63 Unemployment and Underemployment: Concept, Types (Frictional, Structural, Cyclical, Seasonal, Disguised, Educated, Open), Underemployment (Visible and Invisible), Measurement (Usual / CWS / CDS Status), Indian Trends, Phillips Curve, Okun’s Law, NAIRU, Youth Unemployment, Causes, Policy Responses and the Code on Social Security 2020
63.1 When Work Will Not Be Found
Unemployment is the condition of a person who is willing and able to work at the prevailing wage but unable to find work. Underemployment is the condition of a person who is at work but for fewer hours, in a lower-skilled job, or with lower productivity than his capacity. India’s unemployment rate is officially low (3.2 % in 2022-23 PLFS), but underemployment, disguised unemployment in agriculture and educated youth unemployment are the deeper structural challenges. This chapter pulls together the concepts, measurement, the Phillips and Okun relations, India’s recent record and policy responses.
63.2 1 · Definitions
| Source | Substance |
|---|---|
| ILO | Unemployed = persons of working age who are without work, available for work, and seeking work |
| NSS / PLFS | Three reference periods — usual status, current weekly status, current daily status |
| Beveridge | An economy at “full employment” still has 3 % frictional unemployment |
63.3 2 · Types of Unemployment
| Type | Substance |
|---|---|
| Frictional | Short-term, between jobs; voluntary mobility |
| Structural | Long-term, mismatch between skills and jobs |
| Cyclical | Linked to business cycle / recession |
| Seasonal | Particular months — agriculture, tourism |
| Disguised | More workers than needed; marginal product = 0 (common in Indian agriculture) |
| Educated | Among graduates and post-graduates — skill-mismatch driven |
| Voluntary | Person prefers not to work at offered wage |
| Involuntary | Person willing to work at prevailing wage but no job |
| Open | Visible; person not working at all |
| Hidden / Disguised | Apparent work but no real contribution |
| Underemployment | Working below capacity / hours / skill |
| Technological | Due to automation, AI, mechanisation |
| Casual | Irregular, intermittent work |
Disguised unemployment — first described in agricultural context — is the condition where marginal productivity of labour is zero or near-zero; removing some workers does not reduce output. Endemic in subsistence farming, family enterprises.
63.4 3 · Underemployment
| Type | Substance |
|---|---|
| Visible / Time-related | Working fewer hours than desired (e.g., 30 hours rather than full-time) |
| Invisible / Inadequate income / Skill underemployment | Working full-time but at low pay or below skill level (e.g., engineer driving cab) |
| Disguised | Working but not contributing meaningfully |
| Seasonal | Idle in off-season |
63.5 4 · Measurement in India
63.5.1 Three NSS / PLFS Approaches
| Status | Reference | Counts as Unemployed If |
|---|---|---|
| Usual Principal Status (UPS) | 365 days | Major activity time unemployed |
| Usual Principal + Subsidiary Status (UPSS) | 365 days | Either principal or subsidiary activity = unemployed |
| Current Weekly Status (CWS) | 7 days | No work but available in last 7 days |
| Current Daily Status (CDS) | Each day in week | Aggregates day-wise activity |
CDS gives the highest unemployment estimate because even an hour’s work in a day counts as employment in CWS but CDS catches intra-week idleness.
63.5.2 Unemployment Rate Formula
UR = Unemployed ÷ Labour Force × 100
63.6 5 · Unemployment Trends in India
| Year | UR (usual) | Notes |
|---|---|---|
| 1972-73 | 1.6 % | Low — informal absorption |
| 1983 | 1.9 % | |
| 1993-94 | 2.0 % | |
| 2004-05 | 2.3 % | |
| 2011-12 | 2.2 % | |
| 2017-18 | 6.0 % | 45-year high — Periodic Labour Force Survey |
| 2018-19 | 5.8 % | |
| 2019-20 | 4.8 % | |
| 2020-21 | 4.2 % | Pandemic — distorted measurement |
| 2021-22 | 4.1 % | |
| 2022-23 | 3.2 % | Lowest in years |
The first PLFS (2017-18) reported the highest unemployment in 45 years at 6.0 % usual status — a politically contested estimate that influenced labour-market discourse.
63.7 6 · Phillips Curve
A.W. Phillips (1958) plotted UK unemployment against wage inflation 1861-1957 and found an inverse relation — high unemployment → low inflation, and vice versa.
- Short-run Phillips curve — trade-off between inflation and unemployment.
- Long-run Phillips curve — vertical at the Non-Accelerating Inflation Rate of Unemployment (NAIRU) — also called the natural rate of unemployment (Friedman, Phelps).
63.8 7 · Okun’s Law
Arthur Okun (1962) observed that every 1 % rise in unemployment is associated with roughly 2 % fall in GDP (relative to potential). A practical rule for cyclical analysis.
