Measuring Unemployment in India

Unemployment in India rural urban


  • In 2017, the release of the Periodic Labour Force Survey (PLFS) brought attention to India’s unemployment rate, which reached a historic high of 6.1%. 
  • However, the more recent PLFS data for 2021-22 indicates a reduction in unemployment to 4.1%, though it still exceeds the levels seen in some developed countries. 
  • To understand how these figures are derived, we need to delve into the concept of unemployment and how it is measured in India.

Unemployment Defined

  • Unemployment refers to the situation when an individual who actively seeks employment is unable to secure a job. In this context, someone who has lost a job but isn’t actively seeking another is not considered unemployed. 
  • The labour force comprises individuals aged 15 or older who are either employed or actively seeking employment. 
  • The unemployment rate is calculated as the percentage of the labour force represented by individuals willing to work and actively searching for a job.

Challenges in Measuring Unemployment in India

  • Assessing unemployment in India is challenging due to the informal nature of many jobs. 
  • Unlike developed economies, where individuals typically hold year-round positions, Indian workers often engage in various roles throughout the year. This makes it difficult to categorize them as employed or unemployed consistently.
  • To address this complexity, the National Sample Survey Office (NSSO) employs two primary measures to classify individuals’ working status: the Usual Principal and Subsidiary Status (UPSS) and the Current Weekly Status (CWS). 
  • The UPSS relies on an individual’s primary activity over a more extended period (usually the previous year), while the CWS considers a shorter reference period of a week. 
  • This distinction results in UPSS unemployment rates typically being lower than CWS rates because it’s more likely that someone will find work over a year compared to a week.
  • These nuanced definitions sometimes lead to an “underestimation” of unemployment but were designed to capture the informal economy’s dynamics. 
  • Additionally, the Centre for Monitoring Indian Economy employs a daily reference period, resulting in a higher estimated unemployment rate but lower labor force participation rates due to the unpredictability of daily work in the informal sector.

Major Causes of Unemployment in India

  • Shift Away from Agriculture: Many workers are leaving farming, but there hasn’t been a corresponding increase in non-farm employment opportunities.
  • Traditional Factors: Disguised unemployment in agriculture, limited focus on labor-intensive sectors like textiles and leather, and economic slowdowns due to events like the COVID-19 pandemic and the Russia-Ukraine war.
  • Infrastructure and Manufacturing: Inadequate growth of infrastructure and low investments in the manufacturing sector.
  • Social Norms: Regressive social norms that discourage women from joining or continuing to work.
  • Population Growth: Rapid population growth exacerbates the employment challenge.
  • Lack of Skills and Education: Insufficient vocational skills and low education levels among the workforce.
  • Women’s Participation: Low participation of women in the workforce, influenced by mechanisation in agriculture and the nature of India’s manufacturing sector.
  • Quality of Jobs: Many jobs are of poor quality, characterised by informality and vulnerability.
  • Shrinking Public Sector: A decline in direct recruitment in central government ministries and departments.
  • Employability: Only a fraction of graduates are considered employable according to the India Skills Report.

Measures to Address Traditional Unemployment Factors

  • National Employment Policy: Developing a comprehensive national employment policy that links economic growth strategies with job creation.
  • Rural Economy Transformation: Shifting from traditional agriculture to value-added activities like horticulture.
  • Infrastructure Improvement: Enhancing rural infrastructure to promote sustainable growth in rural industries.
  • Entrepreneurship Promotion: Encouraging entrepreneurial opportunities and investment in traditional manufacturing sectors.
  • Social Security: Strengthening social security measures for workers in the informal sector.
  • Women’s Participation: Increasing government procurement from women-led enterprises, providing training in new technologies, and addressing access to capital and childcare.
  • Informal Economy Enhancement: Building a more productive informal economy through reskilling and upskilling of workers.
  • Unemployment Insurance: Introducing a centralised unemployment insurance scheme for all unemployed individuals and addressing existing benefit scheme bottlenecks.

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