IMPACT OF UNEMPLOYMENT IN INDIA

GROUP MEMBERS:

SHUDHANSHU DEVLAL-16 AVINASH NAIK-48 ANKUSH SARAF-68

Unemployment is the condition of not having a job, often referred to as being "out of work", or unemployed. Not having a job when a person needs one, makes it difficult if not impossible to meet financial obligations such as purchasing food to feed oneself and one's family, and paying one's bills; failure to make mortgage payments or to pay rent may lead to homelessness through foreclosure or eviction. Being unemployed, and the financial difficulties and loss of health insurance benefits that come with it, may cause malnutrition and illness, and are major sources of mental stress and loss of self-esteem which may lead to depression, which may have a further negative impact on health. In economics, unemployment refers to the condition and extent of joblessness within an economy, and is measured in terms of the unemployment rate, which is the number of unemployed workers divided by the total civilian labor force. The terms unemployment and unemployed are sometimes used to refer to other inputs to production that are not being fully used for example, unemployed capital goods.

Composition
Unemployment is usually segmented according to the following characteristics of the unemployed: 1. age; 2. sex; 3. education; 4. duration of unemployment period; 5. kind of occupation and economic activity previously carried out. In particular, developing this last point, unemployment can be partitioned according the preceding work experience of the unemployed. Thus, we distinguish: 1. people seeking for first occupation; typically the young or housewives in abrupt need of a job; their lack of work experience is often an handicap to be hired, resulting in a vicious circle; 2. people re-entering into the labour market after a long pause, e.g. pregnancy and child education; their skills may turn out to be outdated;

3. dismissed people because of firms' objective conditions, e.g. failure or reduction of demand; if this is an industry-wide phenomenon, these persons risk to need a drastic re-orientation of skills; 4. dismissed people because of personal condition or behaviour; e.g. if illness can be a reason of firing, a downward vicious cycle can begin and be reinforced, possibly leading to social marginality; 5. people annoyed of working in past organization, feeling themselves strong enough to overwhelm a period of unemployment; these persons usually do not register in unemployment offices, because of selfconfidence and narrow occupation targets.

Types of unemployment
In a modern economy unemployment has a variety of causes. Some of them relate to the general level of economic activity, others are the result of a failure of the labour market in an economy to work optimally. Among the main types of unemployment we can consider: Real wage unemployment

Demand deficient unemployment Frictional unemployment Structural unemployment Hidden unemployment

Real wage (classical) unemployment

Real wage unemployment is a form of dis-equilibrium unemployment that occurs when real wages for jobs are forced above the market clearing level. Traditionally, trade unions and wages councils are seen as the institutions causing this type of unemployment although the importance of trade unions in the UK labour market has diminished significantly over recent years and this has not stopped unemployment reaching nearly three million twice in the last twenty years. Classical unemployment is thought to be the result of real wages being above their market clearing level leading to an excess supply of labour. Some economists believe that the introduction of the national minimum

wage may create some classical unemployment in industries where average wage rates are closer to the NMW level and where international competition from low-labour cost producers is severe

Demand deficient (or cyclical) unemployment

Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian "demand deficient" unemployment and is associated with the transition of the economy through the business cycle. When there is an economic recession we expect to see a rising level of unemployment because of plant closures and worker lay-offs. This is due to a fall in demand leading to a contraction in output across many industries. Although demand deficient unemployment is usually associated with economic recessions it can also exist in the long run when the economy is constantly run below capacity. As the economy recovers from a downturn, we expect to see the problem of cyclical unemployment decline. This has certainly been the case in the Uk over recent years as the recovery of output from the early 1990s recession gathered momentum. Nine years of sustained economic growth has led to the lowest recorded unemployment levels since the end of 1985. Unemployment fell below one million (using the claimant count measure) in February 2001

Frictional unemployment
Frictional unemployment is transitional unemployment due to people moving between jobs: For example, newly redundant workers or workers entering the labour market (such as university graduates) may take time to find appropriate jobs at wage rates they are prepared to accept. Many are unemployed for a short time whilst involved in job search. Imperfect information in the labour market may make frictional unemployment worse if the jobless are unaware of the available employment opportunities. Some of the frictionally unemployed may opt not to accept jobs if they believe the tax and benefit system will reduce significantly the net increase in income from taking paid work. When this happens there are

dis-incentives for the unemployed to accept work.

