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ClaSs XII Indian EconomICS

CHAPTER 10 EMPLOYMENT & UNEMPLOYMENT
 INTRODUCTION
Economic growth without proportionate growth of employment opportunities is the growth without
social justice and therefore meaningless. A nation is developed only when it achieves a high rate of
participation (implying a high rate of of' its workforce in the process of economic growth.

 SOME BASIC CONCEPTS

➢ Who is a worker? What is employment?
A worked is an individual who is in some employment to earn a living. He is engaged in some
production activity, contributing to the flow of goods and services in the economy. Sum total of the
goods and services produced in the economy during a year is called GDP (Gross Domestic
Product).
Production Activity and Employment
Production activity refers to the process of producing goods and services. Employed are those who
are engaged in some production activity or other. Example: A worker working in a garment factory
is engaged in production activity. He is in employment. He is contributing to the process of
production. Employment will fetch him a wage, a reward for his services. He makes a living out of
his employment.

➢ A necessary caution
A difference between economic activity and production activity.
1. Economic activity is a much wider term than production activity.
2. Production activity is only an element of economic activity. Even consumption is an economic,
activity. But those engaged in consumption (as an economic activity) are not to be treated as
workers.
3. All economic activities are not production activities, even when all production activities are
economic activities.

➢ Types of workers

Types of Workers

Self-employed Workers Hired Workers

[These are the people working in their own [These are the people hired by others,
business or profession. They earn profit as a and are paid wages/salaries as a reward
reward for their services.] for their services.]

Casual Workers Regular Workers

These are like daily wagers, not on [These are on permanent rolls of their
permanent rolls of the employer, and not employer and are entitled to social
entitled to social security benefits.] security benefits.]
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2. Self – employed and Hired workers

Workers (or those in employment) may be classified as :
i. Self – employed, and
ii. Hired.
Self – employed workers are those who are engaged in their own business or own profession.
Example: A farmer working on his own farm, or an entrepreneur working in his own factory.
Hired workers are those who work for others; they render their services to others and, as a
reward, get wages / salaries.

3. Casual and Regular workers

Hired workers may further be categorised as:
i. Casual workers
ii. Regular workers
Casual workers are the daily wagers. They are not hired by their employers on regular basis.
They are not given social security benefits, like provident fund, gratuity or pension.
Regular workers are on permanent pay-roll of their employers. They are entitled to all social
security benefits including pension, gratuity and provident fund. It is often found that causal
workers are unskilled workers, like a worker working at the construction site. A regular worker,
on the other hand, is usually a skilled worker, like an engineer working in a factory.

➢ Labour supply labour force and workforce

Labour Supply Labour Force

It refers to supply of labour corresponding to It refers to the number of persons actually
different wage rates. Supply of labour is working or willing to work. It is not related to
measured in terms of man-days of work and is wage rate.
always related to wage rate.
Supply of labour can increase or decrease even Because it is measured in terms of the number
when the number of workers remains constant. of persons (not in term of person-days), size of
Because the supply of labour is measured in labour force increases or decreases only when
terms of man-days or person-days: one person- the number of persons actually working or
day referring to 8 hours of work. willing to work increases or decreases.

Workforce refers to the number of persons actually working, and does not account for those who
are willing to work.
Number of Persons Unemployed = Labour Force - Workforce
Number of Persons Unemployed
Number of Persons Unemployed Rate of Unemployment = × 100
Size of Labour Force
Participation Rate
It refers to percentage of population actually participating in production activity. It is measured as
the ratio between workforce and total population of a country.
Total Workforce
Rate of Participation = × 100
Total Population

Why do People Work and why should we study about Working People?
Three factors explain why do people work:
i. People work to earn a living.
ii. Employment infuses in us a sense of self-esteem, and brings to the fore our sense of self-worth.
iii. Employment contributes to GDP of the nation, and contributing to GDP gives us a sense of global
pride because growth of GDP implies growth of the nation.

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 SIZE OF WORKFORCE IN INDIA

India has a workforce of nearly 40 crore of persons.
• About 70 per cent of the workforce comprises male workers; only 30 per cent are female workers.
• Nearly 70 per cent of the workforce is found in rural areas; urban workforce is only 30 Per cent of
the total.
• Percentage of female workforce in rural areas is nearly 30 per cent, while it is Only 20 per cent in
urban areas.
What do these facts reveal? These facts raise two important questions which need to be addressed.
These are:
1. Why the bulk of our workforce is rural-based?
This is simply because bulk of the jobs is in rural areas. More people are engaged in farming and
allied activities, but contributing less to GDP.
Higher percentage of workforce in rural areas apparently suggests a higher contribution of the
rural economy to GDP than that of urban economy. Paradoxically, it is just opposite. Employing
nearly 1/2 of workforce, the rural economy in India is contributing less than 1/4 to GDP.
Implying low productivity and low reward for work, leading to widespread poverty in rural
areas.

