Courses for Kids
Free study material
Offline Centres
Store Icon

Causes and Effects of Unemployment

Last updated date: 23rd May 2024
Total views: 384.3k
Views today: 7.84k
hightlight icon
highlight icon
highlight icon
share icon
copy icon

Unemployment - An Overview

Unemployed people are more likely to face a variety of challenges, including difficulty finding future employment and lower income. Unemployment has an impact on the economy and society as a whole. The longer a person is unemployed, the more likely they are to suffer negative consequences and contribute to the multiplier effect that unemployment has on the community.



In this piece, we look at what it means to be unemployed and how it affects people, society, and the economy. Furthermore, even if they expect to be hired again for the same position, people who are temporarily laid off are still considered unemployed. Let us know more about it in this article.

Employment and Unemployment

When a person is actively engaged in a job, business, trade, or profession, they are considered to be employed. Unemployed people are those who are actively looking for work but are currently unemployed. Every government's macroeconomic goal is to keep the unemployment rate low and solve the problem of unemployment. Full employment occurs when every worker is employed. The unemployment rate is 0%, which means that everyone who is able and willing to work is working.

Effects of Unemployment

Effects of Unemployment

Effects of Unemployment

Unemployed people can face a variety of challenges. There has been a difference between everyone and everybody. The longer someone is out of work, the more difficult these issues become. Individual consequences of unemployment include the following:

1. Lower Earnings

Unemployed people's income is reduced as a direct result of their inability to find work. Because wages are earned through employment, losing one reduces a person's available income.

2. Health Issues

Given how stressful being unemployed is, it's possible that it will lead to stress-related health problems like headaches, high blood pressure, diabetes, heart disease, back pain, and sleeplessness. These health problems frequently lead to more frequent doctor visits and more frequent usage of medications to treat the underlying diseases.

3. Negative Effects on the Family

The family of an unemployed person is also vulnerable to the negative effects of unemployment. Unemployed people face more challenges in their families and are less satisfied with their marriages and families, according to the Society for the Psychological Study of Social Issues.

According to the study, the stress of unemployment may have a negative impact on the well-being of spouses. Furthermore, several studies have found that the average income of children of unemployed parents is lower than that of children of employed parents.

Reasons of Unemployment

Reasons of Unemployment

Reasons of Unemployment

  • The current global economic crisis is the primary reason for unemployment. Among the many other factors that contribute to unemployment, one of the primary causes is the current and ongoing global economic crisis. The economic crisis has had a significant impact on international trade. The economic crisis has not been able to hold back previously wealthy nations.

  • A large number of technological advancements go without saying that we live in an extremely technologically advanced era. Previously, businesses required a large amount of labour to complete their tasks.

  • However, modern technology allows computers and other devices to complete even the most difficult tasks in a matter of minutes. Furthermore, only a few years ago, sending a single message or reply would take hours.

  • Jobs are becoming more specialised, and huge corporations offer their staff a wide range of facilities and advantages. This is the main reason why they have so many requirements when hiring personnel.

  • A person will not even be given consideration for the post at hand unless they meet all the prerequisites. People are having a very difficult time even getting an interview because job descriptions have grown so very detailed and specialised.

Issues Related to Unemployment

1. The Productivity-Wage Gap is Widening

In the country, inflation is still present, causing prices to rise. As a result, labourers demand higher pay and benefits, raising the cost and price of commodities while decreasing demand. This follows a period of declining output and, as a result, growing unemployment.

2. Uncertainty in Agriculture Sector

Despite scientific advances, agriculture in India is still depending on the whims of nature. Every year, millions of workers are forced to quit their jobs due to droughts, floods, and other natural disasters, causing agricultural uncertainty and unemployment.

3. Absence of a Comprehensive Employment Policy

There has never been a comprehensive or urgent employment programme in India. It is true that the problem of unemployment cannot be solved unless a strong employment-oriented development policy is formulated and implemented by the country's stable administration.

4. Improper Attitude Towards Employment

One of the key issues is the country’s educated population’s need for a job. They do not want to set up any startup or separate manufacturing facility. This negative attitude has increased unemployment as well. 

