The recent Periodic Labour Force Survey (PLFS) has reported that the unemployment rate in the country has shown a decrease between April and June 2023.
GS III: Indian Economy
Dimensions of the Article:
- Key Findings on Labour Force Participation and Worker-Population Ratio:
- Definition of Unemployment
- Measurement of Unemployment Rate
- Periodic Labour Force Survey (PLFS) Overview
- Challenges in Measuring Unemployment in India
- The Way Ahead for Addressing Unemployment in India
Key Findings on Labour Force Participation and Worker-Population Ratio:
- The Labour Force Participation Rate (LFPR) and the Worker-Population Ratio (WPR) improved during the reported period.
- In urban areas, the LFPR for individuals aged 15 years and above increased from 47.5% in April-June 2022 to 48.8% in the same months of 2023.
- The WPR in urban areas for individuals aged 15 years and above increased from 43.9% in April-June 2022 to 45.5% in April-June 2023.
- Among males, the LFPR increased from 68.3% to 69.2%, and among females, it increased from 18.9% to 21.1% during this period.
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.
Periodic Labour Force Survey (PLFS) Overview:
- The Periodic Labour Force Survey was launched by the National Statistical Office (NSO) in April 2017.
- The survey was initiated to address the need for more frequent and timely availability of labor force data.
- To estimate key employment and unemployment indicators within a short time interval of three months specifically for urban areas using the “Current Weekly Status” (CWS) approach.
- To estimate employment and unemployment indicators annually using both the “Usual Status” (ps+ss) and CWS approaches for both rural and urban areas.
The PLFS focuses on estimating the following indicators:
- Labour Force Participation Rate (LFPR): It represents the percentage of individuals in the population who are part of the labor force, which includes those who are employed, seeking work, or available for work.
- Worker Population Ratio (WPR): This indicator represents the percentage of employed individuals in the population.
- Unemployment Rate (UR): The UR indicates the percentage of individuals who are unemployed among those in the labor force.
Current Weekly Status (CWS):
- CWS refers to the activity status of individuals based on their activities during the preceding seven days before the survey.
- The Periodic Labour Force Survey is conducted by the National Sample Survey (NSO), which operates under the Ministry of Statistics and Programme Implementation (MoSPI).
Types of Unemployment in India
- Disguised Unemployment: This is a situation in which more people are employed than are required. It is mostly seen in India’s agricultural and unorganised sectors.
- Seasonal unemployment: Unemployment that happens only during particular seasons of the year. In India, agricultural labourers rarely work throughout the year.
- Structural Unemployment: This is a type of unemployment that occurs when there is a mismatch between the jobs available and the abilities of the available workers.
- Cyclical unemployment: Unemployment that rises during recessions and falls with economic expansion. It is mostly a phenomenon of capitalist economies.
- Frictional Unemployment: It is also known as Search Unemployment, is the time lag between jobs when someone is looking for a new job or moving jobs.
Causes of Unemployment in India
- Jobs in the capitalist world have become highly specialised but India’s education system does not provide the right training and specialisation needed for these jobs.
- In India nearly half of the workforce is dependent on Agriculture – even though agriculture is underdeveloped in India and only provides seasonal employment.
- Mobility of labour in India is low due to factors like language, religion, and climate.
- The industrial development had adverse effects on cottage and small industries – as the cottage industries fall, many artisans become unemployed.
- Constant increase in population has been a big problem and one of the main causes of unemployment.
- Certain work is prohibited for specific castes in some areas and this also contributes to unemployment.
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