Unemployment Situation in India

Intoduction
There will be approximately 63.5 million new entrants to the working age group of
15-59 years between 2011 and 2016.

Currently, India is passing through an unprecedented phase of

demographic changes. The ongoing demographic changes are likely to
contribute to an ever increasing size of labour force in the country. The
Census projection report shows that the proportion of population in the
working age group (15-59 years) is likely to increase from approximately
58% in 2001 to more than 64% by 2021.

In absolute numbers, there will be approximately 63.5 million new entrants

to the working age group of 15-59 years between 2011 and 2016. Further,
it is important to note that the bulk of this increase in the population is likely
to take place in relatively younger age group of 20-35 years. Such a trend
would make India as one of the youngest nations in the world. In 2020, the
average Indian will be only 29 years old, compared to 37 in China and the
US, 45 in West Europe and 48 in Japan. This trend is seen significant on
the grounds that what matters is not the size of the population, but its age
structure. A population "bulge" in the working age groups, however large
the total population, is seen as an important advantage characterised as a
"demographic dividend." Hence, this report, inter alia, aims to focus on the
young age groups and suggest ways and means to utilise this demographic
dividend‟ to contribute to the overall economic growth of the country.
Factors determining the employment
situation in the Long Term

A. Supply of Labour The factors, which influence employment

outcomes of an economy in the long term, operate both on the
demand side of the labour as well as on the demand side. The supply
side factors which need to be considered include the following.

A.1 Age structure of population.

A.2 The participation of population in labour force

A.3 Characteristics of labour force

 A.1. Age Structure of population

Age structure: 0-14 years: 27.71% (male 186,420,229/female 164,611,755)

15-24 years: 17.99% (male 121,009,850/female 106,916,692)
25-54 years: 40.91% (male 267,203,029/female 251,070,105)
55-64 years: 7.3% (male 46,398,574/female 46,105,489)
65 years and over: 6.09% (male 36,549,003/female 40,598,872) (2016 est.)

Definition: This entry provides the distribution of the population according to

age. Information is included by sex and age group (0-14 years, 15-64
years, 65 years and over). The age structure of a population affects a nation's
key socioeconomic issues. Countries with young populations (high percentage
under age 15) need to invest more in schools, while countries with older
populations (high percentage ages 65 and over) need to invest more in the
health sector. The age structure can also be used to help predict potential
political issues. For example, the rapid growth of a young adult population
unable to find employment can lead to unrest.

Population Pyramid
A population pyramid illustrates the age and sex structure of a country's
population and may provide insights about political and social stability, as well
as economic development. The population is distributed along the horizontal
axis, with males shown on the left and females on the right. The male and
female populations are broken down into 5-year age groups represented as
horizontal bars along the vertical axis, with the youngest age groups at the
bottom and the oldest at the top. The shape of the population pyramid
gradually evolves over time based on fertility, mortality, and international
migration trends.
 A.2 Labour Force Participation
In recent decades, India has enjoyed economic and demographic
conditions that ordinarily would lead to rising female labour-force
participation rates. Economic growth has been high, averaging 6-7% in the
1990s and 2000s; fertility has fallen substantially; and female education
has risen dramatically, albeit from a low level. In other regions, including
Latin America and the Middle East and North Africa, similar trends have led
to large increases in female participation. Yet National Sample Survey
(NSS) data for India show that labour force participation rates of women
aged 25-54 (including primary and subsidiary status) have stagnated at
about 26-28% in urban areas, and fallen substantially from 57% to 44% in
rural areas, between 1987 and 2011. Different age groups or different
surveys essentially tell the same story, even though the levels differ
slightly.