Structural unemployment
Structural unemployment occurs when people are made unemployed because of capital-labour substitution (which reduces the demand for labour) or when there is a long run decline in demand in their particular industry. Structural unemployment exists where there is a mismatch between their skills and the requirements of the new job opportunities. Many of the unemployed from heavy manufacturing industry (e.g. in coal, steel and heavy engineering) have found it difficult to gain reemployment without an investment in re-training. This problem is one of occupational immobility. The Labour Government's New Deal programme has focused attempts to reduce long-term unemployment by increasing the human capital of the unemployed and improving their employability in the eyes of potential employers.

Hidden unemployment
Whatever the published figures for unemployment, there are bound to be people who are interested in taking paid work but who, for one reason or another, are not classified as unemployed. An example of this is discouraged workers - people who have effectively given up active search for jobs perhaps because they have been out of work for a long time and have lost both the motivation to apply for jobs and also the skills required. The poverty trap can also act to increase hidden unemployment. Jobless workers may not apply for jobs because of financial disincentives created by the interaction of the income tax and state benefits system.

Effects of Unemployment - Economic and Social Costs

There are many social and economic costs they include: -A loss of production and output because those who are unemployed are not able to add towards GDP. -A misallocation of resources this occurs because those who are employed will have the burden of paying for the unemployed. This in

time will result in a fall in living standards. -A decline in labour market skills because those who are persistently unemployed will lose valuable skills. -A cost to the government for the simple reason that the government must fund the unemployed increasing its budget deficit. -High unemployment means there is an excess supply of jobs. This means that employers can more easily find labour and are less likely to increase wages to attract workers. -High unemployment often results in increased domestic violence, crime, health problems and negative psychological effects. The problem of unemployment has becoming a colossal. Various problems have caused this problem. There are individual factors like age, vocational unfitness and physical disabilities which restrict the people. External factors include technological and economic factors. There is enormous increase in the population. Every year India adds to her population afresh. More than this every year about 5 million people become eligible for securing jobs. Business field is subject to ups and downs of trade cycle and globalization. Economic depression or sick industries are often close down compelling their employees to become unemployed. Technological advancement contributes to economic development .But unplanned and uncontrolled growth of technology is causing havoc on job opportunities. The computerization and automation has led to technological unemployment. Strikes and lockouts have become inseparable aspect of the industrial world today. Due to these industries often face economic loses and production comes down. Since workers do not get any salary or wages during the strike period they suffer from economic hardships. They become permanently or temporarily unemployed. Today young people are not ready to take jobs which are considered to be socially degrading or lowly. Our educational system has its own irreparable defects and its contribution to the unemployment is an open truth.Our education does not prepare the minds of young generation to become self-employed on the contrary it makes them dependent on government vacancies which are hard to

come. Our State right from the beginning of Five year plans has introduced several employment generating schemes and programmes over the years but in the absence of proper implementation and monitoring have failed to achieve the required targets. Recently UPA Government has come up with Rural Employment Guarantee program which aims to provide minimum days of employment to people living in the villages. This is a laudable programme if implemented sincerely because it will provide employment to people during natural calamities like drought, floods etc. The remedial measures for reducing unemployment may lay greater emphasis on creation of opportunities for self -employment, augmentation of productivity and income levels of the working poor, shift in emphasis from creation of relief type of employment to the building up of durable productive assets in the rural areas and instead of attempting to revert somewhat to protectionist policies the pace of privatization may be accelerated.

Causes Of Unemployment In the backdrop of the present market economy, the last thing any working professional will want to face is unemployment. Losing a job can make baffle you completely and you just dont know what you should do next. Unexpected job loss and unemployment are not only demoralizing, but make people emotionally disturbed. Unemployment can ruin relationships and make you perplexed. Being without a job is a complex issue that is guided by several factors. While recession is the most common cause for unemployment, personal attitude can also be a prime reason for joblessness. No matter how frantically you search for jobs, if you maintain the same outlook for which you lost your previous job, it is going to do you no good. If you wish to learn more about the chief causes of redundancy, then read the following section and tips and act wisely to get started with a successful career.

