Unemployment Crisis in India: Causes, Effects, Solutions

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According to the Periodic Labour Force Survey (PLFS) by National Sample Survey Office, the overall unemployment rate in the country in FY18 was at 6.1%.

However, the current survey, according to the government, is conducted in different method compared to the previous surveys.

But unemployment remains a problem, and the Government must take initiatives to make full use of the younger population to boost the growth and development of the economy.

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What is unemployment?

  • A person is said to be unemployed if he/she is willing or available to be employed but is not able to find the work.
  • The National Sample Survey Organisation, since its establishment in the year 1950, is involved in calculating the unemployment rate in India.
  • According to NSSO, a person is either employed or unemployed based on whether he/she belongs to the Labour Force or not. This depends on the activity status of the individual.
  • According to NSSO, the Activity Status is classified into three broad categories:
  1. Employed i.e., working during the time when the survey was conducted.
  2. Unemployed i.e., available to work but is not recruited by any of the sectors within the economy.
  3. Neither seeking nor is available for work.
  • All those individuals belonging to the employed and unemployed categories of the Activity status belong to the labour force.
  • The unemployment rate is the percentage of people who are unable to find work.
  • Unemployment rate = (Number of people unemployed/total labour force) x 100.
  • According to the Periodic Labour Force Survey (PLFS) of NSSO, the unemployment rate was at 5.3% in rural India and 7.8% in Urban India.
  • The unemployment rate can be calculated through different approaches. The approaches used by NSSO include:
  1. Usual status approach
  2. Current weekly status approach
  3. Current daily status approach
  • The unemployment rate as of April 2019 has risen by 7.6%. This is the highest in two years. This is based on the data provided by the State of India’s Environment (SOE) in Figures released by Delhi based non-profit organisation – Centre for Science and Environment.

What are the types of unemployment in India?

  • Disguised unemployment: This is the condition wherein the labour force is more than needed for the completion of work. This is mostly found in the agricultural sector and unorganised sectors like handlooms sector. For example, the whole family is involved in the cultivation process of small agricultural land.
  • Seasonal unemployment: This is more prominent in the rural area where the farm labourers are required to do work only seasonally. Eg: harvest season, ploughing season etc. during the rest of the year, they mostly remain unemployed.
  • Frictional unemployment: This occurs when the individuals who had to leave the previous job in search of a new one and haven’t found it yet. This also happens to fresh graduates in search of jobs and mothers seeking to return to the workforce.
  • Structural unemployment: This occurs when there is a mismatch between the availability and needs of the skills within the economy. Sometimes some skills are not required but are abundant within the economy. This causes structural unemployment.
  • Cyclical unemployment: This occurs when the demand for certain goods and services fall abruptly. Therefore the manufacturing organisations, to cut down the labour costs, lay off a large number of employees. This reduces demand and hurts the economy.
  • Long term unemployment: This occurs to those who are looking for jobs continuously for 27 weeks. This demands high costs and time consumption. Many employers won’t consider employing these individuals as they were not in demand for 27 weeks.
  • Underemployment: This occurs to many engineering graduates in India, as they, in the current situation, are not in demand and are forced to seek other low paying jobs for their survival. They are not able to make use of their skills as there is no demand for them in the market.

What are the causes of unemployment?

  • Large population & technology adoption: India stands second after China with the largest population. It is estimated to overtake China in this regard in a few years. Besides population, the increase in technological development, automation and robotics also decreasing the demand for labour force in India.
  • Seasonal demand in Agricultural sector: More than 50% of the population are employed within the agricultural sector. However, the maximum of the farmers is dependent on monsoon for their cultivation. The monsoon, due to climate change and global warming is delayed or provide very little rainfall. This results in a decrease in production and labour demand. The farm labourers, the small and medium farmers work under large land-owning farmers to support their families and demands. They are in demand only during certain seasons like harvesting seasons, ploughing seasons etc. Lesser irrigation facilities mean lesser crop growth and lesser need for labourers.
  • Lack of skills that are in demand: Many, though educated are not “employable”. That is, they don’t have the required skills needed for the workforce. The current education system is not in par with the demands of the economy.
  • Lack of systems that provide alternatives for farmers and labourers: There are no alternate works available for the farmers and labourers during drought and other times when they are not involved in agricultural work.
  • Social norms: India is a country where old traditions and ideas still persist. This includes the negative side also. Women, due to prejudice and social demands are prevented from contributing their part in the economy. In some areas caste discrimination still exists.
  • Lack of long-term plans by the government: There is no solid long-term planning to curb unemployment in India.
  • Health: Several in the population are not able to participate in the labour force due to their poor health. Their family have to spend a large amount of money in the health sector, resulting in a poor standard of living.
  • Immobility of the Labour Force: The majority of people in India are not willing to migrate to where their skills are in demand due to reasons like attachment to families, different language, culture, climate etc.
  • Economic change: sometimes the decrease in the demand for certain goods and services results in losses. In order to to cut down the loss, the management lay-off most of the employees to reduce the cost of the labour force.

What are the consequences of unemployment?

