EMPLOYMENT AND UNEMPLOYMENT
Economics
INTRODUCTION
Employment and unemployment are central issues in the Indian economy because India has a large population, a high dependence on informal work, and a significant share of people dependent on agriculture. Employment generation is directly linked with poverty reduction, social stability, and inclusive economic growth. Understanding poverty, labour force concepts, unemployment types, labour laws, and employment data systems is therefore essential for both prelims and mains examinations.
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POVERTY AND POVERTY LINE
MEANING OF POVERTY
Poverty refers to a condition in which an individual or household does not have adequate financial resources to maintain a basic minimum standard of living. This includes the inability to meet basic needs such as food, clothing, shelter, health, and education.
Poverty is not only about income deficiency but also about deprivation of opportunities and access to essential services.
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MEASUREMENT OF POVERTY IN INDIA
In India, poverty has traditionally been measured using consumption expenditure rather than income.
Reasons for using consumption expenditure:
- Difficulty in accurately estimating income in a largely informal economy
- Seasonal fluctuations in income, especially in agriculture
- Presence of multiple and informal sources of income
- More reliable reporting of consumption compared to income
Poverty estimates are based on large-scale consumer expenditure surveys conducted by the National Sample Survey Organisation (NSSO).
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CALORIE-BASED POVERTY LINE (TENDULKAR COMMITTEE)
One of the traditional methods of poverty estimation was based on minimum calorie intake.
Calorie norms:
- Rural areas: 2400 calories per person per day
- Urban areas: 2100 calories per person per day
The lower calorie requirement in urban areas was due to relatively less physical work, but the poverty line was kept higher because of higher prices of essential goods and services in urban centres.
Based on the Tendulkar Committee (2009):
- Rural poverty line (2011–12): Rs 816 per person per month
- Urban poverty line (2011–12): Rs 1000 per person per month
In July 2013, the Planning Commission released poverty estimates for 2011–12:
- Number of poor: 269.8 million
- Percentage of population below poverty line: 21.9%
After 2011–12, no official poverty estimates have been released.
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RANGARAJAN COMMITTEE (2014)
The Rangarajan Committee recommended a more comprehensive approach to poverty measurement.
Key recommendations:
- Separate consumption baskets for rural and urban areas
- Inclusion of food items ensuring adequate calorie, protein, and fat intake
- Inclusion of non-food items such as clothing, education, health, housing, and transport
Revised poverty line (2011–12 prices):
- Rural: Rs 32 per person per day
- Urban: Rs 47 per person per day
Monthly poverty line:
- Rural: Rs 972 per person
- Urban: Rs 1407 per person
The government did not officially adopt the Rangarajan Committee recommendations.
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CATEGORISATION OF POVERTY
Chronic Poor:
- People who are always poor
- People who are usually poor but occasionally earn slightly more
- Example: casual labourers
Transient Poor:
- Churning poor who frequently move in and out of poverty
- Occasionally poor who are generally well-off but face temporary shocks
- Example: small farmers, seasonal workers
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UNEMPLOYMENT: BASIC CONCEPTS
LABOUR FORCE
The population of a country is divided into:
1. Labour Force
2. Non-Labour Force
Labour force includes:
- Persons who are working
- Persons who are not working but are seeking or available for work at the current wage rate
Thus, labour force = employed + unemployed persons.
Non-labour force includes:
- Persons who are not working
- Not seeking or available for work
Examples: students, homemakers, elderly, disabled persons not seeking work
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UNEMPLOYMENT
An unemployed person is one who:
- Is part of the labour force
- Is willing and available to work
- Is actively seeking employment
- But is unable to find work
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UNEMPLOYMENT RATE
Unemployment rate refers to the proportion of unemployed persons in the labour force.
Formula:
Unemployment Rate = (Number of Unemployed / Total Labour Force) × 100
Measurement challenges:
- Large informal sector
- Seasonal employment
- Underreporting of unemployment
In India, employment and unemployment data are primarily compiled by the NSSO.