This is an important issue for India’s economic development as India is now

in the phase of “demographic dividend”, where the share of working-age
people is particularly high, which can propel per capita growth rates
through labour force participation, savings, and investment effects. But if
women largely stay out of the labour force, this effect will be much weaker
and India could run up labour shortages in key sectors of the economy.
Also, there is a wealth of evidence suggesting that employed women have
greater bargaining power with positive repercussions on their own well-
being and that of their families

A.3 Labour Force skills

There is a dual challenge of developing skills and utilizing them in a proper

way. The Economic Survey 2014-15 has stated that as per the Labour
Bureau Report 2014, the present skilled workforce in India is only 2
percent, which is much lower when compared to the developing nations. As
per the report, the number persons aged 15 years who have received or be
receiving skills is merely 6.8 percent.

Representational image
The Economic Survey 2014-15 stated that as per the National Skill
Development Corporation there is a need of 120 million skilled people in
the non-farm sector for the period 2013-14. Dearth of formal vocational
education, lack of vide variation quality, high school dropout rates,
inadequate skill training capacity, negative perception towards skilling, and
lack of industry ready skills even in processional courses are the major
cause of poor skill levels of India’s workforce. Some recent initiatives that
aim to enhance access, equality, quality, innovation in the area of higher
and vocational education are the Rashtriya Uchchatar Shiksha
Abhiyan, Technical Education Quality Improvement Programme, and
National Skill Qualification Framework.
A dedicated Department of Skill Development and Entrepreneurship has
been created under the Ministry of Skill Development, Entrepreneurship,
Youth Affairs and Sports to accord focused attention in this area. The Deen
Dayal Upadhyaya Grameen Koushalya Yojana for poor rural youth and Nai
Manzil for education and skill development of minority dropouts have also
been set up.
The Economic Survey has shown the cause for concern is the deceleration
in the compound annual growth rate of employment during 2004-05 to
2011-12 to 0.5 percent from 2.8 percent during 1999-2000 to 2004-05 as
against growth rate of 2.9 percent and 0.4 percent respectively in the
labour force for the same periods.

There have also been structural changes to the share of primary sector in
total employment has dipped below the halfway mark while employment in
secondary and tertiary sectors have shown a considerable increase. Self-
employment continues to dominate, with a 52.2 percent share in total
employment with significant share of workers engaged in low-income-
generation activities, the Economic Survey added.
 B. Demand for Labour

The demand for labour is a derived demand. It is derived from demand for
the commodities it helps to produce. The greater the consumers’ demand
for the product, the greater the producers’ demand for the labour required
in making it. Hence an expected increase in the demand for a commodity
will increase the demand for the type of labour that produces this
commodity.

The elasticity of demand for labour depends, therefore, on the elasticity of

demand for its output. Demand for labour will generally be inelastic if their
wages form only a small proportion of the total wages. The demand, on the
other hand, will be elastic if the demand for the commodity it produces is
elastic or if cheaper substitutes are available.

The demand for labour also depends on the prices of the co-operating
factors. Suppose the machines are costly, as is the case in India, obviously
more labour will be employed. The demand for labour will increase.
Another factor that influences the demand for labour is the technical
progress. In some cases, labour and machinery are used in a definite ratio.
For instance, the introduction of automatic looms reduces the demand for
labour.

Backwardhr Sloping Supply Curve of Labour:

While labour’s supply curve sloping upwards from left to right is the general
rule, an exceptional case of labour’s supply curve may also be indicated
(see Fig. 31.1) When the workers’ standard of living is low, they may be
able to satisfy their wants with a small income and when they have made
that much, they may prefer leisure to work. That is why it happens that,
sometimes, increase in wages leads to a contraction of the supply of
labour. This is represented by a backward-sloping supply curve as under.

For some time this particular individual is prepared to work long hours as
the wage goes up (wage is represented on OY—axis in Fig. 31.1). But
beyond OW wage, he will reduce rather than increase his working hours.
However, this backward sloping Curve may sometimes be true of certain
workers, the supply curve of labour to industry as a whole will normally
slope upwards from left to right (as shows in Fig. 31.2)

Interaction of Demand and Supply:

We have now analysed the demand side as well as the supply side of
labour. We shall now see how their interaction determines the wage level.
This is shown in Fig. 31.2
In this diagram, we have shown the wage determination of a particular type
of labour for an industry. The curve SS represents supply of labour to the
industry. DD is the demand curve for labour of that industry. Demand and
supply curves intersect at E. Therefore, the wage rate OW (= NE) will be
established. The equilibrium wage rate will change if the demand and/or
supply conditions change.

