Unemployment In India : Types, Challenges and Solutions

What is Unemployment - Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy.

Unemployment In India


National Sample Survey Organization (NSSO) defines employment and unemployment on the following activity statuses of an individual:

  • Working (engaged in an economic activity) i.e. 'Employed'.
  • Seeking or available for work i.e. 'Unemployed'.
  • Neither seeking nor available for work.

The first two constitutes labour force and unemployment rate is the percent of the labour force that is without work.

Unemployment rate = (Unemployed Workers / Total labour force) × 100


Worker population ratio is defined as the number of persons employed per thousand persons.

Working Population Ratio = (No of employed persons/Total Population) × 1000


Measurement of Unemployment in India

National Sample Survey Organization (NSSO), an organization under Ministry of Statistics and Programme Implementation (MoSPI) measures unemployment in India on following approaches:

Usual Status Approach: This approach estimates only those persons as unemployed who had no gainful work for a major time during the 365 days preceding the date of survey.

Weekly Status Approach: This approach records only those persons as unemployed who did not have gainful work even for an hour on any day of the week preceding the date of survey.

Daily Status Approach: Under this approach, unemployment status of a person is measured for each day in a reference week. A person having no gainful work even for 1 hour in a day is described as unemployed for that day.


Various Types of Unemployment

Disguised Unemployment: It is a phenomenon wherein more people are employed than actually needed. 

  • For Example in any project 30 persons are sufficient to do the work but it has 50 persons. Generally this type of Unemployment is seen in employment programs run by govt such MGNREGA. PM-GKRY etc. where focus is to provide employment to maximum no of People.

Seasonal Unemployment: It is an unemployment that occurs during certain seasons of the year. 

  • Agricultural labourers in India rarely have work throughout the year. After sowing and harvesting seasons end they are generally unemployed for a period of time.

Structural Unemployment: It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.

  • Many people in India do not get job due to lack of requisite skills and due to poor education level, it becomes difficult to train them.

Cyclical Unemployment: It is result of the business cycle, where unemployment rises during recessions and declines with economic growth.

  • One concrete example of cyclical unemployment is when an automobile worker is laid off during a recession to cut labor costs. During the downturn, people are buying fewer vehicles, so the manufacturer doesn't need as many workers to meet the demand.

Frictional Unemployment: The Frictional Unemployment also called as Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.

  • In other words, an employee requires time for searching a new job or shifting from the existing to a new job, this inevitable time delay causes the frictional unemployment. It is often considered as a voluntary unemployment because it is not caused due to the shortage of job, but in fact, the workers themselves quit their jobs in search of better opportunities.

Gig Workers : Gig workers are independent contractors, online platform workers, contract firm workers, on-call workers and temporary workers. Gig workers enter into formal agreements with on-demand companies to provide services to the company's clients.

  • This means, people working informally, without proper job contracts and thus sans any legal protection. These persons are deemed ‘unemployed’ since records of their work are never maintained.
Effects of Unemployment

When unemployment rates are high and steady, there are negative impacts on the economic growth long-run. Unemployment wastes resources, generates redistributive pressures and distortions, increases poverty, limits labor mobility, and promotes social unrest and conflict. The effects of unemployment can be broken down into Four types:
  • Individual: People who are unemployed cannot earn money to meet their financial obligations which reduces Consumption in economy and ultimately leads to less production. Unemployment can lead to homelessness, illness, and mental stress. 
  • Social: An economy that has high unemployment is not using all of its resources efficiently, specifically labor. When individuals accept employment below their skill level the economies efficiency is reduced further. Workers lose skills which causes a loss of human capital.
  • Socio-political: High unemployment rates can cause civil and political unrest in a country.
  • Economic: It also affects economy of the country as the workforce that could have been gainfully employed to generate resources actually gets dependent on the remaining working population, thus escalating socioeconomic costs for the State. For instance, 1 percent increase in unemployment reduces the GDP by 2 percent

Causes of Unemployment

Slow Economic Growth : Indian economy is underdeveloped and role of economic growth is slow. This slow growth fails to provide enough unemployment opportunities to the increasing population.

Increase in Population: Constant increase in population has been a big problem in India. It is one of the main causes of unemployment. 

Dependency on Agriculture : Agriculture is underdeveloped in India. It provides seasonal employment. Large part of population is dependent on agriculture. But agriculture being seasonal provides work for a few months. So this gives rise to unemployment.

Fall of Cottage and Small industries: The industrial development had adverse effect on cottage and small industries. The production of cottage industries began to fall and many artisans became unemployed.
  • It is also due to Inadequate state support, legal complexities and low infrastructural, financial and market linkages to small and cottage industries or small businesses, making such enterprises unviable with cost and compliance overruns.

Low Investment in Key Sector : Inadequate growth of infrastructure and low investments in manufacturing sector, hence restricting employment potential of secondary sector.

Social Norms : Regressive social norms that deter women from taking/continuing employment.

Skill Mismatch : Low or Zero educational levels and vocational skills of working population. The syllabus taught in schools and colleges, being not as per the current requirements of the industries. This is the main cause of structural unemployment.

Overdependency on Informal Sector : Huge workforce associated with informal sector due to lack of required education/ skills, which is not captured in any employment data. For ex: domestic helpers, construction workers etc.

