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									                                    Chapter 7: UNEMPLOYMENT
                Definition of: (United nations) unemployment [code 147]

                Unemployment (standard definition) includes all persons who during a specified reference
                period (e.g. one week) were: (i) without work, i.e. were not in paid employment or self-
                employment; (ii) currently available for work, i.e. were available for paid employment or self-
                employment during the reference period; and (iii) seeking work, i.e. had taken specific steps
                (registration at a public or private employment exchange; application to employers; checking
                at worksites, farms, factory gates, market or other assembly places; placing or answering
                newspaper advertisements; seeking assistance of friends or relatives; looking for land,
                building machinery or equipment to establish an own enterprise; arranging for financial
                resources; applying for permits and licenses; etc.) in a specified recent period (e.g. the last
                four weeks) to seek paid employment or self-employment. Persons without work and currently
                available for work, who had already made arrangements to take up paid employment or
                undertake self-employment activity at a date subsequent to the reference period, are to be
                considered unemployed, irrespective of whether or not they continued seeking work. Also
                regarded as unemployed are persons temporarily absent from their jobs with no formal job
                attachment, who were currently available for work and seeking work. In situations where the
                conventional means of seeking work are of limited relevance, where the labor market is largely
                unorganized or of limited scope, where labor absorption is temporarily inadequate or where
                the labor force is largely self-employed, a relaxed definition of unemployment can be applied,
                based on only the first two of the above-mentioned criteria (without work and currently
                available for work). Such a relaxed definition of unemployment can also be applied in the case
                of persons temporarily laid off without formal job attachment. The unemployment rate is the
                ratio of unemployed persons (numerator) to the economically active population or labor force
                (denominator), expressed as a percentage. Age-specific unemployment rates relate
                unemployed persons of a specific age group to the economically active population or labor
                force of the same age group.

Recurring periods of prosperity and recession are reflected in the nation‟s labor market. In fact, this is what makes the
understanding of the business cycle so important. If business cycles signify a little more or less profit for business,
government would not be so studious to forecast or to control their swings. It has the human costs of lost jobs and
income, the inability to maintain standards of living, which makes the understanding of business cycle and of the factors
that affect unemployment so important.
The problem of unemployment in underdeveloped countries is basically different from that in developed countries. In
developed countries, unemployment generally assumes two forms: the Keynesian involuntary unemployment and
temporary frictional unemployment. This type of unemployment is, as Keynes argued, results from lack of effective
demand. The demand for labor is less and employment opportunities limited in underdeveloped countries on account of
agricultural backwardness, underdevelopment of industries, and small size of services sector. Hence, like all other
underdeveloped countries, India presently suffers mainly from structural unemployment, which exists in open and
disguised forms.

