According to the Periodic Labour Force Survey (PLFS), India’s unemployment rate was 6.1% in 2017 (the highest ever recorded) and the PLFS of 2021-22 showed unemployment reducing to 4.1%. The article highlights the difficulties of measuring unemployment in India, which reduced between 2017-2022, but still higher than some developed economies (US – ~3.5%).
GS III: Indian Economy
Dimensions of the Article:
- Definition of Unemployment
- Measurement of Unemployment Rate
- Classification of Working Status in India
- Rural vs. Urban Unemployment Rates in India
- Challenges in Measuring Unemployment in India
- The Way Ahead for Addressing Unemployment in India
Definition of Unemployment:
- ILO’s Perspective: According to the International Labour Organisation (ILO), unemployment refers to the state of being without a job, actively seeking employment opportunities, and being available to engage in work.
- Clarity: Therefore, someone who has lost their job but does not actively seek another job is not considered unemployed. This highlights that joblessness is not equivalent to unemployment.
Measurement of Unemployment Rate:
- Formula: The unemployment rate is calculated as the ratio of the number of unemployed individuals to the total labour force.
- Labour Force: The labour force is defined as the sum of those who are currently employed and those who are actively seeking employment (the unemployed).
- Exclusion: Individuals such as students and those involved in unpaid domestic work who do not fall into either the employed or unemployed categories are considered outside the labour force.
- Factors Affecting the Unemployment Rate: The unemployment rate can decrease if an economy fails to generate enough job opportunities or if individuals decide not to actively search for work.
Classification of Working Status in India:
- Data Sources: In India, the National Sample Survey Organisation (NSSO) employs two main criteria to classify the working status of individuals: the Usual Principal and Subsidiary Status (UPSS) and the Current Weekly Status (CWS).
- Principal Status: An individual’s principal working status, whether employed, unemployed, or out of the labour force, is determined by the primary activity they engaged in for a relatively long period in the previous year.
- Subsidiary Status: However, under UPSS, even someone not classified as a worker based on their principal status can still be counted as employed if they participated in economic activities in a subsidiary role for a certain duration (typically not less than 30 days) in the previous year.
- Current Weekly Status: In contrast, CWS uses a shorter reference period of one week. An individual is considered employed if they worked for at least one hour on at least one day within the seven days leading up to the survey.
- Unemployment Rates Comparison: UPSS-based unemployment rates are consistently lower than those derived from CWS. This is because, over the course of a year, there is a greater likelihood that an individual will find employment compared to just one week.
Rural vs. Urban Unemployment Rates in India:
- Criteria for Employment: The relatively lenient criteria for classifying an individual as employed contribute to lower unemployment rates in rural areas compared to urban areas.
- Agrarian Economies: In rural, agrarian economies, individuals often have access to family farms or opportunities for casual agrarian employment. This increased availability of employment options raises the likelihood of individuals finding some form of work, even if it’s sporadic.
- Informal Economy Focus: These definitions are designed to capture the extent of the informal economy, which is prevalent in many rural areas. While they may seemingly underestimate unemployment, they align with the nature of work in these regions.
Challenges in Measuring Unemployment in India:
Social Norms and Job Search:
- In a developing economy like India, social norms and constraints often influence an individual’s decision to actively seek employment.
- This can lead to an underestimation of the true unemployment rate.
Domestic Work Example:
- A survey by the National Sample Survey Organisation (NSSO) found that a significant percentage of women engaged in domestic work expressed a willingness to work if job opportunities were available within their households.
- However, since they were not actively looking for work, they would not be counted as unemployed.
Informal Nature of Jobs:
- In contrast to developed economies where individuals typically hold year-round jobs, India’s informal economy results in frequent job transitions.
- An individual may be unemployed one week but could have worked as a casual laborer the previous month and as a farmer for most of the year.
- Various organizations use different methodologies for measuring unemployment.
- For example, the Centre for Monitoring Indian Economy classifies individuals based on their activity on the day preceding the interview.
- This approach yields a higher unemployment rate but lower labor force participation rates because in an informal economy, there is a lower probability of individuals having work on any given day compared to longer reference periods of a week or a year.
Inaccurate Data Reflection:
- Sometimes, the methodologies in use do not accurately reflect economic disruptions.
- For example, the nationwide lockdown in March 2020 significantly impacted the Indian economy, but this was not immediately reflected in the Periodic Labour Force Survey (PLFS) unemployment rates, which cover a period from July of one year to June of the next. Consequently, unemployment rates measured under both UPSS and CWS standards decreased in 2019-20 and 2020-21.
Developing Economy Trade-off:
- Measuring unemployment in a developing economy involves an inherent trade-off. Adopting a very short reference period results in higher unemployment rates but lower employment rates, while a longer reference period yields the opposite.
- Developed nations face less of this dilemma due to their more industrialized economies, where work tends to be consistent throughout the year.
The Way Ahead for Addressing Unemployment in India:
- Election Significance: Unemployment is becoming a crucial issue in upcoming elections. Therefore, it is essential to address it effectively.
- Understanding Definitions and Measurements: To tackle unemployment successfully, it is imperative to have a clear understanding of how it is defined and measured in a developing economy like India. This understanding will aid in crafting more targeted and impactful policies to address the issue.
-Source: The Hindu