ECONOMICS

CHAPTER 15: UNEMPLOYMENT IN INDIA – PROBLEMS AND POLICIES

Class: 11 (ISC)
2022-23
I. MEANING OF UNEMPLOYMENT

• Unemployment is a situation when there are some able-bodied persons who have the ability to
work and are willing to work at the prevailing wage rate but are not able to find work which may
yield them some regular income. It is also known as Involuntary Unemployment.

• Voluntary Unemployment refers to those people who are voluntarily unemployed by their choice.
They may not work due to laziness or otherwise and they are not interested in any gainful job.

II. TYPES OF UNEMPLOYMENT IN A DEVELOPED ECONOMY

1. CYCLICAL UNEMPLOYMENT
(a) Meaning and Causes of Cyclical Unemployment
• Cyclical Unemployment is due to the downswing and depression phases of the business
cycle.
• During the phase of Prosperity, the level of economic activity rises, i.e., the level of
income, output and employment tend to increase.
• During the phase of Depression, the level of economic activities is low, i.e., low income,
low output and low level of employment.
• This is caused due to the deficiency in aggregate demand.
• During Depression, income falls, and this lowers the demand for goods and services.
• As a result, aggregate demand is not sufficient to purchase the entire output that can be
produced with full employment of the labour force and thus production will be less than
full employment output.
• Consequently, a large number of labour force will remain unemployed.

(b) How can Cyclical Unemployment be Eliminated? OR Solutions for Cyclical

Unemployment
• Since Cyclical Unemployment arises due to the deficiency of aggregate spending, it can
be eliminated by raising aggregate demand sufficiently so as to increase output to the
level which can be produced with full utilization of labour.
• Economic growth, increase in aggregate expenditure, increase in export of goods and
services, lowering interest rates makes loans cheap which, in turn encourages spending.

2. FRICTIONAL UNEMPLOYMENT
(a) Meaning and Causes of Frictional Unemployment
• Frictional Unemployment exists when there is lack of adjustment between demand for
and supply of labour force.
• In a modern dynamic economy, people leave jobs for many reasons, and it takes time
to find new jobs because of lack of knowledge and mobility on the part of the labour.
• This gives rise to temporary unemployment of those workers who are moving between
jobs and hence Frictional Unemployment arises when the existing workers change jobs.

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 • Frictional Unemployment may also occur due to change in demand, or due to economic
progress when old industries contract and new industries come up.
• It may also occur when students are looking for their first job or when mothers are
returning to the workforce, when workers are fired or, in some cases, laid off due to
business-specific reasons, such as a plant closure.

(b) How can Frictional Unemployment be Eliminated? OR Solutions for Frictional

Unemployment
• Frictional Unemployment may be reduced by improving the organisation of the
employment market so as to adjust the supply of workers to their demand.
• It can also be reduced by increasing the mobility of labour, both occupationally
and geographically.

III. TYPES OF UNEMPLOYMENT IN A DEVELOPING OR UNDERDEVELOPED

ECONOMY

1. STRUCTURAL UNEMPLOYMENT
(a) Meaning and Causes of Structural Unemployment
• Structural Unemployment refers to a situation when a large number of people do not
get work because of limited job opportunities available.
• It arises from the shortage of capital equipments and other complementary resources.
• Structural Unemployment is not a temporary phenomenon, rather it is deep-rooted and
chronic in nature.
• In a developing country like India, the capacity to create jobs is limited in view of the
inadequate production capacity, mainly the capital equipments.
• In India, the production capacity is not only limited, but it is increasing at a slow rate
because of low rate of capital formation and as against this, the labour force is
increasing at a fast rate because of a rapid increase in population.
• Thus, the labour force increases at a faster rate than the new jobs created and
hence the number of unemployed persons is increasing every year.

(b) How can Structural Unemployment be Eliminated? OR Solutions for Structural

Unemployment
• Structural Unemployment can be solved through economic development by
increasing the production capacity in the economy.
• Economic development would bring about a large increase in the employment
opportunities so as to increase the increased labour force resulting from the
growth in population.

2. OPEN UNEMPLOYMENT
(a) Meaning and Causes of Open Unemployment
• Open Unemployment refers to a situation when there are some workers who have
absolutely no work to do.
• They are willing to work at the prevailing wage rate, but they are forced to remain
unemployed in the absence of work.

