(IGP) GS Paper 1 - Economic & Social Development - "Unemployment"

Integrated Guidance Programme of General Studies for IAS (Pre)

Subject - Economic and Social Development
Chapter - Unemployment

Types of Unemployment

  • Demand-Deficient or Cyclical Unemployment
    Demand-deficient unemployment occurs when there is not enough demand to employ all those who want to work. It is also often known as cyclical unemployment because it will vary with the trade cycle.
  • Seasonal unemployment
    Seasonal unemployment is fairly self explanatory. In India agricultural employment is linked to monsoon and its behaviour. If there is a monsoon failure, unemployment results. The effects of seasonal unemployment are often highly regionalised.
  • Frictional or Search Unemployment
    When a person loses his job or chooses to leave it, he/she will have to look for another one. On average it will take everybody a reasonable period of time as they search for the right job. This creates unemployment while they search. The more efficiently the job market is matching people to jobs, the lower this form of unemployment will be. However, if there is imperfect information frictional unemployment will be higher.
  • Structural Unemployment
    Structural unemployment occurs when the structure of industry changes.
    Structural unemployment occurs when a labour market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs.

National Sample Survey Organization (NSSO)

  • The NSSO collects data through sample surveys based on scientific technique of random sampling through household enquiry both in rural and urban areas.
  • National Sample Survey Organisation Concept of work
  • The NSSO has defined ‘work’ or’ gainful activity’ as the activity pursued for-pay, profit or family gain or in other words, the activity which adds value to the national product. Normally, it is an activity, which results ‘in production of goods and services for exchange. However, all activities in ‘agricultural sector’ in which a part or whole of the agricultural production is used for own consumption and does not go for sale are also considered as gainful.

Okun’s law

A description of what happens to unemployment when the rate of growth of GDP changes, based on empirical research by Arthur Okun (1928-80). It predicts that if GDP grows at around 3% a year, the jobless rate will be unchanged. If it grows faster, the unemployment rate will fall.

Labour Sector Reforms

Labour sector reforms are a part of the second generation reforms aimed at making Indian industry competitive in the age of globalization. The Indian labour scenario today is marked by rigid labour laws. 120 labour related laws made by Union and State Governments to protect labour which makes up 8% of the total labour force.

Labour reforms are necessary for the industries for the following reasons:

  • competition from imports in the post-QR regime where the foreign countries have-flexible labour laws

  • reduced import duties create greater competition for the domestic industry

  • to cut costs and be productive

  • to make the economy export-intensive.

Globlisation & Labour

In response to globalisation, the following developments on the labour market front are visible in Indian economy today

  • other input costs being not amenable to cutting, labour has borne the brunt of restructuring process in the search of the employers to cut costs and improve profitability

  • wage cuts are being offered to workers to retain jobs

  • permanent jobs are becoming scarce as companies are relying on contract labour for reasons of flexibility and wage gains

  • VRSs

  • some PSUs signed collective agreements for a 20% job cut.

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Trade Union Law Changes

In response to the demands and challenges of the process of globalization, the Government found it necessary to rationalise the TU laws for better labour relations and productivity. The changes relate to

  • 10% of the total strength of the employees or at least 100 members must form a trade union unlike earlier when 7 members sufficed
  • curbs on the participation of outsiders in the leadership of the TUs
  • restriction in the number of TUs
  • promotion of accountability in their functioning- main proper financial accounts and conduct elections

NSSO’s 66th Round Survey

  • The National Sample Survey Organisation’s (NSSO) latest survey data (66th round) for 2010 on employment and unemployment shows a significant slowdown in job creation between 2004-05 and 2009- 10- a period of jobless growth. Although the country’s real GDP growth averaged a robust 8.6 per cent per annum, the total employment growth was only 0.8 per cent per annum over this period compared to an annual 2.7 per cent in the previous five year period. The Labour Force Participation rate, which is a part of labour force that is ready for employment- seeking work (excludes students etc) witnessed a decline to 39.2 per cent in 2009-10 from 42 per cent in 2004-05 It is seen that the labour
  • participation rate for women dropped much more over this period from 29.4 per cent to 23.3 per. cent. This appears to be one of the reasons for the lower employment growth between 2004- 05 and 2009-10 than between 1999-2000 and 2004-05.
  • The sample size of this 66th round was 1,00,957 households - 59,129 from rural areas and 41,828 from urban areas.

Growing Inequalities

  • In spite of rising incomes, it is a matter of continuing concern that inequalities have also been widening which is a major, challenge relating to inclusive growth. The income disparities between the poorest and the richest in both rural and urban areas and between urban and rural population are on the rise. The current survey reveals that the spending of top 10 per cent of rural Indians was 5.76 times more than that of the bottom 10 per cent. This gap was slightly lower at 5.63 times during the previous survey period (2004-05).
  • In urban India, this inequality has widened much faster. In 2009-10, the top 10 per cent city-dwellers spent 10.11 times more than what the bottom 10 per cent could. In 2004-05, this ratio was 9.14.

12th Plan: Some Employment-Related Ideas

Currently, India is passing through an unpre-cedented phase of demographic changes. The ongoing demographic changes are likely to contribute to an ever increasing size of labour force in the country. The Census projection report shows that the proportion of population in the working age group (15-59 years) is likely to increase from approximately 58% in2001 to more than 64% by 2021. But the overall population is not the issue the proportion of population in the working age group of 15-59 years will increase-from 57.7% to 64.3%. To put it another way, those in the 15-59 age-group would have increased by about 308 million during the period. The- large numbers of the 15-59 year olds would also reflect in the workforce. It is estimated that by about 2025 India will have 25% of the world’s total workforce. But beyond 2025 the numbers of the aged will begin to increase even more dramatically, and consequently the window of opportunity is between now and 2025.

National Rural Livelihood Mission

  • National Rural Livelihoods Mission (NRLM), one of the major new initiatives under the Ministry of Rural Development to bring the poorest of the poor above the poverty line by ensuring viable livelihood opportunities to them was launched in Banswara, Rajasthan in mid-2011.
  • The Mission aims to ensure that at least one member from each identified rural poor household, preferably a woman, is brought under the Self Help Group (SHG) network in a time bound manner. NRLM would reach out, mobilize and support 7 Crore BPL households across 600 districts, 6000 blocks, 2.5 lakh Gram Panchayats, in 6 lakh villages across the country into their self-managed Self Help Groups (SHGs) and their federal institutions and livelihoods collectives. It would support them financially and institutionally.
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