Under competitive conditions, wage rate in the long run will be equal to
both the marginal revenue product and the average revenue product. If the
wage rate is less than the average revenue product, the firms would be
earning supernormal profits. As a result, new firms will enter the industry
and the demand for labour will increase which will push up the wage rate
so as to be equal to average revenue product.

On the other hand, if the wage rate is above the average revenue product,
the firms will be suffering losses. As a result, some firms will leave the
industry and demand for labour will decrease which will force the wage-rate
down. Fig. 31.2 shows the long-run equilibrium of the firms under perfect
competition. This diagram shows that long-run equilibrium wage rate is
OW. At wage rate OW, the firm is employing ON number of labour. This
OW rate is equal to marginal revenue product (MRP) and average revenue
product (ARP) at point E. The point E is the equilibrium position of the
firm in the long run.

All over the world, labour is spat up into a very large number of groups and
sub-groups, each with a different level of wages. Even within the same
group, the differences are ever so many. Consequently there cannot
possibly be a general rate of wages. All that can be done is to and out an
average rate which can be discovered by dividing the total amount paid to a
given group of workers by the total number of workers in it. The fact is that
the wages differ from occupation to occupation. Wages are relative.

C. Structure of Economy
India is a significant force in world trade. Corruption, underdeveloped
infrastructure, and poor management of public finance continue to
undermine overall development, although the economy has sustained an
average annual growth rate of about 7 percent over the past five years.
Growth is not deeply rooted in policies that preserve economic freedom.
Progress on market-oriented reforms has been uneven. The state
maintains an extensive presence in many areas through public-sector
enterprises. A restrictive and burdensome regulatory environment
discourages the entrepreneurship that could provide broader private-sector
growth.India is a stable democracy. It is 80 percent Hindu but also home to
one of the world’s largest Muslim populations. Prime Minister Narendra
Modi, leader of the Bharatiya Janata Party, took office in 2014 and is
credited with reinvigorating India’s foreign policy. Modi, who in June 2016
made his fourth visit to the United States in two years, has bolstered ties
with the U.S., particularly in defense cooperation. India has technology and
manufacturing sectors as advanced as any in the world as well as
traditional sectors characteristic of a lesser developed economy. Extreme
wealth and poverty coexist as the nation both modernizes rapidly and
struggles to find paths to inclusive development for its large and diverse
population.
 E. Economists' criticisms

In a year blemished with political earthquakes, rising sentiments of national

territoriality across the world and with the deaths of much-loved icons,
collective memories from 2016 forces one to be seized by an eerie
premonition. Decades down the line, we can expect students of history to
be faced with questions on identifying and analysing the impact of events of
2016 with parallels drawn between the 1930s and the 2010s.

India in 2016, in spite of the world disintegrating in spells of political crisis,

remained largely consumed under the protraction of ‘Modism’. If we
observe India’s macroeconomic performance in 2016 from a bird’s eye
view, there were some positives.

The overall annual growth rate picked up relatively during the year
(accounting for a changein the growth metric calculation methods).
The reported GDP from manufacturing in India averaged Rs 4,136.21
billion from 2011 till 2016 – reaching an all-time high of Rs 4,908.33 billion
in the first quarter of 2016 from a record low of Rs 3,455.83 billion in the
fourth quarter of 2011. But the underlying numbers, with respect to overall
industrial production and private investment, hardly reflect a stronger
manufacturing performance.

Similarly, current account deficit has contracted over the last couple of
years. As reflected by Figure 1, the current account to GDP level (in %)
averaged around -1.43% from 1980 till 2015, reaching an-all time high of
2.28% in 2003 and a record low of -4.82% in 2012. In 2016, it came down
to around -1.25%.