Types of Unemployment
Frictional Unemployment. Some people quit their job and look for something better. At anytime some workers will be
between job transitions, some workers will be voluntarily moving from one job to another. Some might have been fired
and will be hunting for some other job. Unemployment of this sort is called frictional unemployment. Frictional
unemployment is inevitable, since people find it desirable to change jobs, and such job changes often involve a period of
temporary unemployment.
Structural Unemployment: Change continually occurs in the nature of consumer demand and in technology.
Economists use the term “structural” in the sense of “compositional.” For example, consumers grow tired of one good
and infatuated with another. And new technologies supplant old ones as innovation continue to emerge as entrepreneurs
continue to transform innovation into marketable goods and services. Thus, some workers are thrown out of work, and
because the new goods and new technologies call for different skills than the old ones did, they cannot use their skills
elsewhere. Unemployment of this sort is called Structural unemployment. It exists when jobs are available for qualified
workers, but unemployed do not have necessary qualifications. This sort of unemployment results from a mismatch
between job requirements and the skills of the unemployment.
Cyclical Unemployment: Cyclical unemployment occurs when, because of an insufficiency of aggregate demand, there
are more workers looking for work than there are jobs. It is caused mainly by deficiency of total spending. As the
overall demand for goods and services decreases, employment falls and unemployment increases. For this reason,
cyclical unemployment is sometimes called demand deficient unemployment. The frictional structural and cyclical
unemployment are commonly applied to the developed countries. The developing economies face different types of
Open Unemployment: Both voluntary (people who exclude from consideration of some jobs for which they could
quality, implying that they have some means of support o than employment) and involuntary.
Underemployment: Those working fewer hours (daily, weekly, or seasonal) than they would like to work. The
visibly active but under utilized: those who would not normally be classified by the above definition, but who in
fact, have found alternative means “marking time” include the following:
Disguised underemployment. Many people seem occupied on farms or publicly owned enterprises on full time
basis even though services they render may actually much less than full time. Social pressure on private industry
may also result in substantial amounts of disguised underemployment. If available work is openly shared among
those employed, the disguised disappears and underemployment becomes apparent
Hidden underemployment. Those who are engaged in second choice non employment activities, perhaps notably
in education and household chorus primarily because job opportunities are not available at the level of education
already attained, or open to women, given social mores. Thus education institution and household become
employers of last resort. More over, many of those enrolled for further education may be among the less able, as
indicated by their ability to compete successfully for jobs before pursuing higher education.
The premature retirement. This phenomenon is especially apparent, and apparently growing, in the civil services.
In many countries the retirement ages are falling at the same time that the longevity is increasing, primarily as one
means of creating promotion and job opportunities for some of the large numbers pressing up from below.
Unemployment in urban and rural areas.
Most of the unemployment in urban areas is open and disguised. Unemployment of this kind is not only painful
at personal level but it is also a source of social tension, which often threatens the whole fabric of society. During
the 1950‟s, when the economy was not crisis ridden, 10 to 15.5 percent of labor force were unemployed at different
points of time. Moreover, in this period, not only the absolute number of unemployed had increased, but the ratio of
the unemployed to the total labor force had also risen. During the fifteen year period from 1972 - 73 to 1987 - 88
unemployment rate in urban areas had fluctuated between 8.99 and 10. 3 6 percent. Broadly speaking, urban
unemployment may be classified into (i) industrial unemployment, and (ii) educated underemployment.
(i) Industrial Unemployment: The size of the industrial unemployment is not known because the necessary data
for its estimation is not available. A disquieting phenomenon, however, is that over the past 16 years
unemployment in the industrial sector has increased. This is the result of extremely low growth rates of employment
in the organized manufacturing sector. It is observed that employment elasticity has significantly declined in
manufacturing during the last two decades. It was O.55 in the period 1972-73, from where it declined to 0.42 in
the period 1977-78 and further to 0.26 during 1987-88. There are many factors that have contributed to this
decline. First, there has been a large increase of the economically active population in the country, while the
economy has failed to grow at the pace commensurate with the growth of labor force. Secondly, population in the
urban areas has grown faster than in rural areas, because of migration on a large scale from villages to cities. The
industrial growth in India has been very modest, and thus could not absorb all those who migrate to cities with the
hope of getting some job or the other.
(ii) Educated Unemployment: Educated unemployment is, by and large, a part of urban unemployment. It is a
very serious and menacing problem, yet the size of the unemployment remains largely unmeasured. Not only are
their conceptual difficulties in estimating it, but the kind of statistical information that is required for its estimation
is also not available. Hence the quantitative base for analyzing the problem of educated unemployment is weak.
Nonetheless, on the basis of fragmentary information available it is not difficult to understand the basic issues
involved in the problem. According to the Ministry of Labor and Employment, the number of educated unemployed
was around 2.44 lakh in 1951. It rose to 9.2 lakh in 1966 and to 32.8 lakh in 1972. The Planning Commission‟s
estimates suggest that at the beginning of 1980, approximately 34.72 lakh-educated persons were unemployed.
Using the same approach as in the Sixth Plan, unemployment among the educated people works out to 47 lakh in
1985 and 68 lakh in 1992. No estimates of educated unemployment are available for a recent year. However,
there are no reasons to believe that educated unemployment is now less than that was there on the eve of the Eighth
Plan. The figures provided by the Ministry of labor and Employment and the Planning Commissions are not strictly
comparable, yet they indicate that over the four decades begriming from 1951 educated unemployment had
considerably increased. In 1992 it was as large as 27 times the educated unemployment in 1951. At present,
approximately 25 percent of the educated unemployed are graduates and professionally qualified. Among educated
unemployed, the matriculates (also higher secondary passed) constitute about 75 percent. Unfortunately most of the
matriculates in India have little vocational training and are not suitable for any skilled job. They all hanker after
white-collar jobs with the result that there is scramble for clerical and such other low-paid unskilled jobs.
There are many causes of educated unemployment. The defective educational system, with its theoretical bias, lack
of aptitude and technical qualifications for various types of work among job seekers and maladjustment between
demand and supply of educated workers are some well-known causes of educated unemployment. But the major
cause of unemployment in this sector is the same, which explains the overall unemployment in the country. Over
the years, economic growth in India has been very slow. It was inadequate in the past to absorb all the educated
