Unemployment: Definition, Types, Causes, Solutions and The Way Ahead

unemployment-types-causes-impact-solutions

Unemployment is a situation where a person who is capable, qualified and willing to work at the existing wage rate does not get work. Thus two kinds of people are not considered unemployed, those who do not have the capabilities or qualifications required for the job they seek or those who do not wish to work at all. Unemployment rate which is a measure of unemployment shows the health of a country.

Measurement of Rate of Unemployment

National Sample Survey Organisation (NSSO), an organization under the Ministry of Statistics and Programme Implementation (MoSPI) measures the rate of unemployment in the country.

Unemployment rate = (unemployed workers / total labour force) × 100

NSSO has developed three measures/estimates of unemployment.

Usual Status Unemployment

This measure estimates the number of people who remain unemployed for the major part of the year. This concept determines the usual activity status of a person as either being employed for unemployed. This is also known as chronic or open unemployment. It usually gives the lowest estimate of unemployment.

Weekly Status Unemployment

This approach records all individuals who could not engage in any meaningful work even for an hour in the week preceding the survey. A person is considered to be employed even if s/he works only for a day or an hour during the whole week.

Current Daily Status Unemployment

This approach measures the unemployment of the person on every day of the week preceding the survey. If the person does not find for a day or some days during the survey, s/he is considered unemployed. This is the most comprehensive measure of unemployment.

Types of Unemployment

There are various types of unemployment based on its causes and intensity.

  1. Open unemployment

When the labour force expands at a faster rate than the growth rate of the economy, it causes open unemployment where a large section of the labour force does not get a regular source of income in the form of a job. It can be counted in terms of the number of unemployed people and is clearly visible.

  1. Disguised unemployment

It is the situation of over employment of labour force in a particular field i.e. if a few people are withdrawn from the job, it would not affect the total output. Thus these individuals’ productivity and marginal output is zero. It is a notable feature in underdeveloped countries with excessive workforce and primary dependence on agriculture. In rural families, usually, the entire family is involved in agriculture but people own small pieces of land which do not require all members to work on it. Thus these people can’t be considered employed just because they are working the normal number of hours every day because they are not contributing to the overall economy. This kind of unemployment is the hardest to trace.

  1. Underemployment

Underemployment refers to a situation where a person is overqualified for the job s/he is currently engaged in. These people contribute less to the economy then they are capable of. For example, someone with a postgraduate degree applying for the job of a clerk. Underemployment also includes people who are working part-time but would like to work full time.

  1. Seasonal unemployment

Certain jobs require employment only during certain seasons. Occupations such as agriculture tourism, tourist resorts, ice factories, etc. follow certain cycles and seasons. The workers employed here are laid off during of season and have no means of employment. This also includes small businesses like ice cream vendors. Especially in a country like India where a large population is dependent on agriculture, people have to sustain themselves doing odd jobs in the off-season.

  1. Cyclical unemployment

It usually affects capitalist societies which are subject to the booms and recessions in trade cycles. People are employed during the boom but unemployed during a recession. Cyclical unemployment is also almost negligible in India.

  1. Technological Unemployment

Due to a technological change, when a process no longer needs a labour force, it causes technological unemployment. For example, cotton mills that earlier required thousands of workers for different purposes such as spinning, weaving, etc. now use machines which are far more productive and cost less. Sometimes the old workers cannot operate new technology and have to be laid off in favour of younger more experienced workers.

  1. Structural Unemployment

Due to drastic changes in the economic structure of the country, the demand-supply chain might get disrupted. Changes in either the demand for the factor or the supply causes structural unemployment. It is a natural outcome of development and technological advancement. It might be caused due to a mismatch between the jobs available and the skills of the workforce. Labour mobility is likely to increase structural unemployment. This is because new and growing Industries (called Sunrise Industries) might not be able to employ the workers laid off by the declining industries (called Sunset Industries). Labour immobility can be of three types

  • Geographical: when workers are not willing to move from region to region which is worse by immense house price variations.
  • Industrial: it occurs when workers do not move between industries probably because they require different skill sets. For example, a move from a motor industry to the insurance industry.
  • Occupational: when workers find it difficult to change jobs within and industry. For example, a doctor can’t become a dentist.
  1. Frictional unemployment

Frictional unemployment refers to the period between a worker leaving an old job and finding a new one. This kind of unemployment is not worrysome as it occurs naturally and usually voluntarily. Students trying to find the first job and mothers returning to the workforce also count as frictional unemployment.