Besides these, unemployment is worsening due to difficulties in the manufacturing process, the social environment, societal ills, religious superstitions, political uncertainty, and industrial unrest.

Types of Unemployment

The Indian subcontinent faces Unemployment, both involuntary and voluntary, which can be examined under two broad categories, in relation to one another.

Rural Unemployment 

A majority of the Indian population resides in rural areas and thrive on agriculture as a primary means of livelihood. But this agrarian industry does not make up for adequate Employment for the entire population living in these areas. This leads to rural Unemployment which can be categorised into three major types, as have been discussed below.

In India, the downturn is systemic. To put it another way, economic output is insufficient to provide enough jobs. This has been going on for a while.

Open Unemployment

One of the most basic Unemployment situations is when an unemployed individual, seeking and available for work, is unable to get a job with a regular payment. This is termed open Unemployment. A major reason for this type of Unemployment is a rapidly expanding labour force in an economy with a slower growth rate. When it comes to open redundancy, identifying those who are unemployed is a simple task. Agriculture is a short-term occupation in India, and there is usually a high need for labour during sowing, weddings, and harvesting, but demand for labour drops significantly during the slack season.

The duration of periodic Unemployment in India varies by state, based on farming practices, soil type, and the potential of multiple cropping. Farmers in rainy agriculture are unemployed for four to six months per year. They are unable to find an alternative job at this time due to their illiteracy, poverty, and bad health.

Disguised Unemployment

This type of Unemployment is particularly rampant in the agricultural industry, contributing as the most common form of rural Unemployment in India. It presents a circumstance in which more individuals are engaged in a work than what is required due to lack of alternative job opportunities. This indicates that the removal of some of the workforce would not make a major difference in the production of a farm; that is, this surplus manpower has negligible to zero marginal productivity. The disguisedly impoverished are individuals who work for themselves and are overly numerous in relation to the resources with which they work, such that if a number of them were to be reassigned to other sectors of the country, the total output of the sector from which they were reassigned would not be affected, even if no significant reorganization took place. Another important cause of uncertainty is the high rate of Unemployment among educated rural youth. The growth of education has resulted in a large number of unemployed young people looking for work. However, they are unable to find work in the labour market. Unemployment of this nature has devastating implications. It causes some people to be frustrated and others to be dissatisfied.

Seasonal Unemployment

This type of Unemployment is seen with people working in industries with seasonal production. Industries like agriculture only need additional laborers for particular times of the year, for instance, harvest season. In such cases, these specific workers remain unemployed during the rest of the year, giving rise to Unemployment in rural areas.

Urban Unemployment

With rapid immigration and a population boom, India has seen remarkable growth in urban Unemployment in recent years. These can be further categorised into three types. 

Industrial Unemployment

This is the most commonly observed type of urban Employment due to an increasing rate of migration of workers from rural to urban areas. Every year, thousands of illiterate individuals travel to more developed areas in search of jobs of menial labour in production units and factories. Due to high demand, most of them suffer from industrial Unemployment meaning their inability to secure such jobs.

Structural Unemployment

Referred to as educated Unemployment, this is probably the most disappointing type of Unemployment. Structural Unemployment arises when an educated individual fails to find a job matching their qualifications. This occurs due to a lack of adequate job opportunities in concerned fields compared to the number of learned individuals.

Technological Unemployment

Rapid advancement in technology is leading to Unemployment of individuals who fail to match or adapt to required skills and, thus, become obsolete for the industry. This is mostly seen in employees belonging to the retiring age group.

What Causes Unemployment?

Following is a list of some of the most common causes of Unemployment in India.

  • A rapidly growing rate of the population overruns available Employment opportunities.

  • A negligible growth rate of the economy failing to keep up with a growing labor force.

  • Lack of proper infrastructure and required investment in sectors lagging.

  • The advent of smart technology and AI reduces human resources previously employed for those tasks.

  • Lack of necessary field-specific skills, as a result of school and college education not relevant to concerned industries.

