Disguised unemployment, also known as hidden unemployment, refers to a situation where labor employed in a job does not contribute effectively to the production of goods and services. The informalization of the workforce in India has exacerbated the challenges posed by disguised unemployment.
The persistent issues of unemployment, informalization, and disguised unemployment have become ongoing concerns for the Indian economy due to the following reasons:
- Stagnation in the rural economy: The poor growth and limited employment opportunities in the rural economy have resulted in an excessive reliance on the agricultural sector. For instance, despite employing over 40% of the labor force, agriculture contributes less than 20% to the GDP.
- Unskilled labor: The lack of skills among individuals leads to their engagement in low-quality, unskilled labor, which is a major factor contributing to the informalization of the workforce. As per the Human Development Report 2020, four out of five Indians lack skills, and over 70% of the workforce is employed in the informal sector.
- Jobless Growth: The pattern of economic growth followed in the country has resulted in a phenomenon known as jobless growth. For example, the unemployment rate in urban India stood at 9.22% in March 2022.
- Outdated educational curriculum: The absence of vocational education and outdated educational curricula have failed to meet the industry’s demands, leading to the production of graduates who are not employable. A report highlights that 47% of graduates in India are unemployable.
- Job Losses due to the Pandemic: According to Oxfam’s latest global report, out of the total 122 million job losses in 2020, 75% occurred in the informal sector.
- Technological advancements/automation: A report by NASSCOM suggests that the IT sector alone is likely to witness a loss of approximately 3 million jobs due to Robot Process Automation (RPA) and technological upgrades.
Disguised unemployment and the informalization of the workforce have adverse effects on the economy, leading to poverty, malnutrition, inequality, and hindering robust economic growth.
To address these challenges, the following steps should be taken:
- Industry-Academia linkage and curriculum updates: Facilitate collaboration between industry and academia by revising the curriculum to include a stronger emphasis on vocational training and skill development. The National Education Policy (NEP) 2020 already emphasizes vocational training.
- Boosting manufacturing: In order to reduce disguised unemployment in sectors like agriculture, there is a need to promote manufacturing and create quality jobs in labor-intensive industries. The Production Linked Incentive (PLI) scheme is a step in the right direction.
- Formalization of the workforce: Implement measures to formalize the workforce to ensure that the benefits of growth reach all workers, including migrant workers and household employees. Initiatives such as the Atal Pension Yojana, National Pension Scheme (NPS), E-Shram portal, and codification of labor laws can contribute to this objective.
- Focus on tier 2 and tier 3 cities: Develop socio-economic infrastructure in tier 2 and tier 3 cities to promote human resource development and generate economic activities.
Programs like the Aspirational District Program and the National Infrastructure Pipeline can help achieve this goal.
- Promoting the startup culture: Foster a robust ecosystem of startups, innovation, and entrepreneurship to encourage the youth to become job creators rather than job seekers. Initiatives like Startup India, Atal Innovation Mission (AIM), and Atal Incubation Centers can facilitate this process.
Addressing the challenges of disguised unemployment and informalization in the economy requires collaborative efforts from the government, industry, and academia.