2. Why is the percentage of female workers low is and lower still in urban areas?
This is because of the following reasons:
• Female education in India is still a far cry, implying low opportunities for jobs.
• Among most families in urban areas, job work for women is still governed by family decisions
rather than the individual‘s own decision.
• Higher employment among Alien rural areas is owing to widespread rural poverty. Female
workers in rural areas are largely engaged in low paid and less productive jobs just to add to
their family income.
Low employment among women is a sign of social and economic backwardness of a nation.
Economic backwardness, because the economy fails to generate enough jobs. Social backwardness,
because job work for the women (outside their homes) is considered as a social taboo.

 RATE OF PARTICIPATION IN INDIA

It refers to participation of people in production activity, and is measured as a ratio of workforce to total
population of the country, as noted earlier.
The following observations:
i. Overall rate of participation in the country is not very high, implying not many people are engaged
in production activity. It points to a high dependency ratio in the country.
ii. Rate of participation is higher in rural areas compared with urban areas, implying that larger
percentage of population is engaged in production activity in rural areas. But, given the fact that
contribution of rural economy to GDP is lower than that of urban economy, higher rate of
participation in rural areas only points to lower productivity, lower level of income and greater
poverty in the rural India.
iii. Rate of participation for women is higher in rural areas compared with urban areas. Because in
rural areas, poverty compells women to avoid education and seek employment.

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Under-estimation of Women Workers in the Country

There is a significant under-estimation of women workers in the country.
This is because:
i. Women rendering household services as housewives are not deemed as workers. Because (a)
they are not paid for it, and (b) it is difficult to ascertain market value of the services rendered by
the housewives.
ii. Women rendering services on the family farms in rural areas and in the family business in the
urban areas are often not treated as workers, largely because of the convention of not considering
unpaid women as workers, even when unpaid men working on family farms or in family
business are considered as employed and therefore as workers.

 SELF-EMPLOYED AND HIRED WORKERS IN INDIA

Self - employment is higher in rural areas compared to urban area.
Reason: In urban areas people look for skilled jobs in offices and factories, while in rural areas family
are the most attractive means of employment. Also, in rural areas, non - farm job opportunities are
limited, and people generally do not show preference to acquire skill and training for non-farm
occupations.
We find that among men, self-employment is almost as important a source of livelihood as wage-
employment. Among women, self-employment is a little more significant source of livelihood than
wage-employment.
Reasons:
i. Owing to family and social constraints, mobility of women workers in search of jobs remains low.
ii. Women in rural areas find ample opportunities of self-employment, engaging themselves in
traditional jobs like spinning, weaving, dyeing and bleaching.
In India, self-employment is a significant source of livelihood. Because: (i) literacy rate is low,
implying low acquisition of skill for wage jobs, (ii) owing to diverse social environment across
different regions, mobility of workers is low, and (iii) India is an underdeveloped economy,
generating less jobs owing to low level of investment.

 OCCUPATIONAL STRUCTURE OR DISTRIBUTION OF WORKFORCE BY

INDUSTRY
Distribution of our workforce across primary, secondary and tertiary sectors of the economy, briefly
called occupational structure of the economy. As high as 47.6 per cent of our workforce is engaged in
primary sector, dominated by farming. While tertiary sector accounts 43.9 per cent of employment,
secondary sector offers employment to only 18.2 per cent of our workforce. It suggests a state of
economic backwardness. A large segment of workforce continues to depend on primary activities to
make a living, simply because secondary and tertiary sectors have failed to generate enough
opportunities of employment.

➢ Distribution of rural – urban workforce across different sectors

While those living in urban areas are engaged largely in secondary and tertiary sectors, those in the
rural areas find primary sectors as their preferred source of employment. Tertiary sector is taking a
lead over secondary sector as a source of employment in urban areas. Implying, trade, commerce,
banking, insurance, health, education, tourism and related services are developing faster than
manufacturing and allied production activities. People in urban areas are becoming increasingly
conscious of their quality of life, spending the bulk of their income on a variety of services (like
health, education and tourism).

