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Unemployment measurement varies for economies

  • Published
    7th Sep, 2023

Comparing unemployment rates between the U.S. and India is challenging due to economic disparities and distinct labor force characteristics, including a substantial informal sector in India and varying measurement methodologies.

Perspectives of defining Unemployment

  • The International Labour Organization (ILO) defines unemployment as being out of a job; being available to take a job; and actively engaged in searching for work.
  • Therefore, an individual who has lost work but does not look for another job is not unemployed.
  • The labour force is defined as the sum of the employed and the unemployed.
  • Those neither employed nor unemployed — such as students and those engaged in unpaid domestic work — are considered out of the labour force.
  • The unemployment rate is measured as the ratio of the unemployed to the labour force.
  • The unemployment rate could also fall if an economy is not generating enough jobs, or if people decide not to search for work.

The Unemployment paradox:

In the U.S., the employment-to-population ratio (EPR) in 2019 was 60.8, while the unemployment rate was 3.7%.  Even though there were fewer jobs (as a proportion of the total population), the unemployment rate was lower because many individuals had exited the labour force.

Measuring unemployment in India

  • The NSSO (National Sample Survey Office) in India employs two primary measures to classify an individual's working status:
  • The Usual Principal and Subsidiary Status (UPSS): It categorizes an individual's principal working status based on the activity they spent a significant amount of time on in the previous year.
  • Even if someone is not considered a primary worker, they are counted as employed under UPSS if they engaged in some economic activity for a period of not less than 30 days.
  • This means that a person who was unemployed for a shorter duration but worked for at least 30 days in a subsidiary role during the previous year would be classified as a worker according to UPSS, even if their primary status is unemployed.
  • The Current Weekly Status (CWS): The CWS adopts a shorter reference period of a week.
  • An individual is counted as being employed if they have worked for at least one hour on at least one day during the seven days preceding the date of survey.

UPSS unemployment rates will always be lower than CWS rates because there is a greater probability that an individual would find work over a year as compared to a week.

Unemployment in India

As per the recent Periodic Labour Force Survey (PLFS), 2022;

  • Unemployment Ratio:
    • The unemployment ratio is defined as the percentage of persons unemployedamong the persons in the labour force.
    • The unemployment rate was 6% for men and9.4% for women (9.3% and 11.6% in July-September 2021).
  • Worker-Population Ratio (WPR):
    • The WPR is defined as thepercentage of employed persons in the population.
    • The WPR in urban areas for persons aged 15 and above stood at 5%(42.3% in July-September 2021).
    • The WPR among men was 68.6%and7% among women (66.6% and 17.6% in 2021).
  • Labour Force Participation Rate (LFPR):
    • It is defined as thepercentage of persons in the labour force who are working or seeking or available for work in the population, in urban areas for persons aged 15 and above.
    • It increased to 9%(46.9% in July-September 2021).
    • The LFPR among men was 73.4% and7% among women(73.5% and 19.9%, in July-September 2021).

What are the concerns in Unemployment measurement in India?

  • Measuring unemployment in India is difficult due to the informal nature of jobs.
  • Unlike developed economies, individuals do not hold one job year-round.
  • The low threshold for classifying individuals as employed, particularly in rural areas, contributes to the phenomenon of lower reported unemployment rates in rural regions compared to urban areas.
  • These definitions, although they may lead to an underestimation of unemployment, were primarily designed to account for the prevalence of informal and sporadic employment in agrarian economies, where individuals often have access to family farms or casual agrarian work, increasing the likelihood of some level of economic activity even during periods of joblessness.

Way forward

  • Addressing Measurement Lacunae:
  • Broaden Definitions: Consider broader definitions of employment to account for various forms of work, including gig work, part-time, and informal employment.
  • Quality of Employment: Include measures of job quality, such as income levels, working conditions, and job security, alongside traditional unemployment rates.
  • Use Technology: Leverage technology and data analytics to enhance the accuracy and speed of employment data collection and analysis.
  • Standardize Definitions: Work towards standardizing employment definitions and methodologies across different surveys and agencies for consistency and comparability.

Suggestive measures:

  • Skill Development and Education: Invest in skill development programs and education to equip the workforce with the skills required for emerging industries and technologies.
  • Promote Entrepreneurship: Encourage entrepreneurship by providing incentives, access to credit, and a conducive regulatory environment to foster job creation.
  • Labor Market Reforms: Implement labor market reforms to strike a balance between worker rights and flexibility for employers, making it easier for businesses to hire.
  • Invest in Infrastructure: Develop infrastructure projects that create jobs, stimulate economic growth, and improve overall productivity.
  • Encourage Manufacturing: Promote the manufacturing sector to generate employment opportunities, as it has the potential to create a significant number of jobs.
  • Support Informal Sector: Recognize the importance of the informal sector and implement policies that provide social security and skill development opportunities for informal workers.
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