prevalent in Indian agriculture.
Source: NCERT Class XI Indian Economic Development; IGNOU EconomicsSeasonal Unemployment
Employment is available only during certain seasons of the year, common in agriculture and agro-based industries.
Source: NCERT Class XI Indian Economic DevelopmentFrictional Unemployment
Temporary unemployment arising from individuals moving between jobs or entering the labour force. Considered natural in a dynamic market.
Source: NCERT Class XII MacroeconomicsStructural Unemployment
Due to mismatch between skills of workforce and skills demanded by employers, or changes in economic structure (e.g., technology).
Source: NCERT Class XII Macroeconomics; Ramesh SinghCyclical Unemployment
Caused by downturns in the business cycle (recessions/depressions) leading to a fall in aggregate demand for labour.
Source: NCERT Class XII MacroeconomicsUnderemployment
Individuals employed but not in their desired capacity (fewer hours than willing/able, or in jobs below their skills/qualifications).
Source: IGNOU EconomicsEducated Unemployment
Unemployment among individuals with a certain level of education. A concern in India due to skill mismatch and quality of education.
Source: NCERT Class XI Indian Economic DevelopmentMeasurement of Unemployment in India
Key Indicators (as per NSO)
-
Labour Force Participation Rate (LFPR): Percentage of persons in the labour force (working or seeking/available for work) in the population.
LFPR = (Labour Force / Total Population) * 100 -
Worker Population Ratio (WPR): Percentage of employed persons in the population.
WPR = (Total Number of Employed / Total Population) * 100 -
Unemployment Rate (UR): Percentage of persons unemployed among the persons in the labour force.
UR = (Total Number of Unemployed / Labour Force) * 100
These rates are typically measured using two approaches:
- Usual Status (US): Reference period of the last 365 days.
- Current Weekly Status (CWS): Reference period of the last 7 days.
Sources of Data & Latest Trends
Periodic Labour Force Survey (PLFS)
Conducted by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI). Launched in 2017, provides annual estimates for rural/urban (Usual Status) and quarterly for urban (Current Weekly Status).
PLFS Annual Report 2022-23 (released Oct 2023):- UR (Usual Status, age 15+): 3.2% (down from 3.6% in 2021-22).
- LFPR (Usual Status, age 15+): 57.9% (up from 55.2% in 2021-22).
- WPR (Usual Status, age 15+): 56.0% (up from 52.9% in 2021-22).
- Female LFPR (Usual Status, age 15+): 37.0% (a significant increase from 32.8% in 2021-22).
Key Labour Market Indicators (PLFS Data Summary)
| Indicator | Definition | Recent Trend (2022-23 vs 2021-22) | 2022-23 Value (Usual Status, 15+ age) |
|---|---|---|---|
| Labour Force Participation Rate (LFPR) | % of population in labour force (working/seeking work) | Increased | 57.9% (from 55.2%) |
| Worker Population Ratio (WPR) | % of population employed | Increased | 56.0% (from 52.9%) |
| Unemployment Rate (UR) | % of labour force unemployed | Decreased | 3.2% (from 3.6%) |
| Female LFPR | LFPR specifically for females | Significantly Increased | 37.0% (from 32.8%) |
Causes of Unemployment in India
Rapid Population Growth
Increases the supply of labour faster than employment generation capacity.
Slow Industrial & Economic Growth
Insufficient job creation in secondary and tertiary sectors to absorb the growing labour force.
Dominance of Agriculture
Agriculture is often characterized by disguised and seasonal unemployment, with limited opportunities elsewhere.
Low Skill Levels & Mismatch
Poor quality of education and vocational training leads to a workforce lacking industry-relevant skills.
Dominance of Informal Sector
Over 90% of workforce in informal sector, characterized by low wages, poor conditions, and lack of job security.
Labour Market Rigidities
Complex labour laws were often cited as a deterrent to formal hiring (though new codes aim to address this).
Automation & Technology
Increasing adoption of labour-saving technologies can displace workers, especially in routine tasks.
Impact of Global Events
Pandemics (like COVID-19) and global recessions can severely impact employment opportunities.
Consequences of Unemployment
Economic Consequences
- Loss of Output: Unutilized human resources mean lower GDP and economic growth.
- Reduced Savings & Investment: Lower income leads to lower savings, impacting capital formation.
- Increased Government Expenditure: Higher spending on welfare programs and poverty alleviation.
Social Consequences
- Poverty & Inequality: Major cause of poverty, widens income disparities.
- Increased Crime & Social Unrest: Frustration among youth can lead to anti-social activities.
- Loss of Social Status & Exploitation: Unemployed may face stigma and accept exploitative work.
Psychological Consequences
- Stress, Anxiety, Depression: Joblessness can lead to mental health issues.