  • Physical unskilled labor is undervalued by today's educational system. Physical labor is disliked by educated people. As a result, after completing formal schooling, the rural teenager seeks sedentary Employment in a government agency or a private company. They are both unable and reluctant to work in agriculture. As a result, rural Unemployment is exacerbated by the current educational system.

  • Indeed, there is no genuine attempt in India to plan for personnel. Employment has not been given the attention it deserves in our development strategy. It is not related to the development process because it is assumed that economic progress will lead to the establishment of job possibilities. However, this has not resulted in the integration of jobs and growth. Poverty, in general, and rural poverty, in particular, are caused by all of these reasons.

  • In India, the caste system is a major contributor to underdevelopment. It is a system of occupational distribution that limits rural residents' occupational mobility. In rural India, occupations are inherited due to the caste system. When the number of members of a caste grows faster than the demand for services, the remaining populace becomes unemployed.

  • India's agriculture is chaotic and diverse. Because even though the Indian farmer must willfully invest more to receive less, it follows an inverted economics model. Regional insecurity is a result of this.

  • The Indian farmer's traditional farming approach is outdated and unscientific. Agricultural productivity is hampered by a lack of improved farming technologies and a shortage of skilled labour. Fertilizer aversion, a lack of proper irrigation facilities, and insufficient funding to purchase sophisticated agricultural instruments, seeds, and vermicompost all have an impact on agricultural output. As a result, rural agriculture reduces its potential for Employment.

  • Agriculture does not keep the farmland busy all year. The rural population is frequently fully engaged throughout the sowing and harvesting seasons, and economically inactive during the post-harvest and before the following sowing season. Farmers in South India are only busy for five months of last year,  and the other seven months are spent doing nothing financially productive. Peasants all over India are in a similar situation. As a result, rural communities experience high levels of seasonal Unemployment.

Employment and unemployment are a not only crucial topic for CBSE Class 12 Commerce but is also a necessary concept for students to understand the working of a real economy. Vedantu comes with additional detailed explanations and examples to help you prepare Class 12 Economics projects on employment and unemployment. For step-by-step answers to questions like what is rural unemployment and what is industrial unemployment, visit our website or install the app today!

The Employment Generation 

Elevated enterprises account for a considerable amount of new jobs created, as measured by Employment expansion rates, and are important contributors to the country's economic growth. Small and medium-sized businesses (SMEs) create more net jobs than larger corporations. SMEs are key Employment producers, according to much research. According to these findings, job creation and job contraction occur hand in hand in all countries. It is common to see some companies shed employees while others gain, and some of them exhibit a considerable increase in the labour force, even in the same industry or market. 

The World Bank Group's commitment to entrepreneurship development as a major aspect of its tool for enhancing economic growth, Employment, and poverty alleviation in various countries is established in the World Bank Group's evaluation on small company activities (World Bank Review, 2001). The importance of SMEs in long-term global and regional economic recovery is increasingly becoming more widely recognised.


However, due to a lack of data, very little research has been done in this area. Small and medium-sized enterprises (SMEs) play a vital role in a country's industrial growth since they create more gainful Employment, utilise fewer resources, generate more money, and reduce poverty. It's plausible to assume that if SMEs had been given more weight in industrial development, prior patterns of disastrous economic development may have been averted. However, the significant role in a country's economic progress is seldom fully appreciated. As a result of the relevance and contribution of SMEs to economic activity, there is a substantial opportunity to boost their growth by increasing their operational efficiency.

Case Study

Discuss in detail the case of how has the covid-19 Pandemic affected employment in our country where a lot of its population is already unemployed.

Ans: The pandemic has significantly worsened India's jobless situation, which is not surprising. The Indian economy has struggled to escape the grip of unemployment since all economic activity ceased in March 2020.

According to the Center for Monitoring Indian Economy (CMIE), 12.8 percent of Indians will be unemployed by June 2021. In March 2021, the unemployment rate was 6.5 per cent; by April 2021, it had risen to 8 per cent.

To understand how serious the situation is, consider that India's unemployment rate in 2018 was only 6.1 per cent. Before the pandemic, India's economy was already contracting; the lockdown exacerbated the situation.