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 • Open Unemployment is largely found in urban areas and to a very limited extent in
rural areas.
• Frictional Unemployment, Structural Unemployment and Cyclical Unemployment are
different types of Open Unemployment.

3. DISGUISED UNEMPLOYMENT
(a) Meaning and Causes of Disguised Unemployment
• Disguised Unemployment refers to a situation when the number of workers engaged in
a job is much more than actually required to do the given work. It is also known as
Hidden Unemployment.
• Disguised unemployment occurs when there are workers who are apparently working,
but their contribution to output is nil in the sense that if they stop working, the total
output will not decrease i.e., their marginal productivity is zero.
• If some workers are withdrawn, the same work will be done by fewer workers and
output will not fall. This type of unemployment is predominant in the agricultural sector
of developing countries like India.
• Overcrowding in agriculture due to rapid growth of population and lack of alternative
job opportunities may be cited as the main reasons for Disguised Unemployment in
India.
• Disguised Unemployment occurs because of four interrelated reasons:
➢ Availability of large labour force
➢ Non-availability of alternative employment opportunities in the urban sector
➢ Agriculture as a family occupation
➢ Small size of land holdings.

(b) How can Disguised Unemployment be Eliminated? OR Solutions for Disguised

Unemployment
• Disguised Unemployment is chronic in nature and can be eliminated only through
economic development when more employment opportunities are created in the urban
sector of the economy.

4. UNDEREMPLOYMENT
(a) Meaning and Causes of Underemployment
• Underemployment refers to a situation when the employed persons are contributing to
production and income which is less than what they are really capable of.
• In this situation, people do not get the type of work they are capable of doing or they
are trained for.
• They possess abilities and expertise to do the type of work that could yield higher
income but due to non-availability of suitable work as per their abilities and expertise,
they may join inferior occupations.
• For example, if an automobile engineer takes up the job of an ordinary motor mechanic
due to lack of opportunities.

5. SEASONAL UNEMPLOYMENT
(a) Meaning and Causes of Seasonal Unemployment
• Seasonal Unemployment refers to a situation when people get work during some days
or months of the year, but not regularly throughout the year and, therefore, they are
unemployed during some part of the year.

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 • Seasonal Unemployment occurs due to lack of productive work during certain periods
of the year in view of seasonal character of certain industries or occupations.
• It also takes place mainly due to lack of suitable alternative employment opportunities
in the slack season.

6. EDUCATED UNEMPLOYMENT
(a) Meaning and Causes of Educated Unemployment
• Educated Unemployment refers to unemployment among the educated people, i.e.,
matriculate and higher educated people.
• Educated Unemployment involves a great waste of valuable human capital since a large
number of scarce resources that go into the education and training of the people go
waste because the economy is not able to make use of them.
• Educated Unemployment arise due to the rapid expansion of educational facilities and
mass education in India is responsible of this problem.
• Faulty education system is also responsible for this problem. There is too much
emphasis on general education rather than vocational education and hence the education
system in the country is not related to the available employment opportunities.

7. TECHNOLOGICAL UNEMPLOYMENT
(a) Meaning and Causes of Technological Unemployment
• Technological Unemployment refers to unemployment that arises because of the use
of labor-saving techniques.
• Introduction of improved machinery and new techniques has a tendency to displace
labour and thereby cause Technological Unemployment.
• Technological Unemployment occurs when developments in technology and working
practices cause some workers to lose their jobs.
• Capital techniques are used because they are more efficient.
• The substitution of manpower with technology results in Technological
Unemployment.

IV. CAUSES OF UNEMPLOYMENT

1. Low Rate of Economic Growth

• The rate of economic growth determines the rate at which new jobs are created.
• The non-agricultural sector, particularly the modern industrial sector, is growing at a slow
pace and this has not only led to Open Unemployment but has rather put pressure on land,
resulting in Disguised Unemployment in the agricultural Sector.
• Moreover, the employment generation capacity is low due to use of capital-intensive
techniques in the non-agricultural sector.

2. Low Rate of Agriculture

• The growth rate of the agricultural sector has been low and slow implying that the growth rate
of employment in the agricultural sector has been low.
• Moreover, productivity in agriculture continues to be very low because of various
technological and institutional factors such as small, scattered units of cultivation, inadequate
capital, outmoded technologies, etc.
• As a consequence, agriculture has provided only low productivity employment avenues.