63.9 8 · Causes of Unemployment in India
| Cause | Substance |
|---|---|
| Population growth | High supply outpaces job creation |
| Slow industrial growth | Manufacturing share stagnant at ~ 17 % of GDP |
| Jobless growth | GDP growth without proportional job growth (after 1991) |
| Skill mismatch | Education doesn’t match market demand |
| Technological | Automation, AI displace workers |
| Capital-intensive growth | Industrial growth biased to capital |
| Education-mismatch | Graduates with non-employable degrees |
| Seasonal nature of agriculture | Off-season idleness |
| Sluggish public investment | Reduced job creation |
| Geographic immobility | Workers locked in unemployment states |
63.10 9 · Youth Unemployment
The youth (15-29) unemployment rate is significantly higher than total — about 10 % in 2022-23 per PLFS. The educated youth unemployment rate is even higher. This is India’s “jobs-of-the-young crisis”.
63.11 10 · Indian Policy Responses
| Scheme / Policy | Year | Substance |
|---|---|---|
| National Employment Service (Employment Exchanges) | 1945 | Job matching |
| Integrated Rural Development Programme (IRDP) | 1978 | Rural self-employment |
| National Rural Employment Programme (NREP) | 1980 | Public works |
| Jawahar Rozgar Yojana | 1989 | Rural employment |
| Swarnajayanti Gram Swarozgar Yojana (SGSY) | 1999 | Self-employment |
| NREGA / MGNREGA | 2005 | Legal right to 100 days |
| National Skill Development Mission | 2009 | Skilling |
| Pradhan Mantri Kaushal Vikas Yojana | 2015 | Skill training |
| Skill India Mission | 2015 | Umbrella for skilling |
| PMEGP | 2008 | Self-employment via micro-enterprise |
| Startup India | 2016 | Entrepreneurship |
| ABPY → PM-SVANidhi | 2020 | Street vendors |
| Aatmanirbhar Bharat Rozgar Yojana (ABRY) | 2020 | EPF subsidy to new hires |
| Production-Linked Incentive (PLI) | 2020 onwards | Manufacturing jobs |
63.13 12 · International Comparison
| Country | UR |
|---|---|
| India | 3.2 % |
| US | 3.5 % |
| UK | 3.7 % |
| Japan | 2.6 % |
| China | 5.5 % (urban) |
| World average | 5.5 % |
| OECD average | 4.9 % |
| Eurozone | 6.5 % |
63.14 13 · Indian Unemployment Concerns Beyond Headline UR
- Quality of jobs — most are self-employment / casual.
- Underemployment — high incidence in agriculture.
- Female unemployment — disguised by social withdrawal.
- Educated youth unemployment — 10 %+.
- Regional disparity — Bihar vs Gujarat.
63.15 Practice Questions
Disguised unemployment means:
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Frictional unemployment is:
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Cyclical unemployment is related to:
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The Phillips Curve shows the relationship between:
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Okun's Law links:
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NAIRU stands for:
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India's 2017-18 PLFS reported unemployment at:
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Rajiv Gandhi Shramik Kalyan Yojana under ESI provides:
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Which gives the highest unemployment estimate in India?
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Match concept with author:
| (i) | Phillips Curve | (a) | Okun |
| (ii) | Okun's Law | (b) | Phillips |
| (iii) | Natural Rate | (c) | Marx |
| (iv) | Reserve Army | (d) | Friedman / Phelps |
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Structural unemployment results from:
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An engineer driving a taxi exemplifies:
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MGNREGA was enacted in:
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PMKVY (Skill India) was launched in:
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Youth (15-29) unemployment in India is approximately:
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Seasonal unemployment is endemic in:
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Aatmanirbhar Bharat Rozgar Yojana (2020) provided:
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PLI scheme primarily targets:
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Voluntary unemployment means:
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Arrange Indian employment schemes in chronological order:
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63.16 Quick Recall
- Unemployment — willing and able to work but no job. Underemployment — at work but below capacity.
- Types: Frictional (short-term), Structural (mismatch), Cyclical (business cycle), Seasonal, Disguised (MP_L = 0), Educated, Voluntary, Open, Technological.
- Underemployment: visible (hours), invisible/skill (engineer-driving-taxi), disguised, seasonal.
- Indian measurement: UPS / UPSS (365 days), CWS (7 days), CDS (each day — highest UR estimate).
- PLFS 2017-18: 6 % UR — 45-year high; 2022-23: 3.2 %.
- Phillips Curve (1958) — inverse inflation-UR; vertical at NAIRU (Friedman, Phelps).
- Okun’s Law (1962) — 1 % UR rise ≈ 2 % GDP loss.
- Indian schemes in order: Employment Exchanges (1945), IRDP (1978), NREP (1980), JRY (1989), SGSY (1999), MGNREGA (2005), PMEGP (2008), Skill India / PMKVY (2015), PMSVANidhi / ABRY (2020), PLI.
- RGSKY under ESI — unemployment allowance for retrenched ESI workers (25 % wages up to 24 months).
- India’s challenge — quality of jobs, underemployment, youth (10 %), educated unemployment.