persons. Blaug, Layard and Woodhall assert, “Supply has consistently moved ahead of demand so that educated
unemployment as a fraction of the stock, of educated manpower has remained relatively constant”. This has
happened largely because of the wide gap between the private cost of education and the expected return from it.
Agricultural Unemployment: According to the National Sample Survey (NSS) the current daily status rural
unemployment rates for 1987-88 were 5.25 percent. Since then, unemployment among rural male workers has
increased. As stated earlier, the current daily status unemployment rate for the rural male workers was 5.64 percent
in 1993-94 compared with 4.58 percent in 1987-88. Most of this unemployment is agricultural unemployment,
which may be classified into (i) seasonal unemployment, (ii) disguised unemployment and (iii) chronic and usual
status unemployment.
Seasonal Unemployment: Seasonal unemployment in agriculture is a normal condition in India. At present
irrigation facilities in this country are available on approximately 31.3 percent of the cultivable land, and yet on not
more than 25 percent land is prepared for multiple crops. This implies that farmers cultivating approximately 75
percent of the land remain involuntarily unemployed for four to six months, unless they find some temporary
employment in this period. Since the percentage of the lucky ones who manage to get some work in the off-season
is quite low, the incidence of seasonal unemployment in the agricultural sector is obviously very high.
Agricultural laborers in India rarely have work throughout the year. According to the First and the Second
Agricultural Labor Enquiry Committees, agricultural labor in this country had 275 and 237 days‟ employment in
1950-51 and 1956-57 respectively. In other words, on an average their unemployment was approximately for three
to four months and showed a rising trend with the passage of time. The Planning Commission in its Mid-Term
Appraisal of the Fourth Plan had pointed out that leaving aside the green revolution belt, in all other areas seasonal
unemployment during the early seventies was at least as much as during the fifties, if not more. However,
considering the decline in employment elasticity, measured as the ratio of employment growth to the growth of
value added, in the agricultural sector during the 1970s and 1980s, there is every reason to believe that the seasonal
unemployment should have increased in recent years. The employment elasticity in agriculture was estimated to be
0.64 during 1973-78. It declined to 0.49 during 1978-83 and further to 0.36 during 1983-88
Disguised Unemployment: It was once a widely held notion that the Indian agriculture was characterized by the
existence of a considerable amount of surplus labor though no firm estimates of its size were available. From the
fragmentary information that is presently available it appears that in the green revolution belt there is no disguised
unemployment. For the past one and a half-decade the demand for wage labor has increased in these areas and
agricultural laborers have been brought from other parts of the country to meet it. In all other regions pressure of
growing population has been increasing on land and when one notices too many people operating tiny agricultural
holdings, one feels inclined to believe that disguised unemployment still exists in these areas on a considerable scale.
However, it would be wrong to jump to some hasty conclusion on the basis of mere impressions. Let us, therefore,
turn to the works of those that have undertaken micro-level studies of surplus laborers, and see if they can help us in
arriving at some conclusion. The most well known work in this area is that of Shakuntala Mehra‟s study attempts
to provide estimates of disguised unemployment for the country as a whole. Making some highly questionable
assumptions (such as that there is no surplus labor on the largest farms) she concluded that 17. 1 percent of the work
force in agriculture was surplus during the 1960s.
Usual Status Unemployment: The usual status unemployment in rural areas cannot be clearly distinguished from
seasonal and disguised unemployment. It is this reason why people remaining unemployed for long periods are
sometimes counted as seasonally or disgustedly unemployed. This error crop up particularly if the survey is carried
out in the off-season when most people in villages do not have any productive work with them. However, the usual
status unemployment in March 1988 has been estimated on the basis of 43rd Round of the NSS. According to this
estimate, the usual status rural unemployment rates in March 1988 were 3.07 percent. Age-wise usual status rural
unemployment was the highest in the age group of 15-29.
Estimates of Unemployment:
As we have already noted in the earlier discussion, that the employment problem is the developing countries cannot
be interpreted as simply a Keynesian type of involuntary unemployment. A pervasive problem is that of the
“working poor” -those who actually work long hours but earn only a low income below poverty line. The disguised
unemployed constitute another major dimension of the employment problem Beyond measures of „open involuntary
unemployment” it is just as important, if not more so, to have measures of “underemployed” and “disguised
We might usually think of a range of unemployment, beginning at one extreme with open unemployment in the
urban area defined as “zero hours work and zero income.” Beyond this extreme, we can apply four major criteria
for determining whether a person may be called unemployed or underemployed. (1) the time criteria, (2) the income
criteria, (3) the willingness criteria, and (4) the productivity criteria. Thus we may call a person unemployed or
underemployed if either: (1) by time criteria, he is gainfully occupied during the year for a number of days less than
some number of days defined as full employment days; (2) by the income criteria, he earns an income per year less
than some desirable minimum; (3) by the willingness criteria, he is willing to do more work than he is doing at
present, he may either be actively searching for more work or be available for more work if it is offered on terms to
which he is accustomed to; or (4) by the productivity criteria, he is removable from his present work in the sense
that his contribution to output is less than some normal productivity, and therefore his removal would not reduce the
output if the productivity of the remaining workers is normalized with minor changes in technique or organization.‟
Keeping in view the recommendations of the Committee of Experts on Unemployment, the National Sample Survey
Organization (NSSO) has developed and standardized concepts and definitions of labor force, employment and
unemployment suitable to Indian conditions. These concepts have not only been adopted by the NSSO for
conducting surveys on employment since 1972-73, but have also been accepted by the Planning Commission for
analyzing the dimension of the unemployment problem. The three concepts of unemployment developed by the
NSSO are: (i). Current Usual Status Unemployment, (ii). Current Weekly Status Unemployment and (iii).Current
Daily Status Unemployment
The usual status concept is meant to determine the usual activity status - employed, or unemployed or outside the
labor force - of those covered by the survey. The activity status is determined with reference to a longer period; say
a year proceeding the time of survey. The persons covered by the survey may be classified into those working
and/or available for work in their principal activity sector and those working and/or available for work in a
subsidiary sector, that is, a sector other than their principal activity sector. Hence, within the usual status concept,
the estimates are now derived on the usual principal status as well as usual principal and subsidiary status basis.
The usual status unemployment rate is a person rate and indicates chronic unemployment because all those who are
found usually unemployed in the reference year are counted as unemployed
                          Unemployment by Gender and Rural-Urban Location: India:
                                     1993- 94 - 1999-2000 (Per 1000)

