Unemployment: Meaning, Causes, Types, Effects & More

Unemployment is a very complex phenomenon that predominantly straddles the socio-economic landscape of any nation. It refers to a situation where individuals who are capable and willing to work remain jobless. This issue not only underscores the inefficiencies in the labor market but also emphasizes the socio-economic challenges that need to be tackled to ensure holistic development.

This topic comes under the UPSC examination, which is a part of General Studies Paper III in the syllabus, encompassing the Indian Economy and related issues concerning planning, resource mobilization, growth, development, and employment. This paper requires an elaborate understanding of different economic concepts, including unemployment, definitions, types, causes, and effects, to tackle subjective questions.

Unemployment Definition

Unemployment refers to a situation where capable working individuals, who are actively looking for employment, fail to secure remunerative work. The International Labour Organization, ILO defines three principal conditions under which an individual is classified as unemployed: being unemployed, available for work, and currently seeking work. Unemployment, as defined by the National Sample Survey Office of India, is that a person has not worked but is currently seeking or is available to work at a prevalent rate of wages.

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Causes of Unemployment in India

India faces a multifaceted unemployment problem attributed to a variety of factors:

• Population Growth: The most important factor is the rapid growth of population, which increases the labor force without a corresponding increase in job opportunities.
• Agrarian Distress: The Indian economy is predominantly agrarian, which is characterized by seasonal unemployment, underemployment, and low productivity due to factors such as poor infrastructure, small landholdings, and inadequate access to technology.
• Education and Skills Mismatch: The education system often does not impart employable skills, and therefore, there is a mismatch between the skills that job seekers have and what employers need.
• Slow Industrial Growth: The industrial sector has not grown at a commensurate pace with the labor force, thereby limiting job creation.
• Technological Changes: Automation and technological advancements have reduced the demand for labor in certain sectors.
• Economic Reforms and Structural Changes: Economic liberalization and structural adjustments have at times resulted in job loss in traditional sectors.
• Lack of Infrastructure: Poor infrastructure hampers industrial and service sector growth, thereby limiting the creation of jobs.

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Types of Unemployment

Unemployment can be categorized into various types based on causative factors:

Structural Unemployment

Resulting from a shift in the industrial composition of the economy. For example, the decline of manufacturing and the rise of services may leave workers who were employed in declining industries without work. This normally requires the workers to acquire new skills or retrain for new industries.

Frictional Unemployment

This is short-term and occurs when people are waiting for another job or entering the workforce for the first time. This is considered a "voluntary" type, as people are moving about or looking for better possibilities.

Cyclical Unemployment 

Cyclical unemployment occurs due to economic depressions or recessions where there may be less demand for goods or services. In such moments, companies cut their force as a reaction to people's decreased demand for goods.

Seasonal Unemployment

Seasonal unemployment arises when people are unemployed in a particular season because of an industry that does not need laborers all year. There are agricultural industries where working is seasonal, and in other cases, it may relate to tourism.

Underemployment

Underemployment takes place when people work fewer hours than they would have desired to or are overqualified for the jobs they are undertaking. This can be categorized to include part-time employees working to get full-time positions or professionals who take on low-skilled employment.

Disguised Unemployment

Over staffing or hidden unemployment where more people are employed than actually needed. This is common in the agricultural sector where the productivity of some workers is negligible or zero.

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Effects of Unemployment

The implications of unemployment are manifold, affecting both the individual and the economy at large:

• Loss of Output: Unemployed persons do not generate the same goods and services hence bringing down the total output; they are a wasted resource hence representing lost opportunities in further contributing to economic growth.
• Higher Poverty Levels: There tends to be higher levels of poverty. Such persons, if jobless, lack all sorts of financial means for support.
• Fiscal Burden: The government has to bear a heavier fiscal burden due to increased expenditure in relation to social welfare, such as unemployment benefits, and reduced tax income due to a smaller workforce.
• Social Exclusion: While long-term unemployment can generate a feeling of exclusion and depreciation of social networks, individuals can be alienated from mainstream society.
• Mental Illnesses: Unemployment has a significant connection with depression, anxiety, and other mental illnesses. Uncertainty and financial stress may severely impact individuals.
• Crime Rates: High unemployment rates have the tendency to increase crime rates because people resort to crimes in order to survive if they cannot find work in legitimate sectors.

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Distinguish Between Open Unemployment and Disguised Unemployment

The table below shows the major difference between Open Unemployment and Disguised Unemployment:

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Difference Between Disguised Unemployment and Seasonal Unemployment

The table below shows the major difference between Disguised Unemployment and Seasonal Unemployment:

We hope your doubts regarding the topic have been addressed after going through the above article. Testbook offers good quality preparation material for different competitive examinations. Succeed in your UPSC IAS exam preparations by downloading the Testbook App here!