The population of any country consists of two components (i) Labor Force and (ii) Non-Labor Force.
Labor force means all persons who are working (being engaged in the economic activity) as well as those who are not working but are seeking or available for work at the current wage rate. It means the labor force consists of both employed and unemployed people.
The component of population which is not a part of the labor force is Non-Labor Force. It includes all those who are not working and are neither seeking nor available for work.
Unemployment can be defined as a state of not doing work for a person who is fit and willing to work at the current wage rate. It is a condition of involuntary idleness. Unemployed person is the one who is an active member of the labor force and is seeking work, but is unable to find the same.
Involuntary unemployment can be further divided into cyclical unemployment, seasonal unemployment, structural unemployment, frictional unemployment, natural rate of unemployment, disguised unemployment and under employment.
Cyclical or demand deficient unemployment occurs when the economy is in need of low workforce. When there is an economy-wide decline in aggregate demand for goods and services, employment declines and unemployment correspondingly increases. Cyclical unemployment mainly occurs during recession or depression.
This type of unemployment occurs in a particular time of the year or season and thus is known as seasonal unemployment. Seasonal unemployment is most common in industries like agriculture, tourism, hotel, catering, etc.
Structural unemployment arises when the qualification of a person is not sufficient to meet his job responsibilities. It arises due to long term change in the pattern of demand that changes the basic structure of the economy. The person is not able to learn new technologies used in the new expanding economic sectors and they thus may be rendered permanently unemployed. For instance, when computers were introduced, many workers were dislodged because of a mismatch between the existing skills of the workers and the requirement of the job.
Frictional unemployment occurs when a person is out of one job and is searching for another for different reasons such as seeking a better job, being fired from a current job, or having voluntarily quit a current job. It generally requires some time before a person can get the next job. During this time he is unemployed.
Natural Rate of Unemployment
The sum total of frictional and structural unemployment is referred as the natural rate of unemployment.
The unemployment which is not visible is said to be disguised unemployment. It occurs when a person doesn’t contribute anything to the output even when visibly working. This happens among family labor especially in agriculture who are engaged on land but are not contributing to the given level of output. Thus their marginal productivity is zero.
When a person is engaged in the economic activity but that fail to provide him fully in accordance to his qualification and efforts. Thus it is a situation in which a person is employed but not in the desired capacity whether in terms of compensation, hours, or level of skill and experience. While not technically unemployed the underemployed often compete for available jobs.
Unemployment rate is the percent of the labor force that is without work. It is calculated as:
Unemployment rate = (Unemployed Workers/Total labor force) × 100
Measurement of unemployment is a difficult task. In India, the most comprehensive and reliable data on employment and unemployment are compiled by the National Sample Survey Organization (NSSO).
1. Slow Economic Growth
During the planning period the trend rate of growth was considerably lower than the targeted rate. Therefore, jobs in adequate number were not created. Further, economic growth by itself does not solve the problem of unemployment. In the recent past there has been deceleration in the growth of employment in spite of the accelerated economic growth. This can be explained in terms of steady decline in the degree of response of employment to change in output in all the major sectors of economic activity except in construction.
2. Increase in Labor force
There are two important factors that have caused an increase in the labor force.
3. Rural-Urban Migration
The unemployment in urban area is mainly the result of substantial rural migration to urban areas. Rural areas have failed to provide subsistence living in agriculture and allied activities and so large scale migration is taking place to cities. However, economic development in cities has failed to create enough additional jobs for the new urban entrants to the labor market. Thus only some of the migrants are absorbed in productive activities and the rest join the reserve army of unemployed workers.
4. Inappropriate Technology
In India, though capital is a scarce factor, labor is available in abundant quantity; yet producers are increasingly substituting capital for labor. This policy results in larger unemployment. Despite the abundance of labor, capital intensive technology is adopted in India mainly because of rigid labor laws. It is quite difficult to follow easy hire and fire policy and so right sizing of manpower is difficult for the enterprises.
5. Defective Educational System
The present educational system has theoretical bias and has limited utility for productive purposes. It lacks the emphasis on the development of aptitude and technical qualifications required for various types of work among job seekers. This has created a mismatch between the need and availability of relevant skills and training, which results in unemployment, especially of youth and educated while shortage of technical and specialized personnel continues.
6. Lack of Infrastructure Development
Lack of investment and infrastructure development limits the growth and productive capacity of different sectors which leads to inadequate generation of employment opportunities in the economy.
7. Lack of Employability
India faces poor health and nutrition situation among masses which reduces the capacity of person to be employable and it causes unemployment.