It is unfortunate that so many intelligent, qualified people are unable to find work due to a lack of job opportunities. Today's large, prosperous corporations simply want to hire the best of the best.

A large corporation will not hire people who are unsure of what to do in a professional setting. Unemployed people frequently experience sadness and depression, so if you have a family member or friend who is unemployed, make sure you are available to them during their time of need and self-doubt.

Popular Vedantu Learning Centres Near You
Mithanpura, Muzaffarpur
location-imgVedantu Learning Centre, 2nd Floor, Ugra Tara Complex, Club Rd, opposite Grand Mall, Mahammadpur Kazi, Mithanpura, Muzaffarpur, Bihar 842002
Visit Centre
Anna Nagar, Chennai
location-imgVedantu Learning Centre, Plot No. Y - 217, Plot No 4617, 2nd Ave, Y Block, Anna Nagar, Chennai, Tamil Nadu 600040
Visit Centre
Velachery, Chennai
location-imgVedantu Learning Centre, 3rd Floor, ASV Crown Plaza, No.391, Velachery - Tambaram Main Rd, Velachery, Chennai, Tamil Nadu 600042
Visit Centre
Tambaram, Chennai
location-imgShree Gugans School CBSE, 54/5, School road, Selaiyur, Tambaram, Chennai, Tamil Nadu 600073
Visit Centre
Avadi, Chennai
location-imgVedantu Learning Centre, Ayyappa Enterprises - No: 308 / A CTH Road Avadi, Chennai - 600054
Visit Centre
Deeksha Vidyanagar, Bangalore
location-imgSri Venkateshwara Pre-University College, NH 7, Vidyanagar, Bengaluru International Airport Road, Bengaluru, Karnataka 562157
Visit Centre
View More

FAQs on Causes and Effects of Unemployment

1. What are the Consequences of Unemployment?

Rural Unemployment has important repercussions for rural life, even though its effects are less visible than those of urban Unemployment.

  • The number of jobless people rises, putting more strain on land and many other limited natural resources. People in rural regions are increasingly relying on agricultural operations due to the lack of profitable industrial activity. As a result, the already small ownership is further subdivided. This has a negative impact on agricultural productivity.

  • A surge in the proportion of crimes in the rural sector is another result of increased Unemployment. Rural life used to be generally calm, but as Unemployment has risen, so has criminal activity, and the serene mood in rural areas has been significantly eroded. There has also been an upsurge in cases of drug misuse and drug peddling that were previously undetected. Rural unrest has increased as a result of this.

  • Unemployment has an impact on a human's social position, personal life, and feelings. It stifles his ambition, blunts his effort, depletes his self-respect, shatters his ambitions, and causes him to feel guilty for failing to care for and support his family. He becomes wayward or antisocial as a result of his prolonged joblessness.

  • Perhaps a brief period of Unemployment has far-reaching implications. It leads to suicide, and it forces women into unethical trafficking and social seclusion. In a subtle way, this affects the individual's morale and social life, as well as that of their family and community.

2. How does migration affect the lives of people?

Migration has a tremendous influence on the social and familial spheres. The joint family structure is rapidly disintegrating, resulting in the emergence of the nuclear family system.

3. What are the Key Sources of Official Information on India’s Employment?

There are three most relevant sources for official data and statistics on the country’s employment. These are:

  • Census of India

  • The National Sample Survey Organization

  • Directorate General of Employment and Training Data of Registration with Employment Exchanges

4. What is the Definition of Harmonised Unemployment Rates?

Harmonised unemployment rate (HUR) is a measurement of the total number of unemployed individuals as a percentage of the labour force or the total number of unemployed as well as employed citizens. This percentage defines these unemployed masses as people belonging to working-age who lack work, are looking for work, and have taken necessary measures to get employed.

5. What Do You Understand about the Unemployment Trap?

The unemployment trap or poverty trap refers to circumstances in which unemployment welfare systems put off unemployed individuals from joining the job industry. In such situations, individuals benefiting from unemployment feel that entering an average-paying work will not bring any significant improvement in their standard of living. The additional cost of going to work, along with the liability of paying taxes, adds to more losses than returns which urge these individuals to continue with their status of unemployment.