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TYPES OF UNEMPLOYMENT IN INDIA
SEASONAL UNEMPLOYMENT
- Occurs during certain seasons of the year
- Common in agriculture, tourism, hotels, and allied activities
- Example: agricultural labourers during off-season
STRUCTURAL UNEMPLOYMENT
- Occurs due to mismatch between skills and job requirements
- Caused by long-term changes in the structure of the economy
- Workers unable to adapt to new technologies become unemployed
DISGUISED UNEMPLOYMENT
- More workers are employed than required
- Marginal productivity of some workers is zero
- Common in agriculture and family-based occupations
- Widely prevalent in rural India
CYCLICAL UNEMPLOYMENT
- Caused by economic downturns
- Occurs due to fall in aggregate demand
- Increases during recession or depression
- Moves with the business cycle
FRICTIONAL UNEMPLOYMENT
- Temporary unemployment while changing jobs
- Occurs due to job search, relocation, or voluntary quitting
- Also known as search unemployment
NATURAL RATE OF UNEMPLOYMENT
- Sum of frictional and structural unemployment
- Exists even in a healthy economy
UNDEREMPLOYMENT
- Person is employed but not according to skill level, education, or capacity
- Example: highly qualified individuals doing low-skilled jobs
VOLUNTARY UNEMPLOYMENT
- People choose not to work below a certain wage level
- Often after investing heavily in education
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GINI COEFFICIENT
The Gini coefficient measures income inequality.
- Value ranges from 0 to 100
- 0 indicates perfect equality
- 100 indicates perfect inequality
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DEMOGRAPHIC DIVIDEND
Demographic dividend refers to a phase when:
- A large proportion of the population is in the working-age group (15–64 years)
- Dependency ratio is low
Benefits:
- Higher productivity
- Higher savings and investment
- Faster economic growth
India is considered a demographic dividend country.
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LABOUR LAWS AND SOCIAL SECURITY
EMPLOYEES PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952
Applicability:
- Establishments employing 20 or more persons
Schemes:
- Employees’ Provident Fund Scheme, 1952
- Employees’ Pension Scheme, 1995
- Employees’ Deposit Linked Insurance Scheme, 1976
Eligibility:
- Salary up to Rs 15,000 per month
Contribution:
- Employee: 12% of basic salary + DA
- Employer: 12%
EPFO investment:
- Invests in Exchange Traded Funds (ETFs)
- Maximum limit: 15%
- Does not invest in individual company shares
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PAYMENT OF BONUS ACT, 1965
Applicability:
- Establishments with 20 or more employees
Eligibility:
- Salary up to Rs 21,000 per month
- Salary for bonus calculation capped at Rs 7,000 per month
Bonus:
- Minimum: 8.33%
- Maximum: 20%
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ESIC ACT, 1948
Applicability:
- Establishments with 10 or more employees
Eligibility:
- Salary up to Rs 21,000 per month
Contribution rate:
- Reduced from 6.5% to 4%
- Employer: 3.25%
- Employee: 0.75%
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PAYMENT OF WAGES ACT, 1936
Applicability:
- Factories, railways, and specified establishments
Eligibility:
- Salary up to Rs 18,000 per month
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PERIODIC LABOUR FORCE SURVEY (PLFS)
Need for PLFS:
- Earlier employment data available once in five years
- Need for frequent labour market data
Launched:
- 2017 by Ministry of Statistics and Programme Implementation
Conducted by:
- National Sample Survey Office under National Statistical Office
Objectives:
- Quarterly urban employment indicators
- Annual rural and urban employment indicators
Key indicators:
- Labour Force Participation Rate
- Worker Population Ratio
- Unemployment Rate
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MINIMUM WAGES
Minimum Wages Act, 1948:
- Protects workers, especially in unorganised sector
- Both Central and State Governments fix minimum wages
Variable Dearness Allowance:
- Linked to Consumer Price Index
- Revised twice a year
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CODE ON WAGES, 2019
Labour law reforms consolidated 29 labour laws into 4 codes:
- Code on Wages
- Code on Industrial Relations
- Code on Social Security
- Code on Occupational Safety, Health and Working Conditions
Code on Wages subsumes:
- Minimum Wages Act, 1948
- Payment of Wages Act, 1936
- Payment of Bonus Act, 1965
- Equal Remuneration Act, 1976
Objectives:
- Simplification of labour laws
- Uniform definitions
- Ease of compliance
- Increased formalisation of employment
- Protection of minimum wages for nearly 50 crore workers
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Subject: Economics
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