Unemployment and Employment Generation

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Unemployment constitutes one of the most plaguing concerns of a country’s economy. According to the Centre for Monitoring Indian Economy (CMIE), India is seeing one of the lowest unemployment rates of almost 7% as of October 2020, since the lockdown from March 2020.


In this section, you will get a brief overview of topics related to employment and unemployment, their calculation, what is urban unemployment, types of rural unemployment, and how they are different from each other.


What is Unemployment?

In Economics, unemployment refers to the state of those people who belong to the working-age group and are looking for jobs but are unable to find one. It also includes working individuals with no suitable job.


There are three types of activity statuses of a person, based on which the National Sample Survey Organization (NSSO) determines employment and unemployment. These are:

  • Working or contributing to economic activity, that is, employed.

  • Looking for and willing to work, that is, involuntarily unemployed.

  • Neither working nor seeking a job, that is, voluntarily unemployed.

The first two types of individuals make up for the total labour force, and the unemployment rate is the percentage of this population that is presently lacking a job.


Calculation of Unemployment Rate

The most common way of gauging unemployment is by calculating the unemployment rate. It is calculated by taking a percentage of the number of unemployed individuals divided by the total employed population or individuals constituting the labour force. Mathematically, it can be represented as:


Unemployment rate = (Number of Unemployed Individuals / Total labour force) × 100


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.


1. 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.

  • 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 as open unemployment. A major reason for this type of unemployment is a rapidly expanding labour force in an economy with a slower growth rate.

  • 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. 

  • Seasonal Unemployment

This type of unemployment is seen with people working in industries with seasonal production. Industries like agriculture only need additional labourers 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.


2. 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 which overruns available employment opportunities.

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

Employment and unemployment are not only a 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 on questions like what is rural unemployment and what is industrial unemployment, visit our website or install the app today!

FAQ (Frequently Asked Questions)

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

Ans. 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

2. What is the Definition of Harmonised Unemployment Rates?

Ans. 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.

3. What Do You Understand about the Unemployment Trap?

Ans. 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.