(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

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

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
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