UNEMPLOYEMENT-i (Labour and Employment)

Unemployment, according to the conventional and most commonly used concept, measures involuntary idleness, that is, the time for which individuals are available for and willing to, but are not able to find work. Unemployment is an economic problem as it represents wastage of human resources for the purpose of generating economic product. Further, unemployed youth areto be maintained by the society which is a cost. It also means that the person is not able to earn ad,equate income
for his livelihood and of those dependent on him. It is a social problem as it can lead to break down of social institutions like marriage and family and also can cause social unrest. Employment is important for generating growth and removing poverty and eventually to ensure prosperity.
For the purposes of classification, the following are considered employed:
Employer who employs others
Self-employed who produce and sell the product themselves
Wage employed who work for others
Children below the age of 14 years and elderly who are 60 years or above are not expected to work as the former should enjoy childhood. learn and gain skills: and the latter are past their prime age and have contributed to the economy and
society and should not work any more.
Varieties of unemployment
Open unemployment
It occurs when those who are eligible and looking for work are not finding work. According to the NSSO, It a person does not tmd work for more than half a year. he is openly unemployed or chronically unemployed.
Disguised unemployment
Disguised unemployment is when for example, ten persons are doing a job, in agriculture or in a house hold enterprise, while only six are productively engaged. If the other four are not working on the job. there is no difference to production.
Hidden or disguised. unemployment is the unemployment that is not reflected in official unemployment statistics due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work are counted as unemployed.
Underemployment
It is defined as underutilization of skills. In one usage, underemployment describes the employment of workers with hight skill levels in low-wage jobs that do not require such abilities. For example, someone with a college degree may be driving a taxi.
Underemployment is a problem of much larger magnitude in India than conventionally measured unemployment. Persons belonging to low income households can hardly afford to remain unemployed, and, therefore, may engage themselves in any work that is availahle. even ifit means less than what his skills warrant and yields a very low income. For that reason, the rates of unemployment in India are observed 'to be relatiyely low.
Structural unemployment
Unemployment caused by a mismatch between workers skills and the skills needed for available jobs. Structural unemployment essentially occurs because labour resources are configured (trained) for a givnen technology but technological change demands another skill set. Employers seek workers who have one type of skill and workers seeking employment have a different type of skill. This mismatch in skills, largely the result of technological progress, creates unemployyment of the structural variety. For example, India today lacks adequate number of engineers and other technical persons to meet the demand.
Frictional unemployment
This unemployment involves people being temporarily between jobs, searching for new ones, It is sometimes called search unemployment and is seen as largely voluntary. It arises because either employers fire workers or workers quit, usually because the individual charcteristics of the workers do not fit the individual characteristics of the job.
Cyclical (Demand deficient) unemployment
When there is not enough aggregate demand for the labor which is caused by a business cycle downturn. That is after boom. there can be decline and satgnation when workers are laid off.
Seasonal unemployment
The employment is available for farm workers only When there is sowing and harvesting activity largely. There is work only during seasons: for example, in Indian agriculture which is largely rainfed, there is employment for many only when from June to October when there are rains.
Natural unemployment
Natural unemployment exists when the economy is at full employment when those who want work get work at the prevailing market wages.
Frictional and structural unemployment are considered natural bi-products of a helthy, expanding economy. While they can be reduced through improved information, training, and eduction, total elimination is probably undesirable and likely impossible. Full employment is viewed as the condition that exists after cyclical unemployment has been elimainted and the economy returns to the boom phase.
When policy makers use the term full employment, they do not mean that absolutely everyone has a job at any given moment. What they mean is that cyclical unemployment has been elimmated. What remams are tnctional and structural unemployment that is a natural part of the economy. It needs to be stressed that frictional and structural unemployment do not result from the lack of available jobs, only from the problems of getting workers and jobs together.
Sources of Data on Employment and Unemployment
The statistics on employment and unemployment can be collected either through censuses of population and economic establishments and national level sample surveys, or through returns under various Acts relating to regulation of economic establishments regarding workers, etc. Employment Exchanges recording job seekers, etc., can be another source.
National Sample Survey Organization (NSSO):
The NSSO collects data through sample surveys based on scientific technique of random sampling through household enquiry both in rural and urban areas.