  • Increase in poverty: Due to unemployment, there will be an increase in the poverty rate within the population. This will result in economic slowdown and recession.
  • Social tensions: The younger generation may face the plight within society. This results in them losing their confidence level. They might also indulge in illegal and harmful activities which is harmful to society.
  • A decrease in the demand: When people can’t afford to buy goods and services, demand and supply fall as the consequence. This, in turn, hinders economic growth of the country.
  • Increasing dependence on working population: Those who are unemployed must rely on those who are employed for their survival. Therefore the employed people too can’t contribute to increasing in the demand for the goods and services as they too can’t afford them.
  • Wastage of human capital: Human resource is a valuable asset to our country. Many countries like Japan are suffering due to lack of population. Due to the high unemployment rate, this valuable asset goes waste.
  • Labour exploitation: Due to the increasing demand for work, many employers are exploiting their labour force by paying them very little wage to increase the profit.

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Impact of Globalisation on employment rate:

  • Due to globalisation in 1999, many sectors suffered due to high competition between the foreign companies and the domestic companies.
  • Organised sectors were increasingly becoming unorganised.
  • Wage cuts was prominent during Globalisation.

What are the government initiatives that involve in the promotion of employment?

  • MGNREGA: Mahatma Gandhi National Rural Employment Guarantee Act was initiated in 2005. It aims to provide at least 100 days of paid work to any adult member of the rural family during the financial year. This provides livelihood security to rural families.
  • Start-up India scheme: This scheme involves promotion of ease of doing business for start-ups. It eliminates certain hindrances like Environmental clearances, land permissions etc.
  • Stand-up India Scheme: This scheme aims to empower SC/STs and women by giving them a loan to promote their entrepreneurship.
  • Pradhan Mantri Mudra Yojana: This scheme provides loan for those who have planned to start non-farm businesses like trading, manufacturing etc. This promotes the development of the non-farming sector in rural areas. This scheme gives loan to micro and unorganised sectors to bring them into the mainstream economy.
  • Deen Dayal Upadhyay Grameen Kaushalya Yojana: This scheme promotes skill development based on the demands of the economy. This scheme guarantees employment to at least 75% of the trained candidates.
  • SETU: Self-employment and talent utilisation was launched in 2015 under NITI Aayog. It aims to give financial and technical assistance to new start-ups, self-employed business people and micro businesses.
  • National Rural Livelihood Mission: This scheme aims to reduce poverty and unemployment rate by enhancing the livelihood options for the poor, skill development and promotion of entrepreneurship and start-ups for the minorities.
  • Pradhan Mantri Kaushal Vikas Yojana: This scheme comes under the Ministry of Skill Development and Entrepreneurship. This scheme provides necessary skills needed for the market thus providing a better livelihood.
  • National Career Service Portal: This was launched as a platform for bringing together the job-seekers, recruiters, placement drives, counsellors and skill providers etc.

Way forward

Create Awareness:

  • Though the Government has taken up many initiatives to boost the employment rate, many are unaware of the already existing schemes.
  • The Government must take measures to increase the awareness of the employment schemes so that people from even remotest parts of the country can benefit from them.

Balance Growth rate & Employment rate:

  • The employment rate is not in par with the economic growth rate. This, in a long-run, will lead to catastrophic effects for the Indian Economy.
  • Some of the sectors that have the potential to boost employment rate include Food Processing industries, Manufacturing industries, handicraft industries etc.
  • MSMEs have the potential to increase the employment rate. Its promotion must be the prime focus of the government.
  • The export boost in labour-intensive sectors like the jute industry, handicraft industries, and textiles industries is the need of the hour.

Quality Education: The education must be on par with the current demands of the economy. Future generations must be able to analyse the demands of the work environment. For this to happen, education must include skills development.

Public investment in sectors such as health, education, police and judiciary can generate many government jobs.

Decentralisation of Industrial activities is needed so that people of every region get employment.

Development of the rural areas will help reduce the migration of the rural people to the urban areas thus minimising the pressure on the urban area jobs.

Entrepreneurs create employments to many in a country; therefore government needs to encourage entrepreneurship among the youth.

Remove barriers for women: Stern measures aimed at removing the social barriers for women’s entry and their sustained participation in the job market is needed.

National Employment Policy (NEP):

  • There is a need for National Employment Policy (NEP)that would encompass a set of multidimensional initiatices covering the entire range of social and economic issues affecting several policy spheres and not just the areas of labour and employment.
  • The policy would be an important tool to contribute considerably to achieve the goals of the 2030 Agenda for Sustainable Development.
  • The underlying principles for the National Employment Policy may include
    1. Increasing human capital via skill development;
    2. Generating sufficient number of decent quality jobs for all citizens in the formal and informal sectors to absorb those who are available and willing to work;
    3. Fostering social cohesion and equity in the labour market;
    4. coherence and convergence in different initiatives taken by the government;
    5. Envouraging the private sector to become the major investor in productive enterprises;
    6. Assisting self-employed persons by strengthening their capabilities to enhance their earnings;
    7. Ensuring employees’ basic rights and developing an education training and skill development system aligned with the changing needs of the labour market.



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