  1. Vulnerable Employment

This refers to people in the informal sector without any legal contract and thus no legal protection. These people are considered unemployed since no record of the employment is maintained. This is a serious problem in India. People from Dhaba workers, to street vendors, can be included in this category.

  1. Casual Unemployment

People who are employed on a day to day basis due to short term contract, change in ownership, fall in demand, shortage of raw material etc. are considered casually employed.

  1. Chronic Unemployment

When unemployment persists in a country for a long time, it is termed chronic unemployment. A vicious cycle of poverty created by rapid population growth and inadequate level of economic development is the main cause of chronic unemployment.

Relevant Terms

Unemployment trap – Welfare governments often support the unemployed through certain schemes and economic benefits. Unemployment trap refers to a situation where people are discouraged to go to work because the opportunity cost of work is too high in relation to the benefits provided. It becomes easier to simply enjoy the benefits while doing nothing.

Harmonized Unemployment Rate – HUR is a uniform definition to measure the unemployment rate internationally so that they are comparable instead of relying on national definitions of unemployment. It defines unemployed people as people of working age who are without work, are available for work and have taken specific steps to find work.

Read: Causes of Unemployment 

Impact of Unemployment

Impact on Economy

The economy is affected adversely as productivity falls below the normal level. Unemployed people are also a liability to the country since they have to be economically supported by the government. Unemployment means people have less money to buy resources thus overall demand falls and creates excess supply. Excess unemployment leads to failure of the economy.

Social impact

  • Mental illness – Financial instability causes frustration, negative attitudes, loss of self-confidence and loss of peace of mind. All of these factors might lead to mental disorders.
  • Increasing crime rate – Poverty due to unemployment forces people to look for alternate means to secure money thus leading to an increase in crime rate.
  • Political Instability – Due to unemployment, people lose faith in the government and political structures lead to political instability.
  • Poor living standards – Unemployment forces people to cut down on their basic need thus creating an undernourished, unhealthy and unhygienic population.

Solutions and The Way Ahead

Report on Periodic Labour Force Survey (2017–18) released by the Ministry of Statistics and Programme Implementation, Government of India shows that there is a great discrepancy in unemployment rate among states. Tripura, Nagaland and Lakshadweep have above 20% unemployment rate while Gujrat and Meghalaya have below 3%. States with high and unemployment rate show high rural unemployment and overcrowded cities. Thus the following steps can prove to be helpful in solving the menace-

  • There is a need for rural industrialisation to reduce underemployment and disguised unemployment in India.
  • The objective of self-employment can be achieved by organising the use into Self Help Groups (SHGs) through a process of social mobilization, their training and capacity building and provision for income-generating assets through a mix of bank credit and government subsidy.
  • Government policies and schemes need to be better implemented so that the resources can reach the needy. The government needs to customise its plans from region to region based on regional and sectoral data.
  • All causes of unemployment need to be systematically addressed to solve the problem of unemployment and improve the economy.

Global Perspective

World unemployment peaked at 5.9% in 2009 but has been decreasing constantly ever since, according to the World Employment and Social Outlook compiled by the International Labour Organisation (ILO). A global comparison shows that the unemployment rate in sub-Saharan Africa has continued at 7.2 % since 2017. Canada and the United States have historically low unemployment rates at about 4% due to a strong economy. In Latin America and the Caribbean, the rate has fallen marginally from 8.2% in 2017 to 7.7% in 2019. The Middle East has a rate of about 7.8% where one-third of those unemployed are women. In Central and Western Asia, unemployment rates remained at 8.5% in 2018-19. Asia and Pacific are creating jobs at a fast pace keeping the unemployment rate at about 4%. However, almost half of the workers are in vulnerable forms of employment. Northern, Southern and Western Europe have steadily improved their rates from 8.4% in 2017 to 7.4% in 2019. Thus unemployment rates are on a decline globally but the percentage of people facing vulnerable unemployment is greater in Asia and Africa as compared to Europe and North America.


Read: World Employment and Social Outlook – Trends 2020 

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