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➢ Distribution of male-female workforce across different sectors

A huge percentage of female workforce is engaged in primary sector. Since primary activities of
production are confined largely to rural areas, it implies that a huge percentage of female workers
in rural areas are engaged in primary activities.
Why should larger percentage of female in rural areas be engaged in primary sector compared with
male workforce?
Reason: Owing to their family as well as social constraints, female workers are unwilling to
migrate for outside jobs. They prefer to work at their place of residence even for a long wage.

➢ Only a modest change in occupational structure

Overtime, there has been only a modest change in occupational structure of the country, pointing
towards slow transformation of the economy from backwardness to growth and development.
Historical experience of the developed countries suggests a radical shift of workforce from primary
sector to secondary and tertiary sectors of employment greater the shift, greater is the pace of
growth and development. The supremacy of primary sector as the principal source of
employment remains unchallenged. And, a country where the bulk of workforce continues to be
engaged in primary sector (along with a high rate of unemployment), can by no means be termed
as a developed country. A modest transformation in its occupational structure only points to its
modest achievement in the area of growth and development.

 JOBLESS GROWTH
Economic growth occurs when GDP rises. It implies increase in the level of Output. Increase in the
level of output is achieved in two ways: (i) through greater employment, and/or (ii) through better
technology. In poor countries like India where there is staggering unemployment, economic growth
becomes meaningful only when it, is associated with greater opportunities of employment, so that
poverty is combated. If economic growth is driven only by innovative technology, it fails to improve
the level of employment in the economy. Such a growth is called ‗Jobless growth’.
Opportunities of employment have failed to rise proportionate to the GDP growth. The reason is this:
Our growth process is being increasingly hijacked by MNCs (multinational companies). These
companies specialise in achieving high growth through efficient technology rather than through greater
use of manpower.

 CASUALISATION AND INFORMALISATION OF WORKFORCE

➢ Casualisation
Casualisation of workforce refers to a situation when the percentage of casually-hired workers
in the total workforce tends to rise overtime.
Our workforce is suffering an increasing incidence of casualisation. The bulk of self-employed
workforce is found in rural areas. People work on their farms and fields, not because everybody is
gainfully employed, not because everybody is contributing to output, but simply because many of
them are not getting non-farm jobs even when they wish to migrate. They are employed on their
farms only for the name-sake; in fact they are disguisedly unemployed. Taking a chance for
opportunities, these marginal workers tend to migrate to urban areas, and more often than not, they
get employment only as casual workers, or as daily-wagers. Owing to massive unemployment,
casualisation is emerging to be a challenging feature of our workforce.

➢ Informalisation
Employment may broadly be classified as; (i) formal sector employment, and (ii) informal sector
employment.

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Formal sector refer s to organised sector of the economy. It includes all government departments,
public enterprises and private establishments which hire 10 or more workers.
Informal sector refers to unorganised sector of the economy. It includes all such private enterprises
which hire less than 10 workers, besides farming and self-employment ventures.
From the view point of employment status, the underlying difference between formal and informal
sectors (or between organised and unorganised sectors) is that
1. Workers in the formal sector are entitled to social security benefits (such as provident fund,
gratuity, pension, etc.)
2. Economic interest of the workers in formal sector is protected through various labour laws.
3. To protect their economic interest, workers in the formal sector can form trade unions.

Formal Worker Informal Worker

Work in organised sector of the economy. Work in unorganised sector of the economy.
Are entitled to social security benefits (like Are not entitled to social security benefits.
provident fund, gratuity, pension, etc.)
Can form trade unions. Cannot form trade unions.
Are protected by various labour laws against Remain unprotected by labour laws, and are
uncertainties of the market. therefore highly vulnerable to uncertainties
of the market.

Informalisation of workforce refers to a situation where percentage of workforce in the formal

sector tends to decline and that in the informal sector tends to rise. A series of economic reforms
were launched in 1991, with ‗liberalisation, privatisation and globalisation‘ as their key elements.
Consequently, there is a significant transformation from ‗a controlled economy‘ to ‗market
economy‘. And, in this process of transformation there has been a significant drift towards
informalisation of workers. Market economy and informalisation of workers, perhaps, are
strongly correlated to each other.

 RURAL AND URBAN UNEMPLOYMENT

➢ Who is unemployed?
―A man is unemployed only when he is both without a job or not employed and also desires to be
employed.‖ A person may be willing to work but if he is not able to work (owing to his mental or
physical constraints) he will also not be counted as unemployed.