CAUSES OF UNEMPLOYMENT
Cyclical Unemployment Cyclical unemployment is one of the most obvious causes for unemployment. This occurs when the unemployment rate moves in the opposite direction of the GDP growth rate. For example, if the GDP is small, then unemployment will be high. Similarly, when the GDP is large or positive, unemployment is minimum or negligible. Classic example of cyclical unemployment is getting laid off due to a recession. This is the main reason why the unemployment rate is considered as a key economic indicator. Structural Unemployment Structural unemployment is also common cause for job loss. With new technology on the rise, the demand for professionals in certain sectors rises as well. This can lead to unemployment in certain sectors and create job possibilities in other sectors. If the workers relocate or migrate to other sectors, reemployment is possible. For example, floppy discs were replaced by CDs and DVDs. As a result, companies manufacturing floppy discs were shut down. Professionals who were working in these companies became unemployed. So they had to relocate or migrate to other sectors to find other employment opportunities.

Frictional Unemployment This type of unemployment occurs when people move between locations, careers, and switch between jobs. For example, people reenters jobs after raising children, students completing studies and looking for jobs, people moving to new cities and searching for jobs. Other Causes Of Unemployment Inability to look for employment can be a probable cause. People who are too lazy to look for jobs usually remain unemployed. Attitude towards employers and willingness to work can also be a common reason for unemployment. Many people are stubborn by nature and end up losing their jobs after having a fight with their employers. Corruption is another common reason for unemployment. Undulating business cycles and rapid change in technology can also lead to unemployment in a country. Some experts consider employee values and perception of employees as other probable reasons for unemployment.

Discrimination is another major reason for unemployment. Discrimination due to ethnicity, race, religion, caste, sex, age, and color of individuals is another unfortunate cause for unemployment. How To Deal With Unemployment Framing the right economic policy is the major step a government should take to minimize unemployment in any country. Changing ones personal outlook can also help an individual to find job. Many governments have undertaken macro-economic stabilization policies that have an objective to provide financial assistance to unemployed individuals until the person finds a source of income.

Measurement of Unemployment in India

The National Sample Survey Organization (NSSO), which provides estimates of the rates of unemployment on the basis of its quinquennial surveys, uses three different concepts. A person is considered unemployed on Usual Status (US) basis, if he/she was not working, but was either seeking or was available for work for the major part of the reference year. On the basis of a week as the reference period, a person is considered unemployed by Current Weekly Status (CWS), if he/she had not worked even for one hour during the week, but was seeking or was available for work. The third concept of unemployment is the Current Daily Status (CDS), which is in terms of total person days of unemployment, and is the aggregate of all the unemployment days of all persons in the labor force during the reference week. Thus, unemployment is measured through labor force surveys which elicit the `activity status of the respondent for a given reference period. First, the respondent is identified as not working. Second, for those not working, the typical question is of the form are you available for work, and have you made some effort to find work during the last x days. Those who answer in the affirmative are the unemployed while those who answer in the negative are the people who have opted out of the labor force. The labor force is the sum of the employed and the unemployed and the rate of unemployment is the proportion of labor force that is unemployed. The reference period could vary from a week, to four weeks to a year. Such an approach works well when the activity status is invariant within the reference period, i.e., either the person is employed, unemployed or out of the labor force. Beginning with the 27th round in 1972/73,