                                    Current Daily Status Unemployment Rates

                       Rural Males Rural Females    Urban Males       Urban Females
                1993-94      56           56              67                105
                1999-2000    72           68              72                 98

                         Usual Status Unemployment Rates for the Educated (Per 1000)

                               Secondary and Above               Graduate and Above
                 Segment                   1993-94 1999-2000         1993-94     1999-2000
                 Rural Males                89         69               134          107
                 Rural Females       243         204              323          351
                 Urban Males                69         66                64           66
                 Urban Females             207        163               203          163
                 Source: Table 16, NSS Employment Report, December 2000

The current weekly status concept determines the activity status of a person with reference to a period of
preceding seven days. If in this period a person seeking employment fails to get work for even one hour on any day,
he (or she) is deemed to be unemployed. A person having worked for an hour or more on any one or more days
during the reference period gets the employed status. The current weekly status unemployment rate, like the usual
status unemployment rate, is also a person rate.

                                                      Unemployment Rates in India
                                                                                                                      All India
          Year               Status                                                  Rural                    Urban
                                                                          Male          Female         Male       Female
          1972-73            Usual Status                                    1.2                 0.5      4.8                6
                             Current Weekly Status                               3               5.5          6            9.2
                             Current Daily Status                            6.8             11.2             8           13.7
          1977-78            Usual Status                                    2.2                 5.5      6.5             17.8
                             Current Weekly Status                           3.6                 4.1      7.1             10.9
                             Current Daily Status                            7.1                 9.2      9.4             14.5
          1983               Usual Status                                    2.1                 1.4      5.9              6.9
                             Current Weekly Status                           3.7                 4.3      6.7              7.5
                         Current Daily Status                        7.5            9       9.2            11
          1987-88        Usual Status                                2.8           3.5      6.1           8.5
                         Current Weekly Status                       4.2           4.4      6.6           9.2
                         Current Daily Status                        4.6           6.7      8.8            12
          1989-90        Usual Status                                1.6           0.8      4.4           3.9
                         Current Weekly Status                       2.6           2.1      4.5             4
          1990-91        Usual Status                                1.3           0.4      4.5           5.4
                         Current Weekly Status                       2.2           2.1      5.1           5.3
          1992           Usual Status                                1.6           1.2      4.6           6.7
                         Current Weekly Status                       2.2           1.2      4.6           6.2
          1993-94        Usual Status                                 2            1.4      4.5           8.2
                         Current Weekly Status                        3             3       5.2           8.4
                         Current Daily Status                        5.6           5.6      6.7          10.5