➢ Classification of unemployment in India

Unemployment in India can be classified as under:

UNEMPLOYMENT IN INDIA

Rural Unemployment Urban Unemployment

Disguised Seasonal Industrial Educated

Unemployment Unemployment Unemployment Unemployment

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1. Rural Unemployment
In Indian villages nearly 58.7 per cent of labourers are engaged in primary sector. Disguised
unemployment and seasonal unemployment are of alarming proportions.
a. Disguised Unemployment
Disguised unemployment is a situation where in the number of workers engaged in a job is
much more than actually required to accomplish it. If some of them are withdrawn from that
job, the total production will not fall. For example, if just two persons are required to
cultivate a farm measuring one hectare but actually five persons are engaged there, then three
persons are disguisedly unemployed. Apparently all members appear to be employed whereas
in reality some are not contributing anything to total production. If some members are
withdrawn, total production of the family farm will remain unchanged.

b. Seasonal Unemployment
It occurs simply because agriculture is a seasonal occupation. During off – season, often the
farm workers are out of job. They have no work to do.

2. Urban Unemployment
In urban areas, unemployed people are often registered with employment exchanges. Therefore,
urban unemployment is more like open unemployment, unlike disguised unemployment in rural
areas.
a. Industrial Unemployment
It includes those illiterate persons who are willing to work in industries, mining, transport,
trade and construction activities, etc. Problem of unemployment in industrial sector has
compounded over time because of a rapid rise in population. Besides, due to expansion of
industry in urban areas, there has been a growing tendency to migrate to urban areas in search
of jobs.

b. Educated Unemployment
In India the problem of unemployment among the educated people is also quite grave. It is a
problem spread across all parts of the country, and poses a serious threat to social peace and
harmony.
i. On account of expansion of educational institutions, viz., universities, colleges, schools,
the number of educated persons has substantially increased.
ii. Education system in India is not job – oriented; it is largely degree – oriented.
iii. Increase in employment opportunities has significantly lagged behind the increase in the
size of educated labour force.

➢ Common types of unemployment in rural and urban areas

In India, following types of unemployment are found both in urban and rural areas:
1. Open Unemployment
Open unemployment refers to that situation wherein although the worker is willing to work and
he has the necessary ability to work yet he does not get work. He remains unemployed for full
time. He is totally dependent on the other earning members of the family.

2. Structural Unemployment
Structural unemployment occurs due to structural changes in the economy. Structural changes
are broadly of two types:
i. Changes in technology as a result of which old technocrats are no longer needed; they are
rendered unemployed.
ii. Change in the pattern of demand because of which certain industries are closed down and
the workers are thrown out.
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A less developed country like India encounters significant structural changes in the process of
growth. Hence a high degree of structural unemployment exists both in the rural and the urban
areas.

3. Underemployment
Underemployment is a situation in which a worker does not get a full time job. He remains
unemployed for some months in a year or some hours every day.
Underemployment is of two kinds:
i. Visible Underemployment: In this case, people work lesser than the standard hours of
work in a day.
ii. Invisible Underemployment: In this case, people work full time but their income is not
proportionate to their abilities.

4. Frictional Unemployment
It occurs due to imperfections in the mobility of labour across different occupations. One
wishes to move from one job to the other, but in the process of change may remain (or may
even prefer to remain) unemployed for some time.

5. Cyclical Unemployment
It occurs owing to cyclical fluctuations in the economy. Phases of boom, recession, depression
and recoveries are typical characteristics of a market economy. Boom relates to high level of
economic activity and accordingly a high degree of employment. Recession is a phase when
there is a liquidity crunch in the economy (funds/loans are not easily available), because of
which there is a slowdown in production and a cut in employment opportunities.

An Important Observation
Structural unemployment and frictional unemployment are sometimes treated as the two variants of
secular unemployment — the unemployment that tends to persist in the economy even in the state
of full employment. This is in contrast to the cyclical unemployment — the unemployment that
appears and disappears in assonance with the cyclical phases of economic activity.

➢ Causes of increasing unemployment in India

Following are the main causes of ever-increasing unemployment in India:
1. Slow Economic Growth
Indian economy is underdeveloped and its rate of growth is very slow. Slow growth rate to
generate enough employment opportunities for the raising labour force.

2. Rapid Growth of Population

Constantly rising population has been a grave problem in India.

3. Agriculture—A Seasonal Occupation

Agriculture is under - developed in India and so offers seasonal employment. Large size of the
population depends upon it, but its seasonal Character does not provide stable jobs to the
farmers throughout the year.