- Loss of Self-Esteem & Confidence: Impacts individual well-being and family stability.
- Impact on Family Well-being: Financial strain and emotional stress can affect entire households.
Government Initiatives & Policy Responses
- Skill India Mission (2015): Aims to train over 40 crore people in different skills. Encompasses various initiatives. (Source: skillindia.gov.in, PIB)
- Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Flagship scheme under Skill India Mission, focusing on short-term skill training and certification. PMKVY 4.0 focuses on new-age courses like AI, robotics, IoT. (Source: PMKVY official website, PIB)
- National Policy on Skill Development and Entrepreneurship (2015).
- SANKALP (Skills Acquisition and Knowledge Awareness for Livelihood Promotion) and STRIVE (Skill Strengthening for Industrial Value Enhancement): World Bank assisted projects.
- Startup India (2016): Aims to build a strong eco-system for nurturing innovation and Startups in the country. (Source: startupindia.gov.in, PIB)
- Stand-Up India (2016): Facilitates bank loans (₹10 lakh to ₹1 Crore) to SC/ST borrowers and at least one woman borrower per bank branch for greenfield enterprises. (Source: standupmitra.in, PIB)
- Pradhan Mantri MUDRA Yojana (PMMY) (2015): Provides loans up to ₹10 lakh to non-corporate, non-farm small/micro enterprises. (Source: mudra.org.in, PIB)
- Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) (2005): Guarantees 100 days of wage employment in a financial year to rural households for unskilled manual work. (Source: nrega.nic.in, NCERT Class XI Indian Economic Development)
- Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): Government paid employer's full contribution towards EPF and EPS (expired).
- Aatmanirbhar Bharat Rojgar Yojana (ABRY): Launched post-COVID to incentivize creation of new employment and restoration of lost jobs. (Source: PIB)
- Production Linked Incentive (PLI) schemes: Aim to boost domestic manufacturing and generate employment in key sectors. (Source: PIB, DPIIT)
- A one-stop solution providing a wide array of employment and career-related services, linking job seekers with employers. (Source: ncs.gov.in)
Emerging Trends in Labour Market
Gig Economy & Platform Workers
A labour market characterized by short-term contracts or freelance work. Platform workers' employment is mediated through online platforms (e.g., Zomato, Uber).
- Pros: Flexibility, autonomy, wider opportunities, lower entry barriers.
- Cons: Lack of job security, social security benefits, irregular income, potential for exploitation.
e-Shram Portal: Launched by MoL&E to create a national database of unorganized workers, including gig workers, for social security delivery (over 29 crore registered).
Impact of Automation & AI on Employment
Increasing adoption of technologies across sectors has dual implications:
- Job Displacement: AI and automation can take over routine tasks (manufacturing, customer service, data entry).
- Job Creation: New jobs in development, deployment, and maintenance of AI systems, data science, etc.
- Need for Reskilling/Upskilling: Workforce must adapt to changing job requirements. WEF's Future of Jobs Report highlights analytical and creative thinking as key skills.
Current Affairs Focus
Latest PLFS Data (2022-23)
- Shows improvement in UR, LFPR, WPR, especially female LFPR (37.0%). Positive sign but needs sustained improvement for quality jobs.
Debates on Labour Law Reforms
- The four Labour Codes aim to simplify laws. Proponents argue for boosting investment/formalization. Critics (trade unions) raise concerns about worker rights and job security.
Effectiveness of Skill Development Programs
- Ongoing debate. PMKVY has certified millions, but questions remain on placement rates, relevance of skills. PMKVY 4.0 targets industry-linked, new-age skills.
Initiatives for Gig Workers
- Focus on implementation of social security provisions under the Code on Social Security. States like Rajasthan have announced specific welfare funds/acts.
Conclusion & Way Forward
Addressing unemployment is not merely an economic imperative but a social and political necessity for India. While recent PLFS data shows some positive trends, structural challenges persist. A multi-pronged strategy is essential:
Promoting Labour-Intensive Manufacturing: Effectively implement schemes like PLI.
Strengthening Skill Ecosystem: Focus on quality, relevance, and employability through industry collaboration.
Enhancing Formalization: Simplify regulations, incentivize formal job creation, extend social security.
Supporting MSMEs & Entrepreneurship: Key job creators; ensure access to credit and enabling environment.
Investing in Social Infrastructure: Health and education improvements are crucial for a productive workforce.
Addressing Regional Disparities: Focused interventions for high unemployment regions.
Leveraging Technology: Using AI for skill mapping and job matching (NCS portal).
Adaptive Labour Laws: Balancing worker welfare with enterprise flexibility.
Focus on Female LFPR: Sustaining and building upon the recent increase through supportive policies.
Successfully tackling unemployment will unlock India's demographic dividend, reduce poverty, and pave the way for equitable and rapid socio-economic development.