The current daily status concept considers the activity status of a person for each day of the preceding seven days.
A person who works for one hour but less than four hours is considered having worked for half a day. If he works
for four hours or more during a day, he is considered as employed for the whole day. The current daily status
unemployment rate is a time rate.
Out of these concepts of unemployment, the current daily status concept provides the most appropriate measure of
unemployment. Raj Krishna states, „The daily status flow rate is evidently the most inclusive, covering open as
well as partial unemployment. It is therefore the rate, which is most relevant for policy-making. It is also the rate
subject to relatively less error because of the short recall period. The weekly status rate can only be regarded as a
rough measure of the proportion of workers remaining unemployed for a whole week, and the usual status rate as a
rough estimate of the „chronic‟ unemployment rate.” In India, the problem of chronic unemployment is far less
serious as compared with the enormous problem of the discontinuous underemployment of a section of the labor
force whose composition keeps on changing over time. This factor has important policy implications and thus has
to be kept in mind while employment programs are chalked out.
The unemployment rates by the three alternative concepts of the usual status, the current weekly status and the
current daily status have become available from the various Rounds of National Sample Survey Organization.
The rates of unemployment do not indicate any clear trend over the 15 year period, that is, from 1972-73 to 1987-
88. However, if we consider only the years 1983 and 1987-88, we observe certain changes in the structure of
unemployment. Open unemployment as measured by usual principal status had increased from 2.77 per cent in
1983 to 3.77 per cent in 1987-88 and according to the current weekly status from 4.51 per cent to 4.80 per cent
over the same period. However, unemployment rate by the current daily status had declined from 8.28 per cent in
1983 to 6.09 per cent in 1987-88. These trends suggest that in the recent past there has been a shift from the state
of underemployment towards greater open unemployment.
Within the broad trend towards an increasingly open unemployment, the following two features are noteworthy.
First, this trend is quite strong in rural areas, where the usual status unemployment has increased from 1.91 per cent
in 1983 to 3.07 per cent in 1987-88 and the current daily status unemployment has declined from 7.94 percent to
5.25 percent over this period. In the urban areas, though a similar pattern of change has been observed, the trend,
however, is not at all as strong as in rural areas. Second, open unemployment has increased much faster among
women than men. The usual status unemployment in the case of women was 2.14 per cent in 1983 and it rose to
4.19 percent in 1987-88. As against this, the usual status unemployment in the case of male workers increased
from 3.02 per cent to 3.60 percent over the same period.
The extent of unemployment is not the same throughout the country. Whether we consider the usual status
unemployment or the current daily status unemployment, there are large differences in the unemployment rates
among different States. In terms of the usual status, the unemployment rate was as high as 17.07 percent in Kerala
in 1987-88. Other major States with higher than all-India average of 3.77 percent were West Bengal (6.06
percent), Haryana (5.86 percent), Assam (5.62 per cent), Tamil Nadu (5.25 percent), Orissa (4.66 percent), Punjab
(4.04 percent), and Andhra Pradesh (3.90percent). Interestingly poorer States like MadhyaPradesh (l.51percent),
UttarPradesh (l.83 percent), Bihar (2.84 percent) and Rajasthan (2.68 percent) have relatively lower rates of the
usual status unemployment. Making its observations on this situation the Planning Commission has remarked in
the Eighth Plan document, “With some exceptions like Orissa at the one end, and Maharashtra on the other, there
appears to be a positive relationship emerging between the level of literacy and education and/or of economic
development and incidence of open unemployment, across the States”
Incidence of unemployment measured in terms of the current daily status unemployment shows a pattern across the
States similar to the one observed in terms of the usual status unemployment. In terms of daily status, the
unemployment rate was the highest in Kerala (2 1.0 percent) in 1987-88. Other States with higher than all-India
average were Tamil Nadu, West Bengal Haryana, Andhra Pradesh and Orissa. Relatively less developed States
such as Madhya Pradesh, Uttar Pradesh and Bihar had the lowest current daily status unemployment rates. It is
surprising that in spite of low unemployment rates in these States, the incidence of poverty is quite high. Probably it
is the low-income work, rather than widespread unemployment that are the principal cause of poor persons!
sufferings in these States. Therefore, the strategy that would be needed for these States is to make employment for
mass of the people more productive. Considering the over-all unemployment situation the Planning Commission
has recommended the strategy of employment generation that “would have to lay greater emphasis on
augmentation of productivity and income levels of the working poor and the creation of new full time employment
opportunities on wage or self employment basis, rather than on schemes for short-term employment generation.”
For the purpose of realizing the goal of “employment for all” over a period, an assessment of the backlog of
unemployment in the base year and likely additions to the labor force during the reference period has to be made.
Till recently the latest survey based estimates of unemployment were available for 1987-88 only. Therefore, the
Planning Commission had independently estimated labor force and employment on April 1, 1992 to yield the
magnitude of unemployment. Total employment in terms of the current weekly status was estimated to be 301.7
million as against the labor force estimate of 319 million. Thus backlog of unemployed in terms of the current
weekly status on April 1, 1992 was 17 million. According to the N. S. S., about 2 percent of those recorded as
employed by the current weekly status had work for half or less than half the time. As they are being severely
underemployed and were included in the estimates of backlog for employment planning. Thus, according to the
Planning Commission, the number of people looking for full time new employment opportunities was around 23
million in April 1992.
Current Employment Scenario
There has been some change in the employment situation during the Eighth Plan period. The Eighth Plan had
contemplated an average annual growth of 2.6 per cent to 2.8 per cent in employment. The latest data are, however,
available only for the first two years of the Eighth Plan, that is, up to 1993-94. Between 1987-88 and 1993-94 the
annual growth in employment was 2.23 per cent. This naturally fell short of the anticipated employment growth in
the first half of the Eighth Plan. A matter of serious concern is the increase in the current daily status
unemployment rate of male workers, which had risen from 5.54 percent in 1987-88 to 5.91 percent in 1993-94.
The rate of rural male workers current daily status unemployment also rose from 4.58 per cent to5.64 percent.
Certain changes in the employment scenario are shown in the table below.
progress and its production expand the employment opportunities often grow. In India, during the past three
decades or so production has expanded in all the sectors of the economy. In response to these developments the
absolute level of employment has also grown. However, during the planning period unemployment in absolute
terms has increased. This has happened because during the planning period trend rate of growth was considerably
lower than the targeted rate. Therefore, jobs in adequate number were not created. Further, economic growth by
itself does not solve the problem of unemployment. The possibility of an increase in unemployment is not to be
completely ruled out in a rapidly developing economy. In fact, there exists a real conflict between the objectives of
economic growth and employment in the early phase of development. B.Hazari and J.Krishnamoorthy have
brought out the conflict between growth and employment inherent in the Mahalanobis strategy which guided India‟s
development efforts for about two decades. However, until the Five Year Plan 1978-83 was formulated, this
conflict was not recognized by the Government. The assumption of the Plans was that growth would automatically
solve the unemployment problem. This has, however, not happened. In the recent past there has been deceleration
in the growth of employment in spite of the accelerated economic growth. This can be explained in terms of steady
decline in employment elasticity in all the major sectors of economic activity except in construction. Overall
employment elasticity declined from 0.61 during 1973-78 to 0.55 during 1978-83 and to 0.38 during 1983-88. As
it would be clear from Table 4, the decline was quite fast in both agriculture and manufacturing; in the former, it
declined from 0.64 during 1973-78 to 0.36 during 1983-88, and in the latter from0.55 to 0.26 in the same period.
According to T.S. Papola,” the decline in employment elasticity in the agriculture is found to be due primarily to the
sharply declining and even negative elasticity in a few regions-Punjab, Haryana and Uttar Pradesh - where the green
revolution has resulted in significant yield and output growth.

