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Submitted by: Aastha Soni 11151 C-2


Unemployment is a situation when a capable and willing to do job workforce does not get work. It occurs when people are out of a job and are actively seeking one. The unemployment rate is the prevalence of unemployment and is calculated by dividing the number of unemployed individuals by all individuals currently in the labor force.

Types and theories of unemployment

Economists distinguish between different types of and theories of unemployment which include the following Voluntary unemployment is attributed to individuals decisions and involuntary unemployment exists because of socio economic environment in which the individuals operate. In these terms most of frictional unemployment is voluntary since it reflects individual search behavior. For example voluntary unemployment would occur due to workers rejecting low wages and salaries where as involuntary unemployment occurs due to the fact that the individual was fired during an economic crisis.

Cyclical unemployment, structural unemployment and classical unemployment are largely involuntary in nature. However classical unemployment results from the legislative and economic choices made by labour unions and political parties and structural unemployment is basically attributed to the choices of the individual in the past. The clear case scenario for involuntary unemployment are those where there are fewer job vacancies than unemployed workers and even after all the vacancies are fulfilled unemployed workers still remain.

Cyclical unemployment occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. Demand for goods and services fall, less production is needed and as a consequence lesser workers are needed. It takes its name from business cycle and it may so happen that unemployment is persistent as occurred during the great depression. Structural unemployment occurs due when the labour market is unable to provide jobs to the labour force because the required skills donot match the skills of the unemployed workers.

Frictional unemployment is the time period between jobs when a worker is searching for, or transition from one job to another. Also referred to as search unemployment and can be voluntary based on the circumstances of the unemployed individual. It is always present in the economy. Hidden unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due the way the statistics are collected. Long term unemployment is normally defined as unemployment lasting longer than one year. It is an important dictator of social exclusion.

Unemployment in India
Creating new jobs is a crucial task and plays an important role in the economy. Drop in the financial market hits the job market and creates unemployment. India has the largest population of youth in the world with about 66% of the population under the age of 35, so impact of declining financial market is the worst in India. Though education level in the recent years has increased but skill development is still a crucial issue. Moreover, poverty, limited access to skill based education, work experience are some of the major factors that lead to unemployment and underemployment. During recession, job freezing is the most common occurrence done by hiring companies.

India unemployment rate

Unemployment Rate in India decreased to 3.80 percent in 2011 from 9.40 percent in 2010. Unemployment Rate in India is reported by the India Ministry of Labor. From 1983 until 2011, India Unemployment Rate averaged 7.6 Percent reaching an all time high of 9.4 Percent in December of 2010 and a record low of 3.8 Percent in December of 2011. In India, the unemployment rate measures the number of people actively looking for a job as a percentage of the labor force.



1983 - 2011






The Labour Bureau under Union Ministry of Labour and Employment released an Annual Employment & Unemployment Survey report. The report for 2012-13 states that Sikkim has the maximum number of unemployed people where as Chhattisgarh has the minimum number of unemployed people in the country. Overall unemployment rate of the country is 4.7%. In Northern India, Jammu and Kashmir has the maximum unemployment rate followed by Himachal Pradesh, Delhi, Chandigarh, Punjab and Haryana. Unemployment rate in rural area is 4.4% whereas in urban area it is 5.7%. According to a National Sample Survey Office (NSSO) last year also there was a dip in Indias employment rate that had gone down to 38.6% in 2011 -12 (JulyJune) from 39.2% in 2009-10. With this unemployment rate had gone up from 2.5% to 2.7%. In the year 2004-05 the employment rate was 42%. In the five year period falling between 2004-05 and 2009-10, 2.7 million new jobs were created where as in the previous five years 60 million new jobs were created. As per the survey number of women who lost their jobs was more than that of men. Number of employed men between 2009 and 2012 remain almost same but number of employed women dropped from 18% to 16%. Though in terms of percentage it looks small but the actual figures are really daunting.

In rural sector about 90 lakh women lost their jobs in the period of two years. On the other hand 35 lakh women were added to the workforce in urban areas. Overall unemployment rate in females was more as compared to males. For females it was 7.2% whereas for male the unemployment rate was 4%. State of Kerala being the most literate state in India had the highest rate of unemployment, i.e, close to 10% among the large states. Whereas rate of unemployment in West Bengal was 4.5% and in Assam it was 4.3%. At the same time, decline in job creation has also been revealed by Monster.com through its Monster Employment Index India. Monster is one of the biggest online job portals. Because of the global economic conditions, Indian employers have posted less number of jobs in this job portal. The Monster Employment Index is a monthly measure of online job posting activity. The data is based on a real-time assessment. The same sluggish growth has been shown by the Naukri Job Speak Index of Naukri.com. Number of workforce in agriculture sector has gone down and for the first time it is below 50%. The farm sector now has 49% of the workers whereas manufacturing sector has 24% and services sector has 27% workforce. India must see and consider employment as a major driver of the economy. Economic growth in 2009-10 was 9.3% whereas in 2011-12 it came down to 6.2%. Jobless youth is left with no other option but to go for self employment and if he does not possess specific skill then youth has to do low paying jobs like hawking magazines, etc.

