Unemployment: Meaning, Causes, Effects and Remedial Measures
Last Updated : 09 Apr, 2025
Unemployment is one of the most important problems that can be found in any country in the world, regardless of its economic condition. Unemployment is defined as a condition wherein people are able and willing to work at the current wage rate but cannot find work. Some skilled workers struggle to find employment for extended periods, thus, unemployment is not just confined to low-skilled employees. There are various methods for identifying an unemployed person. Some economists believe that a person is considered unemployed if they cannot find a job for even one hour during a half-day.
Key Takeaways:
- Unemployment in India is not just about job scarcity but also about the mismatch between skills demanded and skills possessed by the workforce.
- A significant portion of India's workforce is employed in the informal sector, where job security and benefits are often lacking.
- Global economic trends and events can also impact unemployment in India, such as fluctuations in global markets, trade policies, and geopolitical tensions.
- The Indian government has launched various schemes and programs aimed at tackling unemployment, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Skill India Mission, and Startup India.
What is Unemployment?
According to the National Statistical Office (Previously known as National Sample Survey Organisation), Unemployment is a situation in which all those who, owing to lack of work, are not working but either seek work through employment exchanges, intermediaries, friends, or relatives or by making applications to prospective employers or expressing their willingness or availability for work under the prevailing conditions of work and remunerations.
Sources of Unemployment Data
The data on unemployment is collected through the following three sources:
- Reports of Census of India
- National Statistical Office's Reports of Employment and Unemployment Situation.
- Directorate General of Employment and Training Data of Registration with Employment Exchanges.
Each of the above-mentioned sources provides different estimates of unemployment. However, these sources provide attributes of the unemployed and the variety of unemployment in the country.
Types of Unemployment in India
India's current unemployment issue is primarily structural. Some of the main types of unemployment in our nation are as follows:
1. Disguised Unemployment (Hidden Unemployment):
Disguised Unemployment is a situation where the number of workers engaged in work is more than actually required. Another name for Disguised Unemployment is Hidden Unemployment. For instance, if five people are working on the same task but only two workers are required for the job, then three people are disguised unemployed. It is the most common type of unemployment in the agricultural sector of developing nations like India. About one-third of India's agricultural labourers were disguisedly unemployed in the late 1950s. The primary cause of hidden unemployment is that everyone appears to be working, but the marginal productivity of the excess labour is zero, which implies that the additional workforce's contribution is zero.
Causes of Disguised Unemployment:
- People are forced to work on family farms because there are no alternatives to agriculture, which results in hidden unemployment.
- The probability of hidden unemployment is further increased by small land holdings and family size growth.
- People who live in joint families continue to work on the family farm, which contributes to disguised unemployment.
2. Seasonal Unemployment:
Seasonal Unemployment is the type of unemployment that occurs at certain seasons of the year. In India, seasonal unemployment is predominately related to agriculture. In agriculture, work is seasonal, and the farmers do not have work to do on the farms for all months of the year. Therefore, when there is no work for men to do on farms, they go to urban areas and look for jobs. The moment the rainy season starts, they return to their villages. Depending on farming practices, soil quality, crop types, yields, etc., the period of seasonal unemployment differs from state to state.
3. Open Unemployment:
The economic phenomenon in which people are able and willing to work at the existing wage rate but fail to get work is known as Open Unemployment. Open unemployment is so-called because it is seen and counted in terms of the number of unemployed persons.
Open Unemployment is different from Disguised Unemployment
In open employment, workers who are unemployed are completely idle. In contrast, when someone appears to be working and do not seem to be wasting their time, it is known as disguised unemployment.
Unemployment is Temporary even in India
As there is a desperate economic condition in India, the people living here cannot remain completely unemployed for very long. Because of this, these people forcefully accept unpleasant, and/or dangerous jobs in unhealthy surroundings.
Causes of Unemployment in India
There is no single factor that causes widespread unemployment in India. Many reasons together are responsible for the same. Some of the essential causes of unemployment in India are as follows:
1. Slow Economic Growth: The Indian economy is underdeveloped and growing at a very slow pace. The actual growth is always low as compared to the targeted rate in the five decades of planning. For the expanding labour force, slow growth rates are unable to produce enough work opportunities. The labour force is substantially larger than the number of available job opportunities.
2. Fast-Growing Population: In India, population growth has been a severe issue. It is a significant element in the unemployment rate. The amount of unemployment has increased despite the completion of twelve five-year plans.
3. Agriculture is a Seasonal Occupation: India's underdeveloped agricultural sector provides employment seasonally. It is undoubtedly the main industry in our nation, and a sizable portion of the people depends on it, yet due to its seasonal nature, farming does not offer consistent employment to farmers throughout the year. On average, farmers are idle for three to four months a year. Approximately, 15% of the working population in agriculture is considered to be unemployed.
4. Lack of Irrigation Facilities: Despite years of planning, there are still few irrigation infrastructures, with only 44% of agricultural land being covered. Only one crop at a time, or monocropping, became necessary for a want of irrigation. The lack of multi-cropping means that employment options are still limited.
5. Defective Educational System: The existing education system in India is not good and full of defects. Even though various engineering, management, and other educational institutes are providing a number of engineers, MBAs, etc., due to lack of vocational and technical training, they are unable to meet the given job requirements of companies and hence remain unemployed.