                                                      Employment Elasticity in Major Sectors

                                                                    1972-73               1983-84                        1987-88
                                      Sector                          0.64                  0.49                            0.36
                                       Agriculture                     0.95                  0.67                           0.85
                                       Manufacturing                   0.55                  0.42                           0.26
                                       Construction                    0.35                  1.00                           1.00
                                       Electricity, Gas and
                                       Water Supply                    1.00                  0.74                           0.48
                                      Transport, Storage and
                                       Communication                   0.76                  0.92                           0.35
                                       Services                        0.80                 0.99                            0.42
                                        All State                      0.61                  0.55                            0.38
               Source: T.S. Papola, “The Question of Unemployment, “in Bimal Jalan (ed.), The Indian Economy-Problems and Prospects (New Delhi, 1992),
               Table 2, p. 309.

The growth in the initial years was contributed mainly by expansion of gross cropped area through an increase in
cropping intensity, facilitated by irrigation and availability of short duration high yielding varieties. After that
source was exhausted, output growth became more input and technology-intensive and less labor-intensive.” In the
manufacturing sector decline in employment elasticity as a resulted from a rapid decline in employment elasticity of
the large industry. In the last decade the accelerated growth in the industrial sector, particularly in the consumer
durable industries have failed to generate corresponding employment due to increasing reliance on imported
technologies, which are of a laborsaving nature.
Increase in labor force: Since Independence, death rate has rapidly declined and the country has entered the
second stage of demographic transition. The rate of population growth rose to 2.2 percent per annum during the
1960s, and, as a consequence, rate of increase in labor force also rose to 1.9 percent per annum Over the last two
decades both demographic and social factors have further raised the rate of growth of labor force. The demographic
factor has operated in a direct manner. Over the years mortality rate has rapidly declined without a corresponding
fall in birth rates and the country has thus registered an unprecedented population growth. This was naturally
followed by an equally large expansion in labor force. In Indian context, social factors affecting the labor supply
are as much important as demographic factors. Since Independence, education among women has changed their
attitude toward employment. Many of them now compete with men for jobs in the labor market. The economy has
however failed to respond to these challenges and the net result is a continuous increase in unemployment backlogs.
In rural areas, whereas on account of growing labor force unemployment has increased mainly in disguised form, in
urban areas it is open and visible. As mentioned earlier in this chapter, the unemployment in cities has increased on
account of two main reasons. First, economic development in cities has failed to create enough additional jobs for
the new urban entrants to the labor market. Secondly, some employment in cities is the spillover of unemployment
in the countryside. Many people in villages having failed in getting subsistence living in agriculture and allied
activities are now migrating to cities where some of them are absorbed in productive activities and the rest join the
reserve army of workers.
Inappropriate technology: In India, while capital is a scarce factor, labor is available in abundant quantity.
Under these circumstances, if market forces operate freely and efficiently, the country would have labor-intensive
techniques of production. However, not only in industries, but also in agriculture producers are increasingly
substituting capital for labor. In the western countries, where capital is in abundant supply, use of automatic
machines and other sophisticated equipment is both rational and justified while in India, on account of abundance of
labor, this policy results in larger unemployment. Keeping in view this fact, the Bhagwaty Committee” did not
approve of indiscriminate mechanization.
Inappropriate educational system: The educational system in India is defective. It is, in fact, the same
educational system, which Macaulay had introduced in this country during the colonial period. According to
Gunnar Mydral “India‟s educational policy does not aim at development of human resources. It merely produces
clerks and lower cadre executives for the government and private concerns. With the expansion in the number of
institutions which impart this kind of education, an increase in unemployment is inevitable. It is so because
education in arts, commerce and science will not ensure employment to all those who have received it on account of
its limited utility for productive purposes. Myrdal considers all those who receive merely this kind of education not
only as inadequately educated but also wrongly educated. Myrdar‟s criticism of India‟s educational system is valid.
If the problem of unemployment is to be solved in this country, radical changes will have to be made in it.

