4 THE PROBLEM OF UNEMPLOYMENT, POVERTY AND …

1 39 ECONOMICSThe PROBLEM of Unemployment, POVERTY and InequalityMODULE - 2 Current challenges beforethe Indian EconomyNotes4 THE PROBLEM OFUNEMPLOYMENT, POVERTYAND INEQUALITYIn India, the problems of unemployment and POVERTY have always been majorobstacles to economic development. Regional disparity is also crucial in thiscontext. Economic reforms, changes in the industrial policy and better utilizationof available resources are expected to reduce the PROBLEM of unemployment andpoverty. The governmental bodies are also required to initiate long term measuresfor POVERTY alleviation . Generation of employment opportunities and equality inincome distribution are the two key factors that are of utmost important to dealwith the dual PROBLEM of unemployment and completing this lesson, you will be able to:zexplain the meaning, types and important measures of unemployment;zidentify the causes of unemployment;zknow the Government policies and programmes implemented to alleviatepoverty and generate employment.

2 Andzevaluate the extent and causes of regional disparity in MEASUREMENT AND MAGNITUDE OFUNEMPLOYMENT IN Meaning and Types of UnemploymentThe population of any country consists of two components (i) Labor Force(ii) Non-Labor Force. Labor force means all persons who are working ( beingengaged in the economic activity) as well as those who are not working but areECONOMICS 40 MODULE - 2 The PROBLEM of Unemployment, POVERTY and InequalityCurrent challenges beforethe Indian EconomyNotesseeking or available for work at the current wage rate. It means the labor forceconsists of both employed and unemployed component of population which is not a part of the labor force is Non-LaborForce.

3 It includes all those who are not working and are neither seeking noravailable for can be defined as a state of workless ness for a person who is fitand willing to work at the current wage rate. It is a condition of involuntary andnot voluntary idleness. Simply stated an unemployed person is the one who is anactive member of the labor force and is seeking work, but is unable to find the case of voluntary unemployment a person is out of job on his own accord orchoice, doesn t work on the prevalent or prescribed wages. Either he wants higherwages or doesn t want to work at all. The involuntary unemployment on the otherhand is the situation when a person is separated from remunerative work anddevoid of wages although he is capable of earning his wages and is also anxiousto earn them.

4 It is the involuntary idleness that constitutes unemployment can be further divided into cyclical UNEMPLOYMENT, seasonal unemployment, structural unemployment, frictional UNEMPLOYMENT, natural rate of unemployment, disguised unemployment and under Cyclical UnemploymentCyclical or demand deficient unemployment occurs when the economy is in needof low workforce. When there is an economy-wide decline in aggregate demandfor goods and services, employment declines and unemployment correspondinglyincreases. Cyclical unemployment mainly occurs during recession or form of unemployment is most commonly known as cyclical unemploymentsince unemployment moves with the trade cycle.

5 For instance, during the recentglobal slowdown in late 2008, many workers around the globe lost their Seasonal UnemploymentThis type of unemployment occurs in a particular time of the year or season andthus is known as seasonal unemployment. Seasonal unemployment is mostcommon in industries like agriculture, tourism, hotel, catering Structural UnemploymentStructural unemployment arises when the qualification of a person is not sufficientto meet his job responsibilities. It arises due to long term change in the pattern ofdemand that changes the basic structure of the economy. The person is not able tolearn new technologies used in the new expanding economic sectors and they thusmay be rendered permanently unemployed.

6 For instance, when computers were 41 ECONOMICSThe PROBLEM of Unemployment, POVERTY and InequalityMODULE - 2 Current challenges beforethe Indian EconomyNotesintroduced, many workers were dislodged because of a mismatch between theexisting skills of the workers and the requirement of the job. Although jobs wereavailable, there was a demand for a new kind of skill and qualification. So, personswith old skills did not get employment in the changed economic regime, and Frictional UnemploymentFrictional unemployment occurs when a person is out of one job and is searchingfor another for different reasons such as seeking a better job, being fired from acurrent job, or having voluntarily quit a current job.

7 It generally requires some timebefore a person can get the next job. During this time he is frictionally Natural rate of unemploymentThe sum total of frictional and structural unemployment is referred as the naturalrate of Disguised UnemploymentThe unemployment which is not visible is said to be disguised unemployment. Itoccurs when a person doesn t contribute anything to the output even when visiblyworking. This happens amongst family labor especially in agriculture who areengaged on land but are not contributing to the given level of output. Thus theirmarginal productivity is UnderemploymentWhen a person is engaged in the economic activity but that fail to provide him fullyin accordance to his qualification and efforts.

8 Thus it is a situation in which a personis employed but not in the desired capacity whether in terms of compensation,hours, or level of skill and experience. While not technically unemployed theunderemployed often compete for available MEASUREMENT OF UNEMPLOYMENTU nemployment rate is the percent of the labor force that is without work. It iscalculated as below:Unemployment rate = (Unemployed Workers/Total labor force) 100 Measurement of unemployment is a difficult task. In India, the most comprehensiveand reliable data on employment and unemployment are compiled by the NationalSample Survey Organization (NSSO). Based on different reference period (a year,a week, and each day of a week), NSSO provides four different measures ofECONOMICS 42 MODULE - 2 The PROBLEM of Unemployment, POVERTY and InequalityCurrent challenges beforethe Indian EconomyNotesemployment and unemployment.

9 The following are some methods of measuringunemployment:(i) Usual Principal Status Unemployment (UPS): This is measured as thenumber of persons who remained unemployed for a major part of the persons covered by the survey may be classified into those working and/or available for work in their principal activity, and those working and/oravailable for work in a subsidiary activity, that is, a sector other than theirprincipal activity. Hence, within the usual status concept, the estimates arenow derived on the usual principal status as well as the usual principal andsubsidiary status basis. The usual status unemployment rate is a person rateand indicates chronic unemployment, because all those who are found usuallyunemployed in the reference year are counted as unemployed.

10 This measureis more appropriate to those in search of regular employment, , educatedand skilled persons who may not accept casual work. This is also referred toas open unemployment .(ii) Usual Principal and Subsidiary Status Unemployment (UPSS): Hereperson is considered unemployed, if besides UPS, those available but unableto find work on a subsidiary basis during a year.(iii) Current Weekly Status Unemployment (CWS): This refers to the numberof persons who did not find even an hour of work during the survey week.(iv) Current Daily Status Unemployment (CDS): This refers to the number ofpersons who did not find work on a day, or on some days, during the of unemployment differ based on different concepts.