labor force surveys have been conducted every five years using standardized concepts and procedures based on the recommendations of the Committee of Experts (Planning Commission, 1970). The usual status unemployment measure is defined with respect to a reference period of a year. The multiple activity status issue, which is more acute longer the reference period, is resolved on the basis of majority time. This criterion is used first to classify a person as either belonging to the labor force (i.e., employed or unemployed) or not belonging to the labor force. If the person belongs to the labor force, then whether the person is to be classified as employed or unemployed is decided once again on majority time. The survey also uses a reference period of a week to compute a `weekly status unemployment measure. Here a person is regarded as employed if she or he worked for at least one hour during the reference week. It follows that a person is unemployed if she or he did not work for even one hour during the reference week and sought work or was available for work during the reference week. Clearly, the usual status measure reflects only long unemployment spells. For instance, a male in the working age group (who is never out of the labor force) would be unemployed on the usual status measure only if the unemployed spell during the year is longer than the employed period. While, the weekly status measure captures short unemployment periods, it ignores unemployment for less than a week. A third approach is to abandon the effort to assign every individual a unique activity status over the reference period. The NSS employment survey elicits an individuals time disposition during each day of the reference week. A day is split into two half-units and an

individual is assigned a unique activity status for that period (rather than the reference week). This information can be used to compute person days of unemployment in the economy. As households are surveyed uniformly throughout the year, the aggregates derived from weekly data are representative of annual aggregates. The daily status rate of unemployment is the proportion of labor force (measured in person days) that s unemployed (also in person days). For most of the labor force work is seasonal, short-term and without tenure. Consequently, an individuals activity status can vary even within as short of a reference period as a week. The daily status unemployment rate would therefore seem the appropriate one for capturing their unemployment from weekly data are representative of annual aggregates. The `daily status rate of unemployment is the proportion of labor force (measured in person days) that is unemployed (also in person days). For most of the labor force work is seasonal, short-term and without tenure. Consequently, an individuals activity status can vary even within as short of a reference period as a week. The daily status unemployment rate would therefore seem the appropriate one for capturing their unemployment. There are basically two categories of measurement of unemployment. General Measurement of Unemployment in India They are: Claimant Count This method of calculating unemployment was widely used in the 1980s as well as the 1990s. This method, basically takes account of the number of heads unemployed and receiving unemployment benefits. Computation should be done with care since there may be double counting of people who have registered themselves in employment exchanges and those who are receiving the unemployment benefits. The method has two advantages of calculating unemployment by using administrative records. Firstly, this method takes a complete count of the unemployed and so it is free from any sampling error. Secondly, obtaining such data is also very cost effective

and is available on a regular basis. However, this method of computation is fraught with certain limitations. The collection of data follows administrative rules and regulations, which may not be in line with statistical principles. Again, since different countries follow different computational rules, it is difficult to compare the unemployment statistics across different countries. Another difficulty is that the rules tend to change over time and so the unemployment data cannot be compared across different time horizons. Another disadvantage of using the claimant count as a measure of unemployment is that it takes into account only that portion of the population, which has registered themselves in the employment exchanges or has claimed unemployment benefit. The individuals who have not registered in both but are unemployed are left out of the unemployment count of the administrative records. Hence, the administrative records give a lower estimate of the actual employment scenario. The above-mentioned limitations of administrative records gave rise to the most current computation method, that of Labor Force Survey. Labor Force Survey The Labor Force Survey is done by taking household samples. A standard questionnaire is prepared. All individuals in the workable age are asked about their employment status and the

relevant data is taken. Individuals are next classified into employed, unemployed or economic active. The sample data is then utilized to estimate the number of individuals employed, unemployed or underemployed. The labor force survey also has many disadvantages. The use of standard questionnaire is itself faulty. The respondents may provide subjective answers, which in some case may be misleading. Next, the sampling method has many statistical errors, which gets magnified with smaller size of the sample. Again a well-equipped statistical infrastructure is mandatory for a more accurate collection of data. Experienced supervisors and interviewers are required. The greatest advantage of this computational method is that they meet international standards. Unemployment statistics obtained hence can be used to compare data across countries and across different periods of time. Recommendations on Measurement of Unemployment in India 1. Revision of approach for estimating unemployment rate in the economy should be given an importance. 2. Different machinery should be set up to estimate the open unemployment among educated youths. 3. The concept of current weekly status approach to estimating unemployment should be given up. 4. The unemployment details should be broadened up to facilitate the target population specific programmers for solving unemployment problems. 5. The unemployment details should be related to the poverty estimates of the country.

6. A separate estimate of different categories of unemployed should be made for example an estimate of unemployment among street dwellers of a metropolitan city is made.