Earlier Phase of Economic Planning
Though removal of unemployment has been a proclaimed objective of India‟s economic planning, yet until the
Sixth Five Year Plan one does not find any reference to long-term employment policy with a bold approach to
tackle the unemployment problem in a forthright manner. For a long time it was assumed that employment
situations would automatically improve as a result of economic growth. Direct measures to eliminate
unemployment were not preferred as the apprehension was that they could slow down the growth process by raising
consumption expenditure on the one hand, and cutting down the economic surplus on the other. For two decades or
so in a peripheral manner reliance was placed on cottage and agro-based industries and infra structural projects for
absorbing the backlog of unemployed and the additional labor force joining the labor market in search of jobs. This
policy was obviously inadequate to tackle the unemployment problem and as a result, the number of unemployed
rose to about 22 million in 1969.
The employment policy envisaged in the Fourth five-year Plan was greatly influenced by the Report of the
International Labor Organization (ILO) on World Employment Program published in the late sixties. The Report
had force fully argued for the integration of employment creation to economic development through the maximum
possible productive use of available labor to accelerate economic growth and more particularly, to substitute labor
for scarce capital where this is economically feasible. Keeping this recommendation of he ILO report in view, the
Fourth Plan accepted the need for pursuing comprehensive programs of rural development, labor-intensive public
works program, and application of labor-intensive technology in industries and promotion of labor-intensive
industrial products for domestic and foreign markets. Implementation of this policy required a fundamental change
in investment planning. However, in practice the government did not deviate from its earlier policy. Under the Fifth
five-year Plan a high priority was accorded to removal of unemployment. This was the objective of the Fifth five-
year Plan. Planning Commission had hoped that the development. Programs of the Fifth Plan would generate
considerable new employment opportunities. Like the Fourth Plan the Fifth Plan also stressed on the selection of
labor-intensive projects as far as possible. The Planning Commission was categorical in stating that unemployment
problems could not be solved merely by wage employment. It asserted that major efforts would have to be made for
generating self-employment opportunities. The Fifth Plan also identified some special schemes of rural
development having large employment potential. It particularly mentioned the Small Farmers Development
Agencies (SFDA), the Marginal Farmers and Agricultural Labor Development Agencies (NWAL) and Drought
Prone Areas Program (DPAP) for this purpose.
Employment Policy during the Eighties
The Planning Commission acknowledged in the Sixth Plan documents the hard reality that despite economic
planning, employment opportunities had not adequately increased over the years. The position was not satisfactory
even in terms of long-term unemployment. “Keeping in view these facts, the employment policy under the Sixth
Plan aimed at the two major goals of reducing underemployment for the majority of labor force and cutting down
on long-term unemployment. „Obviously for lasting solution to these problems employment-oriented rapid
economic growth would be necessary.‟ Hence, efforts in this direction were combined with short-term measures,
which provided some relief at least on temporary basis. Since in our mixed capitalist economy private and
cooperative sectors coexist with the public sector, the government committed itself to a policy of employment
generation in all the sectors. It was admitted that production in the public sector is highly capital-intensive and thus
there was not much scope for creation of fresh employment in this sector. Therefore, the government decided to
concentrate particularly on policy measures seeking to influence the private demand and utilization of manpower in
the private sector. This required emphasis on self-employment ventures in agriculture, cottage and small industries
and allied activities as well as non-farm operations. Some of the major employment programs thus undertaken were
the Integrated Rural Development Programs (IRDP), the National Rural Employment Program (NREP), the
National, Scheme of Training Rural Youth for self-employment (TRYSEM), the Operation Flood H Dairy Project
and other dairy development schemes and Fish Farmers Development Agencies. The Planning Commission
acknowledged the limitations of macro-approach to the problem of unemployment. It thus observed that several
special programs for employment were not found relevant-in-operational terms to specific socioeconomic and socio-
cultural conditions and failed to make a necessary dent on the problem The Sixth Five Year Plan stated thus, “It is,
therefore, necessary that a disaggregated approach is introduced to find meaningful solutions to this complex and
challenging problem. With further stress on increasing modernization of technology, Prospects for expansion of
employment in this sector are not at all encouraging. Even the modem small-scale industry has been over
capitalized and as a result its employment
The Seventh Plan like some other earlier plans assigned a key role to the agricultural sector for employment
generation. However, the agricultural sector cannot eliminate the whole unemployment backlog and also absorb
