Unemployment

& Labour
Market
SESSION 5
 1 3
Measuring Joblessness Sources of Unemployment

Outline

Labour Market Equilibrium

PROF. AMARESH SAMANTARAYA 2

Importance of Employment
Means of earning livelihood – key determinant of standard of living

Unemployment causes potential loss of productive resources

Prolonged unemployment – difficult experience – lower self-esteem and causes

depression

An economic concern with potentially serious social and psychological consequences

PROF. AMARESH SAMANTARAYA 3

CMIE

PROF. AMARESH SAMANTARAYA 4

PROF. AMARESH SAMANTARAYA 5
CMIE

PROF. AMARESH SAMANTARAYA 6

Questions
1. How to measure unemployment?
2. Why does unemployment exist?
3. What are various types of unemployment?
4. How do economic factors impact employment
situation?

PROF. AMARESH SAMANTARAYA 7

Definition & Measurement

Bureau • Persons aged 16 years and older who had no

of employment during the reference week, were
Labour available for work, except for temporary
illness, and had made specific efforts to find
Statistics employment sometime during the 4-week
(US) period ending with the reference week

PROF. AMARESH SAMANTARAYA 8

India – NSS 68th Round
Household Survey conducted during July 2011 – June
2012
◦ First Conceptual Framework – Planning Commission – Expert Committee
on Unemployment Estimate (Dantwala Committee) – in 1970
◦ First survey – 27th Round of NSS – October 1972 – September 1973

Sample Survey:
◦ 12,784 Sample units
◦ 1,01,724 Households
◦ 4,56,999 Respondents
PROF. AMARESH SAMANTARAYA 9
India – NSS 68th Round
3 Different Approaches
◦ Usual Status – with a reference period of one year
◦ Current Weekly Status
◦ Current daily status

Age-group:
◦ All ages
◦ 15-59 years

PROF. AMARESH SAMANTARAYA 10

CMIE
Panel size of 1,78,000 households
Trailing 30 days data – used for compiling monthly and
weekly averages
◦ Is currently employed
◦ Is not employed but is willing to work and is actively looking for a job
◦ Is not employed, is willing to work but is not actively looking for a job
◦ Is not employed, is not willing to work and is not looking for a job

PROF. AMARESH SAMANTARAYA 11

Following categories not counted
as Unemployed
1. Full-time students
2. Parents who are staying at home to look after their
children and elderly
3. People who cannot work because of physical disabilities
4. People who have inherited wealth and choose to live off
that wealth rather than work
5. Retirees
PROF. AMARESH SAMANTARAYA 12
68th NSS Round

PROF. AMARESH SAMANTARAYA 13

Labour Force

People in the workage population who are either currently

working or who would like to work at the prevailing wage rate, and
are actively trying to find a job

Labour force = No. of Employed + No. of Unemployed

PROF. AMARESH SAMANTARAYA 14

Unemployment Rate

Unemployment Rate =
(No. of Unemployed/Labour Force)*100

PROF. AMARESH SAMANTARAYA 15

Labour-force Participation Rate

Labour-force Participation Rate =

(Labour Force/Working-age
Population)*100

PROF. AMARESH SAMANTARAYA 16

 Example
Item Number/Rate
Population 12 million
Work-age Population 9 million
Labour Force 8 million
Unemployed 1 million
Unemployment Rate =1/8*100 = 12.5%
Labour-force Participation Rate =8/9*100 = 88.9%
PROF. AMARESH SAMANTARAYA 17
Issue
1. During the periods of economic slow down, it is a
fact that the unemployment rate rises
2. Moreover, the labour-force participation rate falls
too
3. So, actual unemployment situation is even worse

PROF. AMARESH SAMANTARAYA 18

PROF. AMARESH SAMANTARAYA 19
PROF. AMARESH SAMANTARAYA 20
68th Round NSS

PROF. AMARESH SAMANTARAYA 21

68th NSS Round

PROF. AMARESH SAMANTARAYA 22

Labour Market Equilibrium

PROF. AMARESH SAMANTARAYA 23

Why Labour Market is special?
In a market, without intervention, flexible adjustment of
prices ensures equality of demand and supply
◦ Determines equilibrium price and quantity
Existence of unemployment in labour market is a puzzle
◦ What are the rigidities prevail in the labour market?

PROF. AMARESH SAMANTARAYA 24

Labour Demand
250
As wages decline, demand for
labour increases. 200

Demand for labour is negatively

150
related to wages
100
A downward sloping demand curve
50

0
10 15 20 25 30

PROF. AMARESH SAMANTARAYA 25

Labour Supply
250
As wages increase, workers are
increasingly willing to work more 200

Supply of labour is positively

150
related to wages
100
An upward sloping supply curve
50

0
10 15 20 25

PROF. AMARESH SAMANTARAYA 26

Equilibrium in labour market

PROF. AMARESH SAMANTARAYA 27

Rigidities in Labour Market

PROF. AMARESH SAMANTARAYA 28

Sources of Unemployment

PROF. AMARESH SAMANTARAYA 29

Market distortions
Minimum wage legislations

Unions and bargaining

Efficiency wages

PROF. AMARESH SAMANTARAYA 30

Unemployment even at
equilibrium wage

PROF. AMARESH SAMANTARAYA 31

Special Feature of Labour Market
Unemployment can prevail even if the prevailing wage rate is equal
to equilibrium wage rate
Two types
◦ Natural unemployment rate
◦ Cyclical unemployment

PROF. AMARESH SAMANTARAYA 32

Natural unemployment rate

Rate of unemployment prevailing in the long run in an

economy

Frictional unemployment – change of job, location, etc.

Structural unemployment – skill of the potential worker not matching the

requirement

PROF. AMARESH SAMANTARAYA 33

Cyclical Unemployment

PROF. AMARESH SAMANTARAYA 34

Equilibrium in labour market

PROF. AMARESH SAMANTARAYA 35

Discussion

Immigration’s Effects on the Labour Market

Employment guarantee programme

PROF. AMARESH SAMANTARAYA 36