The NSSO has defined 'work' or 'gainful activity' as the activity pursued for pay, profit or family gain or in other words, the activity which adds value to the national product. Normally, it is an activity, which results in production of goods and services for exchange. However, all activities in 'agricultural sector' in which a part or whole of the agricultural production is used for own consumption and does not go for sale are also considered as gainful. The survey has adopted three different approaches to measure employment and unemployment. The three approaches are:
Usual status : approach with a reference period of 365 days preceding the date of survey. It shows the chronic unemployment in the country. Also called long-period unemployment or open unemployment
Current weekly status: approach with a reference period of seven days preceding the date of survey
Current daily status: approach with each day of the seven days preceding date of survey as the reference period.
The Labour Force
All economies want to create employment for their citizens. A productive labour force creates the goods and services needed by a vibrant economy. Before we can discuss the issue of unemployment. we must define a number or key terms.
We can divide the population of a nation into one of four categories.
A represents all those people aged between fifteen year old and under 59 years old, who are currently employment and working at least one hour per week.
B represents all those people aged between fifteen years old and under 59 years old, who are currently unemployed, but are looking for some form of employment.
C fepresents all those people aged between fifteen yers old and under 59 years old, who are not employed and who are not looking for some form of employment.
D represents all those people aged under fifteen years and over 59 years, and other people excluded from A, B, and C for other reasons.
Clearly, the population of the nation is A + B + C + D.
The labour force, work force and labour force participation rate
The labour force consists of employed and the unemployed. The working age population is the population above and below a certain age-usually 14-59 years.
The labour force participation rate is the number of people within the labour force actually working or looking for work. It is a measure of the proportion of working-age population that is economically active: it provides an indication or the relative size of the supply of labour available for the production of goods and services. The lahour force participation rate is calculated by expressing the number of persons in the labour force as a percentage of the working-age population.
Students, stay-at-home parents, people in prisons or similar institutions etc are not counted in labour force but are in the working age population.
The fraction of the labor force that is seeking work but cannot find it determines the unemployment rate.
Workforce is those people in the labour force who are working- employed
The labour force consists of the number of people aged 15 and upto 59 years who are employed (that is, those who currently have jobs) and unemployed (that is, those who do not have jobs but who are actively looking for work).
Individuals who do not fall into either of these groups-such as retired people are not included in the calculation of the labour force.
"Casual" employment refers to workers who are hired by the day, or week, or for a particular project. These workers are not employed all year. Recourse to casual labour being employed more in number is known as casulization of labour.
Labour force participation rate: The labour force participation rate is the percentage of the population aged between fifteen years and 59 years who are in the labour force and are not excluded from the definition of the potential labour force for reaseons like being in prison, full time student etc.
Employment elasticity : One indicator widely used for analysing the operation of the labour market is employment elasticity. It measures the percentage changes in employment induced by changes in GDP. Hence, the elasticity of employmet seeks to capture the responsiveness of the labour market to changes in macroeconomic conditions (as represented by GDP growth).
Employment intensity indicates the extent to which growth creates employment
Employment Rate is the ratio of employed persons to population -15 years and upto 59 years.
Unemployment rate is the extent of unemployment in the labor force at some particular time, expressed as a precentage of the total available labor force.
Nairu, Phillip's curve and Okun's law
NAIRU is the rate of unemployment at which the rate of inflation will remain stable. In terms of output. the NAIRU corresponds to the the highest level of real gross demestic product that can be sustained at any one time. This is also called the "natural gross demestic product".
Phillip's curve
In economics, the Phillips curve is a supposed relationship between inflation and unemployment. The British economist Alban W. Phillips observed an inverse relationship between inflation and unemployment in the British economy in the century up to 1958 - when inflation was high, unemployment was low, and vice versa.
OKUN'S LAW
A description of what happens to unemployment when the rate of growth of GDP. changes based on empirical research by Arthur Okun ( 1928-80).
Labour Sector reforms
Labour sector reforms are a part of the second generation reforms aimed at making Indian industry competitive in the age of globalization. The Indian labour scenario today is market by rigid labour laws. 120 labour related laws made by Union and State Governments to protect labour which makes up 8% of the total labour force-organised labour. With so much rigidity, level playing field is being denied to Indian industry and so its ability to compete with the foreign players is negative.
With overprotected, labour, employers are prefering either not to invest or are resorting to capital intensity- both leading to reduced job creation.
