Unemployment – Concepts, Types & Measurement

UPSC Economics • GS III • Prelims • Indian Economy

1. What is Unemployment?

Unemployment refers to a situation where people who are willing and able to work at the prevailing wage rate are unable to find gainful employment. It is a key indicator of economic distress, structural weaknesses, and labour market inefficiency.

It reduces national output, increases poverty, weakens human capital, and creates social instability. For exams, always highlight: willingness, ability, and availability to work.

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2. Measuring Unemployment in India

Different methodologies measure labour market stress differently. UPSC frequently asks: Who measures unemployment? By which method?

A. NSSO / NSO – Three Measures

• UPS (Usual Principal Status): Long-term unemployment (365 days)
• SS (Subsidiary Status): Included if worked ≥ 30 days in past year
• CWS (Current Weekly Status): Based on 7-day reference period
• CDS (Current Daily Status): Most accurate; measures daily unemployment

B. Periodic Labour Force Survey (PLFS)

Introduced in 2017–18 to provide annual and quarterly estimates of unemployment. Urban areas get quarterly data; rural areas get annual data.

C. International Labour Organization (ILO) Approach

Global comparisons use ILO’s standardized “search + availability” criteria to define unemployed individuals.

graph TB
  A[Measurement of Unemployment]:::root
  A --> B[UPS]:::node
  A --> C[CWS]:::node
  A --> D[CDS]:::node
  A --> E[PLFS]:::node

  B --> B1[Long-term]:::note
  C --> C1[Weekly basis]:::note
  D --> D1[Daily basis]:::note
  E --> E1[Annual + Quarterly reports]:::note

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3. Types of Unemployment – UPSC-Focused Classification

Unemployment can arise due to structural reasons, temporary transitions, technological changes, or demographic patterns. UPSC typically tests definitions + examples.

A. Structural Unemployment

Mismatch between skills of workers and requirements of jobs. Caused by structural changes, technology, globalization.

B. Frictional Unemployment

Occurs during job search or temporary transitions between jobs. Inevitable in dynamic economies.

C. Cyclical Unemployment

Triggered by economic downturns or recession when demand falls.

D. Seasonal Unemployment

Seen in agriculture, tourism, sugar mills, construction—jobs available only in certain seasons.

E. Disguised Unemployment

More workers are employed than actually required. Common in Indian agriculture and informal sector.

F. Technological Unemployment

Automation, AI, robotics, digitalization → workers replaced by machines.

graph TB
  A[Types of Unemployment]:::root
  A --> B[Structural]:::node
  A --> C[Frictional]:::node
  A --> D[Cyclical]:::node
  A --> E[Seasonal]:::node
  A --> F[Disguised]:::node
  A --> G[Technological]:::node

  B --> B1[Skill mismatch]:::note
  C --> C1[Job transition]:::note
  D --> D1[Business cycle]:::note
  E --> E1[Seasonal jobs]:::note
  F --> F1[Marginal productivity zero]:::note
  G --> G1[Automation replaces labour]:::note

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4. Special Types of Unemployment Relevant to India

A. Educated Unemployment

Educated youth unable to find jobs matching their qualifications. India faces a severe challenge in this category due to skill mismatch and limited formal jobs.

B. Underemployment

People employed below their skill level or working fewer hours than desired.

C. Informal Sector Unemployment

Majority of India’s workforce depends on informal jobs without security; highly vulnerable to shocks (e.g., COVID-19 lockdown).

D. Chronic Unemployment

Persistent joblessness due to poverty, illiteracy, social factors.

graph TB
  A[India-Specific Unemployment]:::root
  A --> B[Educated]:::node
  A --> C[Underemployment]:::node
  A --> D[Informal Sector]:::node
  A --> E[Chronic]:::node

  B --> B1[Skill mismatch + degree inflation]:::note
  C --> C1[Working below potential]:::note
  D --> D1[Informal & vulnerable workforce]:::note
  E --> E1[Long-term joblessness]:::note

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Unemployment – Causes, Consequences & Solutions

UPSC Economics • GS III • Prelims + Mains Enrichment

5. Causes of Unemployment

Unemployment in India is the result of structural issues, demographic pressures, economic cycles, and social factors. UPSC frequently asks causes + India-specific examples.

A. Structural Causes

• Slow growth in labour-intensive industries
• Skill mismatch between education and industry needs
• Low manufacturing share in GDP (India skipped industrialisation)

B. Technological Causes

• Automation and mechanisation replacing labour
• Digitalisation of services
• AI-driven productivity improvements

C. Demographic Causes

• Large youth population entering labour market
• High expectations, low employability
• Urban migration causing job competition

D. Economic Causes

• Global recessions → cyclical unemployment
• Slowing domestic investment
• Demand contraction

E. Social & Institutional Causes

• Gender norms restricting women’s participation
• Caste-based occupational barriers
• Informal sector dominance → unstable jobs

graph TB
  A[Causes of Unemployment]:::root
  A --> B[Structural]:::node
  A --> C[Technological]:::node
  A --> D[Demographic]:::node
  A --> E[Economic]:::node
  A --> F[Social Factors]:::node

  B --> B1[Skill mismatch]:::note
  C --> C1[Automation]:::note
  D --> D1[Youth bulge]:::note
  E --> E1[Slow growth]:::note
  F --> F1[Gender norms]:::note

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6. Consequences of Unemployment

Unemployment has far-reaching economic, social, political, and psychological impacts.

A. Economic Consequences

• Loss of national output (underutilized labour)
• Lower incomes, lower savings → reduced investment
• Higher fiscal burden (subsidies, welfare payments)
• Increase in poverty and inequality

B. Social Consequences

• Crime, substance abuse, social unrest
• Skill erosion and declining productivity
• Low morale, depression, anxiety

C. Political Consequences

• Loss of trust in institutions
• Protests and political instability
• Rise of populist demands

graph TB
  A[Consequences of Unemployment]:::root
  A --> B[Economic Loss]:::node
  A --> C[Social Problems]:::node
  A --> D[Political Instability]:::node

  B --> B1[Lower GDP]:::note
  C --> C1[Crime, stress]:::note
  D --> D1[Protests]:::note

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7. Solutions to Unemployment – UPSC-Oriented

Solutions must be multi-dimensional, combining structural reforms, skill development, industrial policy, and labour market interventions.

A. Skill Development & Human Capital

• PM Kaushal Vikas Yojana (PMKVY)
• National Skill Development Mission
• Industry–academia linkage

B. Boosting Manufacturing & MSMEs

• Make in India
• Production Linked Incentive (PLI)
• Credit support for MSMEs

C. Labour Market Reforms

• Formalisation of workforce
• Simplification of labour codes
• Portable social security

D. Rural Employment & Agriculture

• MGNREGA
• Diversification of agriculture
• Agri-logistics, storage, cold chains

E. Promoting Entrepreneurship & Start-ups

• Startup India
• MUDRA loans
• EoDB reforms

graph TB
  A[Solutions to Unemployment]:::root
  A --> B[Skill Development]:::node
  A --> C[Manufacturing]:::node
  A --> D[Labour Reforms]:::node
  A --> E[Agri & Rural Jobs]:::node
  A --> F[Entrepreneurship]:::node

  B --> B1[Skill India]:::note
  C --> C1[MSME support]:::note
  D --> D1[Labour Codes]:::note
  E --> E1[MGNREGA]:::note
  F --> F1[Startup India]:::note

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8. Smart Summary – One Page Revision Table

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