additions to the labor force. Therefore, programs of rural development, particularly those of rural capital formation
in the form of construction were undertaken. The planners were clear that even the realization of a high rate of
industrial growth could not absorb more than a fraction of unemployed and underemployed labor force in the
organized industrial sector. According to the Planning Commission, employment generation does not necessarily
imply creating wage employment. Under the Seventh Plan there was considerable emphasis on creation of
conditions for additional self-employment. Therefore, apart from sectoral programs, the package of poverty
alleviation programs aimed at giving self-employment and wage employment to the poorer sections of the
community was continued on a big scale. From this point of view the National Rural Employment Program
(NREP), the Rural Landless Employment Guarantee Program (RLEGP), and the Integrated Rural Development
Programs (IRDP) were particularly important. The first two were merged into the Jawahar Rozgar Yojana (JRY)
in 1989.
Eighth Five Year Plan: Employment Strategy
It is often rightly argued that a high rate of economic growth is a necessary, but not a sufficient condition to solve
unemployment problems in India. In India, where employment elasticity is quite low, an annual growth rate of 5-6
per cent can provide only a partial solution to the unemployment problem. Raj Krishna had shown that on the
assumption that population and productivity would continue to grow at the existing rates, the most comprehensive
data status unemployment could be eliminated in the next two decades if the long-term growth rate could rise to 6.5
per cent. “When Raj Krishna did his exercise, employment elasticity for all sectors was around 0.55. Since then,
employment elasticity has declined. It has been estimated to be 0.38 for 1983 to 1987-88, This implies that for
generating additional employment at 3 percent per annum GDP should register an annual growth of 8.0 percent
which is something impossible in the given structure of the Indian economy. Therefore, in India, economic growth
by itself can never solve the unemployment problem and the government policy which gives overriding priority to
economic growth would add to unemployment backlog rather than reducing it. Therefore, under the Eighth Plan
emphasis was on both the growth of the economy and restructuring of output composition of growth. “the
employment potential of growth can be raised by adjusting the sectoral composition of output in favor of sectors and
sub sectors having high employment elasticity. In certain sectors where technologies are to be upgraded to a higher
level of efficiency and international competitiveness, there is little scope for generating additional employment.”
However, in respect of certain other sectors some flexibility may be available in the choice of technologies and thus
it may not be difficult to generate considerable employment. Agriculture even now occupies a predominant place in
employment structure. In the recent past, agriculture has shown the lowest and rapidly declining employment
potential largely due to extremely low employment elasticity in agriculture in Punjab, Haryana and U.P. In order
that agricultural growth becomes employment generating, it is necessary that it be diversified both geographically
and crop-wise. Agriculture in the slow-growing non-wheat regions of the country is still at a stage that agricultural
growth has a significant employment potential. Activities allied to agriculture and crucial for employment
generation are animal husbandry, fishery and horticulture. Apart from activities, programs of forestation,
generation and restoration of degraded land should receive attention due to their large employment potential The
rural non-farm sector comprising manufacturing, services, trade and construction accounts for over one-fifth of rural
unemployment. It has significant potential for absorbing rural labor. Employment has grown in this sector at a high
rate of 5 percent per annum in recent years, The Planning Commission is of the view that with suitable Promotional
Policies, including those related to location and infrastructure development a further increase in employment
potential of this sector is feasible.
In urban manufacturing, employment elasticity has declined to a very low level of about 0. 15 and in future potential has
very much diminished. This distortion in the past has been caused by the availability of cheap capital In order that this
sector plays its expected role in employment generation, the government will attempt to correct distorted factor price in
favor of labor.
According to the present estimates, the employment strategy as stated above will enable attainment of the goal of full
employment in any case not before 2002 A-D. Therefore, Special Employment Programs as in the past would be
continued to provide short-term employment to unemployed and underemployed among the poor and vulnerable. Under
the Eighth Plan the Special Employment Programs have been regarded only an interim measure to provide
supplementary employment. The Eighth Plan states, “The main thrust should be on the acceleration of the rate of
employment growth over the years so that the need for special Program; declines in successive years and tapers off by
the end of the decade. Continuing necessity of such programs on a large scale would, in fact, imply failure of the
employment oriented development strategy that is envisaged as the main plank of the Eighth Plan.

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