RICE

Unemployment

What is Unemployment?

  • Unemployment refers to the condition where individuals who are capable of working and actively seeking employment are unable to find a job. It indicates the health of an economy and represents the underutilization of human resources.
Unemployment Rate = Number of Unemployment Persons ÷ Labour Force × 100

Types of Unemployment

1.Cyclical Unemployment 

Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand

  • When companies experience a reduction in the demand for their products or services, they respond by cutting back on their production, making it necessary to reduce their workforce within the organization. In effect, workers are laid off.

Example: Unemployment caused by the recession of 2008-2010

2.Structural Unemployment 

Structural employment is a natural outcome of economic development, technological advancement and innovation that are taking place rapidly all over the world in every sphere

  • Structural unemployment occurs when certain industries decline because of long term changes in market conditions.

Example: as old industries have declined, new industries have emerged, such as higher tech manufacture, IT, computing, insurance, and internet based companies.

3.Classical Unemployment 

Classical unemployment is caused when wages are ‘too’ high.

  • This explanation of unemployment dominated economic theory before the 1930s, when workers themselves were blamed for not accepting lower wages, or for asking for too high a wage
  • Classical unemployment is also called real wage unemployment

4.Seasonal Unemployment 

Seasonal unemployment exists because certain industries only produce or distribute their products at certain times of the year.

  • Industries where seasonal unemployment is common include farming, tourism, and construction

Example: Tourist guides in a hill station in India are likely to lose work after summer.

5.Frictional Unemployment 

Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one.

6.Disguised Unemployment

It is a situation in which more people are doing work than actually required

  • Even if some are withdrawn, production does not suffer. In other words it refers to a situation of employment with surplus manpower in which some workers have zero marginal productivity.
  • Overcrowding in agriculture due to rapid growth of population and lack of alternative job opportunities may be cited as the main reasons for disguised unemployment in India

7.Voluntary Unemployment 

Voluntary unemployment is defined as a situation when workers choose not to work at the current equilibrium wage rate.

  • For one reason or another, workers may elect not to participate in the labour market.

8.Chronic Unemployment

If unemployment continues to be a long term feature of a country, it is called chronic unemployment.

  • Rapid growth of population and inadequate level of economic development on account of vicious circle of poverty are the main causes for chronic unemployment.

Measurement of Unemployment in India 

  • There are three measures or estimates of unemployment. 
  • These are developed by the National Sample Survey Organisation (NSSO). 

1.Usual Status Unemployment

  • This measure estimates the number of persons who remained unemployed for a major part of the year.
  • This measure gives the lowest estimates of unemployment

2.Weekly Status Unemployment

  • The estimate measures unemployment with respect to one week.
  • A person is said to be unemployed if he is not able to work even for an hour during the survey period.

3.Current Daily Status Unemployment

  • It considers the activity status of a person for each day of the preceding seven days. 
  • The reference period here is a day.

IMPACT OF UNEMPLOYMENT

  • GDP Loss: A 1% increase in unemployment reduces the GDP by approximately 2%.
  • Social Impact: Leads to an increase in crime, drug addiction, and loss of faith in democratic values.
  • Economic Cost: The workforce becomes dependent on the remaining working population, escalating socio-economic costs for the State.