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 • Lack of multiple cropping and excessive pressure of population on land have added to the
problem of seasonal and disguised unemployment in the agricultural sector.
• Low Rate of Capital Formation
• Low rate of capital formation has hindered the growth potentialities in the agricultural and
industrial sectors due to non-availability of machinery, power, transport, and essential raw
materials.
• Consequently, job-creation capabilities of agricultural and industrial sectors have been
affected adversely

3. Rapid Population Growth

• The rapid growth of population has directly added to the problem of unemployment by
marking large addition to the labour force, which has increased the supply of labour force.
• Due to the rapid population growth, the resources for capital formation have also been
reduced.
• More population means more expenditure on consumer goods and on the provision of various
facilities such as water, electricity, medical and education etc.
• This has reduced savings and investment and has thereby retarded the increase of job
opportunities.

4. Use of Capital-intensive Techniques

• Various macro policies of the government have encouraged the adoption of capital-intensive
techniques despite availability of surplus labour in the country.
• Low interest rates, low tariff duties on imports of capital goods, various concessions for
investment, dependence on imported technology etc., have made capital-intensive techniques
relatively more attractive, leading to less employment.

5. Defective Education System

• The Education System is still based on traditional liberal lines.
• It is not related to the growing developmental needs of the country.
• It lays more emphasis on general education rather than vocational and technical education.

6. Inadequate Employment Planning

• Low priority has been given to employment objective in the Plans.
• Till recently, the employment objective was not quantified as a time-bound programme.
• In fact, planning in India has not been employment-oriented.
• The wage-rate policy and appropriate policy with regard to techniques, etc., have not been
seriously used to solve the problem been of unemployment.

7. Weak Manpower Planning

• Manpower Planning refers to proper balancing between manpower needs and availabilities in
the various fields such as doctors, engineers, administrators, business executives, etc.
• There have been significant imbalances in different spheres of educated and trained
personnel, but not much has been done to overcome these imbalances.

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8. Failure to develop Projects providing Large Employment
• The Plans have not really been successful in developing projects which have large
employment potential.
• The Plans have not done well in developing flood control, drainage, rural electrification and
other employment generating activities.
• The Plans have not placed due emphasis on the development of various schemes related to
irrigation, soil conservation, development of dairies, fisheries, etc.

9. Decline of Cottage and Small-scale Industries

• A number of traditional village and cottage industries have declined over the years due to a
change in the demand and emergence of more efficient modern industries.
• Therefore, a large number of people have left their traditional jobs.
• The industrial development had adverse effect on cottage and small industries.
• The production of cottage industries began to fall, and many artisans became unemployed,
and this has been an important reason for rural unemployment in India.

10. Migration of Rural Population

• There has been large-scale migration of people from the rural areas to the urban areas due to
inadequate employment opportunities in rural areas and higher wages in the urban areas.
• But jobs are not available for all of them in the urban areas and this has increased Urban
Unemployment in India.

11. Labour Laws

• The government has been protecting the existing workers and their exploitation with the help
of Minimum Wages Act, Workers’ Compensation Act, and other laws.
• High wages have kept the demand for labour at a low level.

V. SPECIAL EMPLOYMENT GENERATION PROGRAMMES

Imparting vocational education and training is an effective way of developing skills at various levels for
improving the employability of the population.

1. EMPLOYMENT ASSURANCE SCHEME (EAS)

• EAS was started on 2 October 1993 in 1778 rural backward blocks situated in drought-prone,
desert, tribal and hilly areas.
• It was restructured in 1999-2000 to make it a single Wage Employment Programme.
• It is a centrally sponsored scheme on a cost sharing ration 75:25 between the Centre and the
States.
• The two main objectives of EAS are:
➢ To create additional wage employment opportunities during the lean agricultural season
when there is acute shortage of wage employment for the BPL rural people. It aims at
providing 100 days of work to two members of a rural family in the agricultural lean
season.
➢ To create durable productive community assets for sustained employment and
development.

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2. SAMPOORNA GRAMEEN ROZGAR YOJAN (SGRY)
• SGRY was launched in September 2201 with the objective of:
➢ To provide Wage Employment along with Food Security in the rural areas to the BPL
people.
➢ To create durable community, social and economic assets.
• The ongoing Employment Assurance Scheme (EAS) and Jawahar Gram Samridhi Yojana
(JGSY) Projects were subsequently integrated with SGRY.
• The scheme was implemented as a centrally sponsored project on a cost-sharing ratio of
75:25.
• The scheme was merged with Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) with effect from 1April 2008.

