Why in the News?

• Based on the Periodic Labour Force Survey (PLFS), India's unemployment rate reached a peak of 6.1% in 2017, which was the highest ever recorded.
• However, the latest PLFS data from 2021-22 indicates a decrease to 4.1% in unemployment.
• This article underscores the challenges in accurately measuring unemployment in India.
• While there has been a reduction in unemployment from 2017 to 2022, it is still higher than the rates observed in some developed economies, such as the United States, where it hovers around 3.5%.

What is the Meaning of Unemployment:

• As per the International Labour Organisation (ILO), unemployment involves being without a job, being ready to accept a job, and actively seeking employment.
• In other words, if someone loses their job but doesn't actively seek another, they are not considered unemployed. Hence, unemployment is distinct from being without a job.

Measuring the Unemployment Rate:

• The unemployment rate is calculated by dividing the number of unemployed individuals by the total labor force.
• The labor force is the combined count of both employed and unemployed individuals.
• People who are neither employed nor unemployed, like students and those involved in unpaid domestic work, are categorized as outside the labor force.
• It's important to note that the unemployment rate may also decrease when an economy doesn't create sufficient jobs or when individuals choose not to actively seek employment.

Challenges in Measuring Unemployment in India:

• Cultural Factors: Social norms and cultural constraints influence job search decisions in developing economies like India.
• A definition of unemployment that relies on active job seeking may underestimate the true situation.
• Informal Work: In contrast to developed economies, individuals in India often hold informal, intermittent jobs.
• This means someone might be unemployed one week but engaged in various roles over time, such as casual labor or farming.
• Varying Methodologies: Different organizations use distinct methodologies to measure unemployment.
• For instance, the Centre for Monitoring Indian Economy categorizes individuals based on their daily activity preceding the interview, leading to variations in unemployment rates and labor force participation rates.
• Data Timing: Timing can also impact unemployment rates.
• For example, the lockdown in March 2020 had a profound effect on the Indian economy, but this disruption was not immediately reflected in the PLFS unemployment rates, which cover a period from July of one year to June of the next.
• Trade-offs: Developing economies face trade-offs in choosing reference periods for data collection.
• Shorter periods yield higher unemployment rates and lower employment rates, while longer periods tend to show the opposite.
• This dilemma is less common in developed nations with more consistent, year-round employment.

Differences in Rural and Urban Unemployment Rates in India:

• The lenient criteria for categorizing someone as employed contribute to the lower unemployment rates in rural regions compared to urban areas.
• Agricultural economies provide individuals with opportunities like family farming or occasional agricultural work, increasing the likelihood of finding some form of employment in rural settings.
• While these definitions may seem to 'underestimate' unemployment, they were primarily crafted to account for the substantial informal economy prevalent in these areas.

Classifying Employment Status in India:

• The National Sample Survey Organisation (NSSO) employs two primary methods for this purpose: Usual Principal and Subsidiary Status (UPSS) and Current Weekly Status (CWS).
• UPSS determines an individual's primary employment status based on their predominant activity during the previous year, whether employed, unemployed, or out of the labor force.
• For instance, even if someone's principal status is not that of a worker, they would still be considered employed under UPSS if they engaged in economic activity in a subsidiary role for a period of not less than 30 days.
• CWS, on the other hand, uses a shorter reference period of one week. An individual is counted as employed if they worked for at least one hour on at least one day during the seven days leading up to the survey date.
• UPSS unemployment rates consistently tend to be lower than CWS rates because it is more likely that individuals will find employment over the course of a year compared to just one week.

Unemployment is becoming a significant issue in the upcoming election. To address it effectively, it's crucial to grasp how unemployment is defined and measured in a developing economy like India.

Mains Question:

• Discuss the challenges associated with measuring unemployment in India and how these measurement methods impact our understanding of the employment situation in the country. (15M)