Rigid labour laws also contribute to industrial sickness partly because labour can not be removed according to the priorities of investment and market. There are more than lakhs sick and weak units today with about thousands of erores of rupees locked in them with implications for bank profitability as well.
As a part of second generation reforms it is recognised that right sizing to restructure is the only way to globally compete for which the existing labour laws need to be rationalised.
Labour law flexibility is also important for efficiency gains as over-employment vitiates work culture and erodes productivity.
It needs to be remembered that archaic labour laws have contributed to low rate of growth of employment which is less than the addition to the labour force.
Globalization and impact on Labour
Labour reforms are necessary for the domestic industries in the globalised milicu to successfully compete with liberalized imports from foreign countries that have flexible labour laws. Since business is not assured due to swings in trade cycles, rigid labour laws can hamper job creation. It can create industrial sickness. Flexible labour laws can make the economy export-intensive.
With theopening up of the economy and the Iiberalisation of trade under the WTO regime, the country can no longer afford to carryon with the existing labour market rigidities where protection of existing employment is achieved hut the same prevents new job creation at necessary levels.
Since labour laws are rigid. companies are preferring capital intensity and adopting the following
other input costs being not amenable to cutting labour has borne the brunt of restructuring process in the search of the employers to cut costs and improve profitability
wage cuts are being offered to workers to retain jobs
permanent jobs are becoming scarce as companies are relying on contract labour for reasons of flexibility and wage gains
VRSs
Globalization means competitiveness to survive and succeed. It demands, among other things, labour laws as flexible as they are in the competing counties like China. Easy hire and fire policy (exit policy) allows companies to employ more as they have the freedom to remove them when business cycle turns down. Three important laws as examples can be cited where reforms are necessary: trade union laws, IDA 1947 and contract labour laws.
Trade Union Law Changes
In response to the demands and challenges of the process of globalization, the Government found it necessary to rationalise the TU laws for better labour relations and productivity. The changes relate to
10% of the total strength of the employees or at least 100 members must from a trade union unlike earlier when 7 members sufficed
curbs on the participation of outsiders in the leadership of the TUs
restriction in the number TUs
promotion of accountability in their functioning-main proper financial accounts and conduct elections.
Most trade unions in the public and private sector, whether in manufacturing units. banks, railways, road transport. ports. state electricity boards or aviation. have been captured by political forces. Because of the strategic links. these organisations have with the economy. the trade unions controlling hardly eight per cent of the country's labour force are able to delay economic progress. As a result labour sector reforms have been postponed and the problem of industrial sickness has assumed alarming proportions and vast productive resources are locked up in thousands of sick industrial units in the public and private sector.
Security of employment is best ensured when workers get competing opportunities for employment. Trade unions need to become partners in the refonn process and help in creating more employment opportunities.
The Government, on its part, should make all possible efforts to dispel the fears of trade unions by enlarging the scope and coverage of the social security net. It must develop labour market institutions to assist workers in upgrading skills and make available alternative job opportunities. For this purpose, the Government should also consider setting up a skill development fund on the lines of the mechanism prevailing in Malaysia. Singapore and South Korea.
Other laws that require changes and liberalization are:
The Industrial Disputes Act (1947) requires companies employing more than 100 workers to seek government approval before they can retrench employees or close down. CII wants the number increased to 1000. It helps companies hire workers freely and fire them when there is a drastic slowdown as in 2008-09 due to global slump. Same is the case with contract labour laws.
The Contract Labour Act (1970) prohibits companies from hiring temporary workers in crore areas but allows the same in non-crore areas. Industry bodies do not accept distinction.
(Read 11th Plan strategy ahead for further clarity)
EAC and Full Employment
If the economy continues to grow at nine per cent plus, there will no unemployment in the country by 2008. according to Dr C. Rangarajan. former Chairman of the Prime Minister's Economic Advisory Council.
As per the results orthe National Sample Survey Organisation's (NSSO) latest quinquennial survey (61st round), the country's total labour force amounted to 469.06 million in) 2004-05. of which the workforce (the labour force that is employed) stood at 457.82 million. The balance 11.24 million was the unemployed - people seeking work And not getting it.
Dr Rangarajan has noted that the period since 1999-2000 has seen a reversal of the declining trend in employment growth (jobless growth) characterising the initial years of the post-reform era.