3. SWARNA JAYANTI SHAHARI ROZGAR YOJANA (SJSRY)

• National Urban Livelihood Mission (NULM) SJSRY came into operation from December
1997 by merging various programmes operated earlier for urban poverty alleviation like
Nehru Rozgar Yojana (NRY) and Prime Minister’s Integrated Urban Poverty Eradication
Programme (PMIUPEP).
• SJSRY was replaced by NULM in September 2013.
• It aims to provide gainful employment to the urban unemployed or underemployed poor BPL
persons through setting up of self-employment ventures or through provision of wage-
employment and by creating opportunities for skill development.
• It is funded on a cost-sharing ratio of 75:25 between the Centre and the States and has the
following schemes:
➢ The Urban Self-Employment Programme separately for males and females.
➢ Skill Training for Employment Promotion amongst the urban poor.
➢ The Urban Wage-Employment Programme.
➢ Urban Community Development Network.

4. Prime Minister’s Rozgar Yojana (PMRY)

• Prime Minister’s Rozgar Yojana was started in 2000-01.
• This scheme aimed at helping educated unemployed youths in establishing self-employment
units in industry, service and business sectors.
5. MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE ACT
(MGNREGA)
• MGNREGA aims at providing livelihood security to the rural households.
• MGNREGA which has been hailed as the world’s largest and most ambitious social project
was designed with the following key objectives:
➢ This flagship programme of the government aims at providing livelihood security to rural
households.
➢ Generation of paid rural employment of not less than 100 days for each worker who
volunteers for unskilled labour.
➢ Proactively ensuring social inclusion by strengthening livelihood base of rural poor,
empowerment of women.
➢ Creation of durable assets in rural areas such as wells, ponds, roads and canals.
➢ Reduce urban migration from rural areas.
➢ Create rural infrastructure by using untapped rural labour.

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 • It is one of the most ambitious pro-poor schemes in the world to tackle rural poverty and
unemployment by providing employment to the rural people.
• MGNREGA has also led to higher agricultural wages, benefitting all employed workers,
empowerment of women (who work in large number), improved economic condition and
reduction in migration from the rural areas.
• MGNREGA has contributed to rural development through construction of rural roads, soil
conservation, flood control and land improvement projects.
• UNDP, in its Report of 2015, has acclaimed MGNREGA as the best-known Employment
Guarantee Scheme providing direct jobs to the rural poor and has been cited as an exemplary
in job creation for the poorest rural households.
• MGNREGA has been riddled with corruption and leakages.
• Delay in wage payments has also been a dampener.
• However, the program has been streamlined now by integrating it with Aadhaar Linked
Payment System to provide direct benefit transfer to the bank account of the beneficiaries,
thereby reducing the delays in payment and leakage.

6. PRADHAN MANTRI KAUSHAL VIKAS YOJANA

• This scheme was launched on 21 March 2015 to provide industry relevant skill-training to
youth.
• It was realised that after Class X and XII, there are a number of dropouts who join the
unemployed youth.
• Hence, if they are guided to learn a vocational skill as per their aptitude, they can be usefully
and gainfully employed.
• This plan is implemented with the help of Ministry of Skill Development and
Entrepreneurship through the National Skill Development Corporation.
• During 2015-16, 19.8 lakh youth were trained under this scheme.

7. DEEN DAYAL UPADHYAYA GRAMEEN KAUSHALYA YOJANA (DDU-GKY)

• Deen Dayal Upadhyaya Grameen Kaushalya Yojana is a placement-linked skill development
scheme for the rural youth who are poor.
• This Programme provides them with jobs having regular monthly wages or above the
minimum wages.
• It is one of the cluster of initiatives of the Ministry of Rural Development and the Government
of India that seeks to promote rural livelihoods.

8. SKILL INDIA PROGRAMME

• Skill India Programme is a multi-skill India programme launched in March 2015.
• It aims at providing training and skill for various occupations, both traditional like carpenters,
weavers as well as new occupation like real estate, textile, gem and jewellary.
• This programme will help in getting more employment and improving entrepreneurship,
leading to an improvement in the economic conditions.
INSTRUCTIONS TO STUDY THIS CHAPTER:
● Please read your book for detailed information on the above topics.
● The length of the answer depends on the marks in the question paper.
● Draw diagrams wherever necessary.
● Examples can be used to elaborate your points for this chapter.

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