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Increasing rate of unemployment amid surge in Covid-19 cases

  • Category
    Polity & Governance
  • Published
    12th Jan, 2022

Context

Recently Centre for monitoring Indian Economy research has raised issue regarding increasing unemployment in India around 7.9%

Background

  • Recently the unemployment rate in India has rose both in urban and rural areas signalling risks to the country's economy.
  • India’s unemployment rate rose to a four-month high in December.
  • The jobless rate increased to 7.91% last month, from 7% in November, in both urban and rural areas, according to the data from the Centre for Monitoring Indian Economy Pvt.
  • The youth have found themselves shut out of the labor market, and the consequences of the pandemic are seen to be lingering for years to come with new variants.
  • Although economic growth has rebounded from the depths of the crisis, unemployment has stayed well above 6%.


Analysis

Understanding the concept of unemployment

  • The International Labour Organization defines the employed as “those of working age who, during a short reference period, were engaged in any activity to produce goods or provide services for pay or profit" (emphasis added). 
  • An unemployed individual is under this definition therefore not someone without work, but without employment. 
  • The difference between work and employment is circumscribed by the boundary of what is considered economically productive, the boundary determined by the UN System of National Accounts.
  • Unemployment rate is the unemployed who are willing to work and are actively looking for a job expressed as a percent of the labor force.
  • The unemployment rate is measured as a ratio of the unemployed to the labour force, where the latter concept is defined as the sum of the employed — not necessarily those undertaking work — and unemployed. 

How do we calculate the unemployment rate?

  • Daily Status Approach: Unemployment status of a person under this approach is measured for each day in a reference week. A person having no gainful work even for one hour in a day is described as unemployed for that day.
  • Weekly status approach: In the CWS approach, a person is considered unemployed if he/she did not work even for one hour on any day during the week but sought or was available for work at least for one hour on any day during the period.
  • Usual status approach: In this headline number on employment-unemployment in annual PLFS reports are reported based upon usual activity status. Here usual activity of a person relates to activity status of a person during the reference period of last 365 days preceding the date of survey

What is the labour force? 

Labour force refers to the part of the population which supplies or offers to supply labour for pursuing economic activities for the production of goods and services and therefore, includes both employed and unemployed persons.

What are the actual challenges in the Indian economy?

  • Inequality: The first undercurrent: the deepening of income and wealth inequalities. 
  • Rupture in labour market: Second: a rupture in labour markets because of the economic impact of the pandemic. 
  • Unemployment: The third: rising unemployment with weak worker contracts and declining female labour income.

Why is the unemployment rate rising sharply?

  • Pandemic: Increase in the country's unemployment rate can be mainly attributed to COVID at present.COVID imposed lockdowns led migrants to flee from urban centers to rural areas.
  • Prevalence of unorganised sector: Absence of a good gauge of jobs in India because India is predominantly an unorganized-sector led economy.
  • Inadequate growth of infrastructure: Inadequate growth of infrastructure and low investments in the manufacturing sector which led to decrease in employment in the secondary sector.
  • Slow growth: The rate of industrial growth is slow. Though emphasis is laid on industrialization yet the avenues of employment created by industrialization are very few and not up to its potential.
  • Ailing banking sector: Issue with increasing NPAs with the banking sector.
  • Lack of women empowerment: Regressive social norms that deter women from taking or continuing employment.
  • Population increase: Constant increase in population has been a big problem in India which is one of the main causes of unemployment.
  • Lack of skilled labour: Lack of skilled laborers to adapt with new technologies and industries.

What are the impacts of unemployment in India?

  • Poverty: Unemployment can give rise to the problem of poverty and deter the living conditions of the people.
  • Extra burden on government: The government suffers an extra borrowing burden and rise in fiscal development because unemployment causes a decrease in the production and less consumption of goods and services by the people.
  • Less focus on capital: Government spending is mainly diverted towards revenue expenditure leading to decrease in spending for capital expenditure.
  • Rise in antisocial elements: Unemployed persons can easily be enticed by antisocial elements. This makes them lose faith in the democratic values of the country.
  • Increase in crime: People unemployed for a long time may indulge in illegal and wrong activities for earning money which increases crime in the country.
  • Rise in socio-economic cost: Unemployment affects the economy of the country as the workforce that could have been gainfully employed to generate resources actually gets dependent on the remaining working population, thus escalating socio-economic costs for the state.

Suggestive measures

  • Increase investment: A large part of the solution to this lack of adequate jobs is in increasing investments.
  • Spending on Capital formation: Government should spend on capital formation which can lead to increase in employment and thus the economy can enter into a vicious cycle.
  • Focus on demand size: The investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.

Conclusion

The government needs to come up with policies for generating employment opportunities and stemming the reverse migration from manufacturing jobs to low productivity employment.

Increase expenditure on MGNREGA and various other schemes which provide direct employability. Skill the workforce based upon the newer technologies and based upon the present requirements of the industries.

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