Unemployment

Unemployment is a situation in which a person is willing and capable of working at the existing wage rate but does not get a job to work.

Unemployment refers to a situation where a person who is able and willing to work is not able to find a job. It is often used as a measure of the health of an economy, as high levels of unemployment can indicate a lack of available jobs, which in turn can lead to reduced economic growth and increased social and economic inequality.

The unemployment rate is the most often used indicator of unemployment. It is computed by dividing the total labour force by the number of individuals without jobs. There are different types of unemployment, including institutional, structural, cyclical, and frictional.

It estimates India’s unemployment rate in India is around 7.7% at present. It is 9.1% in urban India whereas only 7.0% in rural India. India’s daily and monthly unemployment rates are made public by CMIE.

Types of Unemployment

• Frictional unemployment: This type of unemployment occurs when workers are in between jobs or are searching for a job. It is a temporary and natural part of the labor market.
• Structural unemployment: This occurs when there is a mismatch between the skills that workers have and the skills required for available jobs. Structural unemployment can be caused by changes in the economy, such as the decline of certain industries or technological advancements.
• Cyclical unemployment: This type of unemployment is caused by changes in the business cycle, such as recessions or economic downturns. When the economy slows down, companies may cut jobs to reduce costs, leading to increased unemployment.
• Seasonal unemployment: Seasonal unemployment occurs when workers are employed only during certain times of the year, such as during the holiday season or during harvest time in agricultural sectors.
• Technological unemployment: This occurs when technological advancements make certain jobs obsolete, leading to job losses in those sectors.
• Underemployment: This refers to a situation where workers are employed but are not able to work as much as they would like, or are working in jobs that are below their skill levels.

Reasons for Unemployment

• Economic Cycles: An economic cycle is a term used to describe a major and widespread drop or incline in economic activity. This shift in economic activity is often quantified by changes in the GDP, income levels, and unemployment rates. When the economy experiences a slowdown, companies may cut jobs to reduce costs, leading to increased unemployment.
• Technological advances: When we talk about technological developments, we mean changes and inventions that make technology more effective and produce higher-quality goods. This eventually eliminates employment opportunities for trained labourers. Technological advancements can make certain jobs obsolete, leading to unemployment in those sectors. For example,The adoption of artificial intelligence (AI) and machine learning (ML) has increased unemployment by automating tasks that were previously done by humans. Many jobs can be completed by AI and ML technologies more quickly and correctly than by humans, which may result in employment displacement in some sectors.
• Structural changes in the economy: The term “structural changes” describes alterations to the underlying economic framework, such as shifts in the make-up of an industry or the displacement of some skills by new technology. As an illustration, the advent of automation and the use of computers in manufacturing has resulted in a decrease in the demand for some forms of manual labour and an increase in the need for workers with technical abilities. Similar to this, changes in customer tastes or more global competition may lead to a shift in the demand for particular goods or services, which may result in the loss of jobs in such industries.
• Globalization and off-shoring: In order to expand the flow of goods, services, capital, and information across international borders, economies and societies all over the world are becoming more interconnected, a process known as globalisation. The expansion of international trade is one consequence of globalisation, and it may result in job losses in specific sectors and geographical areas.Companies may move their operations to countries where labor is cheaper, leading to job losses in the home country which is off-shoring and is an outcome of globalization. For example- Many luxury brands from Italy like Dior, Hermès, Celine, Gucci, etc. Gets their embroidery done in India as it is 10× cheaper in India, which has costed heavily on the workers back in Italy, slowly diminishing their employment in this sector.
•  Inadequate education and training: Individuals may have difficulty finding employment or be passed over for job possibilities if they do not possess the knowledge and abilities demanded by the job market. People who are engaged in positions that do not match their talents and qualifications may experience unemployment or underemployment as a result. For instance, career possibilities may be scarce for those without a college degree or a high school diploma. If a person’s education is not in line with the skills demanded by the labour market, even those with college degrees could occasionally have trouble finding work.As educational institutions don’t provide skills and practical knowledge to the students.
• Social Issues: Unemployment can also be caused due to social stigmas and discrimination. When a person or group of people are treated unfairly or differently depending on their specific traits, such as their colour, gender, age, religion, or sexual orientation, this is known as discrimination. Recruitment, hiring, promotions, and termination are just a few of the steps of the employment process when discrimination may occur. Discrimination based on age, gender, race, or other factors can also contribute to unemployment. Discrimination can also result in hostile workplaces when workers are harassed or treated unfairly based on their personal traits. As an example, we commonly see a lot of females not getting hired for jobs because of their gender as society still perceives a notion that men are more skilled and knowledgeable.
• Government policies: Unemployment may be significantly influenced by government actions. The job market can be impacted by policies like taxation, subsidies, laws, and trade barriers, which can also increase unemployment. High taxes is one example of a government policy that might contribute to unemployment. High taxes on people and businesses can diminish their discretionary income and increase the cost of hiring new personnel for enterprises. As a result, companies may be less likely to grow and hire new employees, which could result in greater unemployment rates. Trade limitations may also be a factor in unemployment. The price of imported goods for consumers and businesses may rise when nations apply tariffs or other trade restrictions. This could result in a drop in the demand for these products and a corresponding drop in employment in the sectors that make them.

Consequences

• Financial Stress: One of the most obvious consequences of unemployment is financial hardship. Without a steady income, individuals may struggle to pay bills, cover living expenses, and provide for their families. This may result in more stress and anxiety, which could make it even harder to find employment or make financial decisions. Additionally, it may have an impact on a person’s relationships and general quality of life.
• Mental health issues: Unemployment can also have a negative impact on mental health. It can lead to increased stress, anxiety, and depression, which can, in turn, impact physical health and well-being.
• Reduced productivity and economic growth: High levels of unemployment can lead to reduced productivity and economic growth. When workers are unemployed, there is less demand for goods and services, which can lead to a reduction in economic activity.
• Increase in social problems: Unemployment can also lead to an increase in social problems such as crime, homelessness, and poverty.
• Strained government resources: When unemployment levels are high, governments may need to spend more on social welfare programs to support unemployed individuals and families, which can strain government resources.

Way Forward

• Promoting economic growth: Governments can promote economic growth by investing in infrastructure, providing incentives for businesses to invest and grow, and supporting innovation and entrepreneurship. They should promote labour market strategies that are active, such as training and skill development, to aid employees in gaining new skills and improving their employability, this is what ILO suggests.
• Providing education and training: Education and training programs can help workers develop the skills needed for available jobs, reducing structural unemployment.
•  Encouraging foreign investment: World Bank Encourages foreign investment can create new jobs and stimulate economic growth.
• Reducing regulations and taxes: Reducing regulations and taxes can make it easier for businesses to grow and create jobs.
• Providing financial assistance: Governments can provide financial assistance to individuals who are unemployed, helping them to cover living expenses while they search for new jobs.
• Implementing job-sharing programs: Job-sharing programs can reduce unemployment by allowing multiple workers to share one full-time job.
• Investing in renewable energy: Investing in renewable energy can create new jobs in the energy sector and stimulate economic growth.