Steps Taken by Government to reduce Unemployment

Integrated Rural Development Programme (IRDP) was launched in 1980 to create full employment opportunities in rural areas.

Training of Rural Youth for Self-Employment (TRYSEM): This scheme was started in 1979 with objective to help unemployed rural youth between the age of 18 and 35 years to acquire skills for self-employment. Priority was given to SC/ST Youth and Women.

Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA)
  • MGNREGA is the largest social security scheme in the world — guaranteeing 100 days of unskilled manual work to all rural households in India.
  • The MGNREG Act actually gives rural households the right to work — making it obligatory for the State to give them work on demand.
  • The work is usually on projects to build durable assets like roads, canals, ponds and wells. 
  • The Act stipulates a minimum wage-material ratio of 60:40.
  • The government has increased MGNREGA wage to Rs. 202 a day from Rs. 182 to benefit nearly 13.62 crore families
Pradhan Mantri Kaushal Vikas Yojana (PMKVY)

PMKVY was launched in 2015 has an objective of enabling a large number of Indian youth to take up industry-relevant skill training that will help them in securing a better livelihood.
  • Aim: To encourage and promote skill development in the country by providing free short duration skill training and incentivizing this by providing monetary rewards to youth for skill certification
  • PMKVY 3.0 : The Ministry of Skill Development and Entrepreneurship (MSDE) has launched Pradhan Mantri Kaushal Vikas Yojana (PMKVY) 3.0, in a bid to empower India’s youth with employable skills by making over 300 skill courses available to them.
  • Implementation: PMKVY is implemented by the National Skills Development Corporation (NSDC) under the guidance of the Ministry of Skill Development and Entrepreneurship (MSDE).
Aatmanirbhar Bharat Rozgar Yojna (ABRY) 
  • The Scheme has been launched with effect from 1st October 2020 to incentivize creation of new employment along with social security benefits and restoration of loss of employment. 
  • This scheme reduces the financial burden of the employers and encourages them to hire more workers. 
  • Under ABRY, Government of India is providing for a period of two years both the employees' share (12% of wages) and employer's share (12% of wages) of contribution payable or only the employees' share, depending on employment strength of the EPFO registered establishments.
Pradhan Mantri Mudra Yojana (PMMY) has been initiated by Government inter alia, for facilitating self-employment. Under PMMY collateral free loans upto Rs. 10 lakh, are extended to micro/small business enterprises and to individuals to enable them to setup or expand their business activities. About 70 per cent of the loans have been given to women entrepreneurs

Start Up India Scheme, launched in 2016 aims at developing an ecosystem that promotes and nurtures entrepreneurship across the country.

Stand Up India Scheme, launched in 2016 aims to facilitate bank loans between Rs 10 lakh and Rs. 1 crore to at least one SC or ST borrower and at least one women borrower per bank branch for setting up a greenfield enterprise.

Way Forward

Making Skill Development mandatory at school through New Education Policy will improve key skill required to get jobs.

Public investment in sectors like health, education, police and judiciary can create many government jobs.

Decentralization of Industrial activities is necessary so that people of every region get employment. Currently Industrial development is limited to only few states.

Development of the rural areas will help mitigate the migration of the rural people to the urban areas thus decreasing the pressure on the urban area jobs.

Effective implementation of present programs like Make in India, Skill India, Digital India, Start up and Stand-Up India.






Practice Questions Based on Unemployment

Q. Which of the following measures estimates the number of persons who remained unemployed for a major part of the year

A. Usual Status Approach

B. Monthly status approach

C. Weekly Status Approach

D. Daily Status Approach

E. All of the Above


Q. According to weekly estimate approach developed by NSSO, a person will be considered employed if he/she gets work for 

A. One Day

B. Two Days

C. Three Days

D. Five Days

E. All Days 


Q. Situation where the employed people contributing to production less than they are capable of

A. Structural unemployment

B. Functional unemployment

C. Under Employment

D. Cyclical unemployment

E. Disguised unemployment


Q. In which type of unemployment do the marginal productivity of the workers is zero?

A. Structural unemployment

B. Functional unemployment

C. Cyclical unemployment

D. Disguised unemployment

E. Seasonal unemployment


Q. Unemployment that arises during the phases of boom, recession, depression and recovery.

A. Structural unemployment

B. Functional unemployment

C. Cyclical unemployment

D. Disguised unemployment

E. Seasonal unemployment


Q. What type of unemployment can occur even in a situation of full employment.

A. Structural unemployment

B. Functional unemployment

C. Cyclical unemployment

D. Disguised unemployment

E. Seasonal unemployment


Q. Which of the following type of Unemployment refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.

A. Structural unemployment

B. Functional unemployment

C. Cyclical unemployment

D. Disguised unemployment

E. Seasonal unemployment


Q. What type of unemployment is occur if an economy transform itself from labour intensive economy to capital intensive economy

A. Structural unemployment

B. Functional unemployment

C. Cyclical unemployment

D. Disguised unemployment

E. Seasonal unemployment


Explanation : Labour-intensive production means that the way that a good or service is produced depends more heavily on labour than the other factors of production, such as capital.


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