On the other hand youth is now more interested in skill based job as salary is better. This has been shown by an increase in the education loans in India. As per the data by Reserve Bank of India, in the past four years, outstanding education loan in the category of personal loan has almost doubled. Also there is a rise in the number of defaulters of education loan that clearly indicates the unemployment state in India especially for students who are looking for a job is bad. According to the reports by NSSO, illiterate population has the lowest unemployment rate. Because this segment of the society is ready to do low paying jobs. Educated youth is facing the most of unemployment that shows lack of skill based employment opportunities in India. Impart from financial impact, unemployment has many social impacts like theft, violence, drug taking, crime, health as well as it leads to psychological issues. Next comes the poverty that is directly linked with unemployment as well as inequality. Long term unemployment can actually ruin the family and the society.pact of unemployment

Causes of unemployment IN INDIA

Rapid Population Growth : It is the leading cause of unemployment in Rural India. In India, particularly in rural areas, the population is increasing rapidly. . It has adversely affected the unemployment situation largely in two ways. In the first place, the growth of population directly encouraged the unemployment by making large addition to labour force. It is true that the increasing labour force requires the creation of new job opportunities at an increasing rate. But in actual practice employment expansion has not been sufficient to match the growth of the labor force, and to reduce the back leg of unemployment. This leads to unemployment situation secondly; the rapid population growth indirectly affected the unemployment situation by reducing the resources for capital formation. It means large additional expenditure on their rearing up, maintenance, and education. As a consequence, more resources get used up in private consumption such as food, clothing, shelter and son on in public consumption like drinking water, electricity medical and educational facilities. This has reduced the opportunities of diverting a larger proportion of incomes to saving and investment. Limited land: Land is the gift of nature. It is always constant and cannot expand like population growth. Since, India population increasing rapidly, therefore, the land is not sufficient for the growing population. As a result, there is heavy pressure on the land. In rural areas, most of the people depend directly on land for their livelihood. Land is very limited in comparison to population. It creates the unemployment situation for a large number of persons who depend on agriculture in rural areas.

Seasonal Agriculture: In Rural Society agriculture is the only means of employment. However, most of the rural people are engaged directly as well as indirectly in agricultural operation. But, agriculture in India is basically a seasonal affair. For example, during the sowing and harvesting period, people are fully employed and the period between the post harvest and before the next sowing they remain unemployed. It has adversely affected their standard of living. Fragmentation of land: In India, due to the heavy pressure on land of large population results the fragmentation of land. It creates a great obstacle in the part of agriculture. As land is fragmented and agricultural work is being hindered the people who depend on agriculture remain unemployed. This has an adverse effect on the employment situation. Backward Method of Agriculture: The method of agriculture in India is very backward. Till now, the rural farmers followed the old farming methods. As a result, the farmer cannot feed properly many people by the produce of his farm and he is unable to provide his children with proper education or to engage them in any profession. It leads to unemployment problem. Decline of Cottage Industries: In Rural India, village or cottage industries are the only mans of employment particularly of the landless people. They depend directly on various cottage industries for their livelihood. But, now-a-days, these are adversely affected by the industrialization process. They cannot compete with modern factories in matter or production. As a result of which the village industries suffer a serious loss and gradually closing down. Owing to this, the people who work in there remain unemployed and unable to maintain their livelihood.

Defective education: The present day education system is defective and is confined to the class room only. The present education system is not job oriented, it is degree oriented. Most of the people who receive such general education are incompetent and under qualified to do work required of them. It leads to unemployment as well as underemployment. Lack of transport and communication: In India particularly in rural areas, there are no adequate facilities of transport and communication. Owing to this, the village people who are not engaged in agricultural work are remain unemployed. It is because they are confined to the limited boundary of the village. The modern means of transport and communication are the essential for trade and commerce. Since there is lack of transport and communication in rural areas, therefore, it leads to unemployment problem among the villagers. Inadequate Employment Planning: The employment planning of the government is not adequate in comparison to population growth. In India near about two lakh people are added yearly to our existing population. But the employment opportunities do not increase according to the proportionate rate of population growth. As a consequence, a great difference is visible between the job opportunities and population growth. On the other hand it is a very difficult task for Government to provide adequate job facilities to all people. The faulty employment planning of the Government expedites this problem to a great extent. As a result the problem of unemployment is increasing day by day.