\
Unemployment is a serious problem of India. It is becoming more and more
serious day by day. India has the population of about 1.20 billion. Many of
the Indians are jobless. The problem of unemployment is rising fast. Every
able bodied man and woman must get employment. If not, the problem of
unemployment will create difficulties for the development of the country.
The unemployment in developing countries like India is of quite different
nature. The main cause of unemployment and underemployment prevailing
in the developing countries such as India is deficiency of the stock of
physical capital with which to employ the growing labour force. Due to the
lack of physical capital, it has not been possible to absorb the growing
labour force in productive employment.

The result has been the emergence of long-term-or chronic unemployment.

Apart from the relative low rate of capital formation as compared to the
growth in labour force, the use of capital-intensive techniques in the
industries mostly imported from the Western developed countries is
another important factor causing unemployment in developing countries
like India.

Besides, in agriculture, despite the existence of surplus labour reckless

mechanization of various agricultural operations has reduced the
employment opportunities in agriculture. Another important reason of rural
unemployment prevailing in the developing countries like India is extremely
unequal distribution of land so that many agricultural households have no
adequate access to land for production and self-employment in agriculture.

Lack of infrastructure such as roads, power, telecommunications,

highways, Irrigation facilities in agriculture is also responsible for the
existence of huge unemployment in India. Inadequate availability of
infrastructure is a great obstacle for the generation of opportunities for
productive employment.

Many age-old businesses that are not able to cope-up with the changing
demand and economic scenario are either closed down or heavy
retrenchment takes place in them. When there is slump in business, many
people find themselves without jobs.

Though a number of young men have been absorbed in the Information

Technology businesses, a large number of youth people are still
unemployed.

Check on population growth

First of all, we must check the fast rising population of India. We cannot
create jobs for all if the rate of population growth is not slowed down.

Family Planning schemes should be made popular. People should be

educated about the importance of a small family. This will help us solve the
problem of unemployment.

Defective education system

The education system of our country should be made need-based. At
present, every man and woman wants a job in offices. Our education
makes a student bookish. Schools and colleges are like factories. They
produce B.A.s, M.A.s and Ph.D.s. Even agriculture graduates want office
jobs in town. So the education of our country should be job-oriented. It
must make our students self-dependent.

Change in attitude needed

A change in the mental attitude of our boys and girls is necessary. As many
of them are service-minded, they do not want to take risks. They do not like
to start business or small-scale industries. They should not depend on the
government for everything. It is not possible for any government to give
jobs to all. A desire for doing something of one’s own may solve, to some
extent, the problem of unemployment for both the educated and
uneducated people.
Solution
In brief, we have to solve the problem of unemployment on a war footing.
For this both long and short measures should be taken in India.

 Population growth has to be checked.

 Family planning should be made productive.
 Each one should give financial help to the unemployed to set up some
industries or start some business.
 People should be encouraged to go for skill based education.
 Government should promote the establishment of industries by Private
secto

Conclusion
It is not appropriate to project GDP growth and employment elasticities
over a long period of 25 years. The scenario of employment in 2020 will
develop based on certain underlying trends in regard to factors which
prevail in the longer term. Though the growth of labour force will slow
down, but the elasticity of employment will also fall, which means that
pressure on labour market will not ease. As agricultural work opportunities
continue to shrink, the informal sector will grow rapidly. To cope up with
such expected trends, strategies are needed to promote labour intensive
and capital saving technologies. Employment creation in small
establishments will have to be promoted by incentives linked with jobs
created rather than capital invested. Migrant labour will increase social
pressures. A strategy to raise the wage levels of those who migrate will
have to be based on a massive programme for development of vocational
skills. A simple but broad based social security system will have to be
developed to improve quality of employment in a scenario where migrant
workers will be rapidly growing. Such a social security system coupled with
better labour incomes, based on better productivity of trained manpower,
will facilitate the conversion of emerging work opportunities into meaningful
jobs, where chances of extreme exploitation of labour get eliminated.