4. Lack of Irrigation Facilities

Despite decades of planning, irrigation facilities continue to be scant, covering only about 44
per cent of agriculture area.

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5. Joint Family System

It encourages disguised unemployment. In joint families there is a high tendency to survive on
joint income without work.

6. Decay of Cottage and Small Industries

Decay of cottage and small industries during the British regime has given a big blow to the
potential of self-employment in India:

7. Low Savings and Investment

There is scarcity of capital and even the scarce capital has not been optimally used to eradicate
unemployment. Bulk of the capital has been invested in large-scale industries where there is
high capital per unit of labour.

8. Mobility of Labour
Mobility of labour in India is very low. Owing to a variety of family as well as social
constraints, people are reluctant to move to far-off areas even when Jobs are available there.
Factors like diversity of language, religion and customs in different states are a major hindrance
to the mobility of labour.

➢ Economic and social consequences of unemployment

High unemployment unleashes serious economic and social consequences as described below:
1. Economic Consequences
i. Non-utilisation of Manpower
To the extent people are unemployed, manpower resources of the country are not utilised.

ii. Loss of Output

There is a loss of output to the extent manpower resources are not utilised. Unemployed
persons make no contribution to output even they have the potential to do so.

iii. Low Capital Formation

Living only as consumers (and contributing nothing to production) unemployed people only
add to consumption. Neither do they earn, nor do they save for investment. Accordingly,
rate of capital formation remains low.

iv. Low Productivity

Owing to disguised unemployment (occurring largely in agricultural sector) there is a low
level of productivity (output per worker or output per hectare). Low productivity implies
low rate of growth.

2. Social Consequences
i. Low Quality of Life
Unemployment lowers the quality of life, implying a state of perpetual suffering.

ii. Greater Inequality

Higher the degree of unemployment, greater the extent of inequality in the distribution of
income and wealth.

iii. Social Unrest

Terrorism may be triggered by a host of factors, but the contribution of self-desperation (on
account of unemployment) is by no means less significant.

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iv. Class Struggle

Unemployment divides the society into haves and have-nots. Accordingly, there is class
conflict that compounds the problem of social turmoil.
Briefly, unemployment is a social menace as it denies social justice and enhances social unrest by
increasing the disparity between ‗haves‘ and ‗have-nots‘.
.
➢ Suggestions to solve the problem of unemployment in India
1. Increase in Production
To increase employment, it is essential to increase production in agriculture and industrial
sectors. Development of small and cottage industries should be encouraged. Foreign trade
should be encouraged and production of industries, minerals and plantation should be
accelerated.

2. Increase in Productivity
Demand for labour is directly related to the productivity of labour. Higher productivity
generates higher profits and therefore, greater demand for labour. Accordingly, productivity
(implying efficiency) of labour must improve.

3. High Rate of Capital Formation

Rate of capital formation in the country should be increased. Also, investment must be directed
to such areas of production where employment potential is high. Notably, Capital-output ratio
should be kept low. If capital-output ratio is high, then increase in the rate of capital formation
will have very little effect on employment. It is, therefore, essential that along with increase in
the rate of capital formation, there should be decrease in the capital-output ratio.

4. Help to Self-employed Persons

Around 43.9 per cent of people in India are self-employed. Most of them are engaged in
agriculture. Besides, they are also engaged in trade, cottage and small industries, building
construction, restaurants, transport, etc. Government should provide facilities like irrigation,
better seeds, manure, implements, credit, etc., to small and marginal farmers.

5. Educational Reforms
Only such students be admitted to colleges and universities who intend to pursue their studies
with some specific objectives. Emphasis should be placed on vocational education. Educated
persons must inculcate the spirit of serving in villages in the capacity of teachers, doctors, etc.
Qualified engineers be given financial assistance to set up their own business establishments.

6. Technique of Production
It is essential that labour-intensive technology is encouraged in place of the capital-intensive
technology.

7. Co-operative Industries
Co-operative industries should be encouraged as far as possible. The Government of Kerala
setting-up a textile mill (offering employment to 600 persons) on cooperative basis is a
laudable step.

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➢ Importance to Employment Programmes in Plans

Such programmes should be given greater importance in plans which are likely to raise the level of
employment. The programmes that can best serve this end are: irrigation projects, road
construction, flood-control, forestry, rural electrification, soil conservation and development of
small industries.

➢ Government policy and programmes

Problem of unemployment is essentially the problem of poverty. Policy and programmes initiated
by the government to eradicate poverty are largely focusing on providing employment to poorer
sections of the society.

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