Effects of unemployment on the economy

Unemployment financial costs: The government and the nation suffer. In many countries the government has to pay the unemployed some benefits. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out. Therefore, the nation not only has to deal with the lost income and decreased production but also with additional cost. Spending power :The spending power of an unemployed person and his/her family decreases drastically and they would rather save than spend their money, which in turn affects the economy adversely. Reduced spending power of the employed: Increased taxes and the insecurity about their own work may affect the spending power of the working people as well and they too may start to spend less than before thus affecting the economy and also the society in a negative manner. Recession :With the increase rates of unemployment other economy factors are significantly affected, such as: the income per person, health costs, quality of health-care, standard of leaving and poverty. All these affect not just the economy but the entire systems and the society in general. Here are some aspects of the impact of unemployment on our society:

Unemployment brings with it despair, unhappiness and anguish. It forces people to live their lives in a way they do not wish to The life expectancy is negatively affected. Life expectancy is the ease by which people living in a time/place are able to satisfy their needs/wants. Here are the main aspects: Mental health: Mental health problems like: Low self-confidence, feeling unworthy, depression and hopelessness. With the lost income and the frustration involved in it, the recently unemployed may develop negative attitude toward a common things in life and may feel that all sense of purpose is lost. Frequent emotions could be low self-esteem, inadequateness and feeling dejected and hopeless. Health diseases: The unemployment overall tension can increase dramatically general health issues of individuals. Tension at home: Quarrels and arguments at home front which may lead to tension and increased numbers of divorces etc. Political issues: Loss of trust in administration and the government which may lead to political instability Tension over tax rise: Unemployment also brings up discontent and frustration amongst the tax paying citizens. In order to meet the demands of the unemployment fund the government many a times may have to increase the taxes thus giving way to restlessness amongst the tax paying citizens. Insecurity amongst employees: The prevailing unemployment and the plight of the unemployed people and their families may create fear and insecurity even in the currently employed people. Crime and violence: Increase in the rate of crime. Suicide cases: Increase in the rate of suicide attempts and actual suicides as well. Social outing: Unemployment may bring a decrease in social outings and interactions with other people, including friends. Stigma: Unemployment brings with more than just no work. It also brings with it the disgrace that the person has to bear. Nobody likes to be termed as unemployed.


Standard of living: In times of unemployment the competition for jobs and the negotiation power of the individual decreases and thus also the living standard of people with the salaries packages and income reduced. Employment gaps: To further complicate the situation the longer the individual is out of job the more difficult it becomes to find one. Employers find employment gasps as a negative aspect. No one wants to hire a person who has been out of work for some time even when theres no fault of the individual per say. Loss of skills: The unemployed is not able to put his/her skills to use. And in a situation where it goes on for too long the person may have to lose some of his/her skills.


Effects on Families: The burden of unemployment can also affect outcomes for children. The stress and depressive symptoms associated with job loss can negatively affect parenting practices such as increasing punitive and arbitrary punishment. As a result, children report more distress and depressive symptoms. Depression in children and adolescents is linked to multiple negative outcomes, including academic problems, substance abuse, physical health problems, impaired social relationships and increased risk of suicide. Effects on Communities: Widespread unemployment in neighborhoods reduces resources, which may result in inadequate and low-quality housing, underfunded schools, restricted access to services and public transportation, and limited opportunities for employment, making it more difficult for people to return to work . Unemployed persons also report less neighborhood belonging than their employed counterparts, a finding with implications for neighborhood safety and community well-being . High unemployment and growing income inequalities are key factors in declining social climate. The United Nations (2010) claimed that growing social inequality fueled by extended, global unemployment will increase social unrest and tension and a growing sense of unfairness. Increasing inequality in advanced economies is fundamentally linked to growing rates of physical, emotional, social and political disorde.

Solutions and recommendations

The negative effects of unemployment can be lessened. Individuals who face unemployment with greater financial resources, as well as those who report lower levels of subjective financial strain, report better mental health and more life satisfaction than those who experience unemployment with fewer economic resources and a greater sense of financial stress. Social support can also mitigate the negative impacts of unemployment and underemployment . For example, being married is a protective factor during periods of unemployment and underemployment . Fund job training and reemployment programs that take into account the psychological and emotional needs of workers and help prevent long-term unemployment. For example, the Michigan Prevention Research Center (MPRC), a program funded for 20 years by the National Institute for Mental Health, developed and evaluated the JOBS Program to help unemployed workers effectively seek reemployment and cope with the multiple challenges and stressors associated with unemployment and job-searching. Currently supported by the Substance Abuse and Mental Health Services Administration, the JOBS Program is a group-based intervention that has the dual goals of promoting reemployment and enhancing the coping capacities of unemployed workers and their families.