6. Decline of Cottage and Small Industries: The potential for self-employment in India has been seriously affected by the decline of the cottage and small industries under the British government. In addition, due to shifting consumer preferences and the emergence of more productive contemporary businesses, a number of traditional village and cottage industries have diminished over time. After independence, a major industry replaced a small industry, but this did not result in the expected level of employment opportunities.
7. Low Savings and Investment: Capital is scarce, and even when it is scarce, it is not being used properly to eliminate unemployment. The majority of the capital has been allocated to large-scale enterprises with high capital intensity per labour unit. Labour productivity per unit of capital is still quite low.
8. Limited labour Mobility: In India, labour mobility is quite low. Even when opportunities are available in distant locations, many are reluctant to relocate due to a variety of family and social restraints. The diversity of languages, religions, and customs among states is a fundamental barrier to labour mobility. Greater unemployment is associated with less mobility.
9. Low Capital Formation: The potential for expansion in the agricultural and industrial sectors has been restricted by low capital formation. As a result, the capacities of both sectors to create jobs have been adversely impacted.
10. Family Planning: The measures could not prevent the rural population from migrating to cities. The plans failed to promote the use of labour-intensive agricultural and industrial production methods. Plans have not given employment-creating initiatives like dairy expansion, fisheries, and poultry farming enough attention. The expansion of employment prospects has been limited by insufficient infrastructure.
Briefly, a high rate of population growth results in an exponential rise in the demand for jobs, whereas a low pace of economic growth only creates a small number of employment opportunities. As a result, there is usually a fairly large gap between the supply and demand of labour. The country's group integration is under threat as the unemployment rate grows to monstrous proportions.
Effects of Unemployment in India
1. Economic Effects:
- Non-utilisation of Manpower: The country's human resources are underutilised to the degree that people are unemployed. It is a social waste.
- Loss of Productivity: To the extent that human resources are underutilised, there is a loss of productivity. Even though they could, unemployed people do not contribute to the output.
- Low Capital Formation: Unemployed persons only increase spending because they are consumers. They don't work or save money for investments. As a result, the rate of capital formation is still low.
- Low Productivity: There is a low level of productivity as a result of hidden unemployment. Low productivity translates to low growth rates.
In short, because of low productivity, the economic effects of unemployment not only point to a low level of present output but also a low level of future output.
2. Social Effects:
- Low Quality of Life: Being unemployed affects one's quality of life and suggests a state of constant pain.
- Greater Inequality: Greater inequality in the distribution of income and wealth is correlated with higher unemployment rates. Growth does not occur with social justice under such circumstances.
- Social Unrest: Although there are likely many additional motivations for terrorism, the role played by self-desperation is by no means less important.
- Social Conflict: Unemployment creates a rift between the wealthy and the poor in society. As a result, class conflict worsens the issue of social unrest.
In a nutshell, unemployment is a social evil because it undermines social justice and promotes social unrest by widening the gap between the rich and the poor.
1. Rapid GDP Growth: Through accelerated growth, the overall employment issue can be resolved. Over the next ten years, GDP growth rates between 8% and 9% are required to significantly improve the employment situation in the country.
2. Control of Population Growth: Controlling population growth is necessary to ensure that there is enough employment for everyone who wants to work. Therefore, it is essential to implement a population control strategy that is both effective and meaningful, such as family planning programmes, etc.
3. Development of the Agricultural Sector: The expansion of the agriculture sector is crucial for raising labour productivity and improving the standard of employment for a sizable portion of the labour force that is already in existence. It is necessary to implement an agricultural revolution through improved methods, expanded irrigation systems, altered land regulations, and increased public investment.
4. Encouragement of Small Businesses: The small business sector has to be supported through a variety of programs, including lenient financing, technical training, the provision of raw materials, infrastructure improvements, and the marketing of their goods.
5. Infrastructural Improvements: The infrastructure, including the roads, irrigation, electricity, and other services, is essential to the economy's overall growth. A better infrastructure enables the agricultural and industrial sectors to operate at maximum potential. This will result in more job opportunities.
6. Special Employment Programs: It is important to create special employment programs that aim to offer paid work or self-employment.
7. Improvement of Employment Exchanges: The employment exchanges, which are located all over the nation, are very helpful in pointing job seekers in the direction of potential employment opportunities. Such employment exchanges should operate more efficiently.
8. Creation of Self-employment Chances: To increase the number of self-employment opportunities, the government should offer a variety of facilities, including financial assistance, skill training, availability of supplies, and marketing of goods.
9. Educational Reform: The current educational system has to be more comprehensive and should include long-term training or apprenticeship program. To help the educated unemployed, it is necessary for educational institutions to be more diverse and enhance skills of the unemployed through specialised training or apprenticeship programmes. On July 16 2015, the Indian government launched Pradhan Mantri Kaushal Vikas Yojana, often known as Skill India, as a programme for skill development and standardisation. After successfully completing training and assessment under this programme, trainees are given a monetary award and a government certification that will help them in finding employment for a better future.
10. Planning for Human Resources: It is important to estimate the need for educated labour in the future and make admission decisions for various professional programs based on those forecasts. As a result, there won't be any surplus labour of educated workers in the market.
Also Read: Unemployment and its Types and Full Employment and Involuntary Unemployment
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