How unemployment is measured

General Studies Paper 3

Context

• When the Periodic Labour Force Survey (PLFS) was released in 2017, it revealed the unemployment rate of India to be 6.1%, the highest ever recorded in India. The PLFS of 2021-22 showed unemployment reducing to 4.1%, much lower than before, but higher than some developed economies.

Defining unemployment

• Unemployment is not synonymous with joblessness.
• The International Labour Organization (ILO) defines unemployment as being out of a job; being available to take a job; and actively engaged in searching for work.
• Therefore, an individual who has lost work but does not look for another job is not unemployed.
• The labour force is defined as the sum of the employed and the unemployed.
• Those neither employed nor unemployed — such as students and those engaged in unpaid domestic work — are considered out of the labour force.
• The unemployment rate is measured as the ratio of the unemployed to the labour force.
• The unemployment rate could also fall if an economy is not generating enough jobs, or if people decide not to search for work.

Measuring unemployment in India

• The situation is complicated in a developing economy, because decisions to search for work are constrained by social norms.
• According to a 2009-10 survey undertaken by the National Sample Survey Organisation (NSSO), 33.3% of rural women and 27.2% of urban women aged 15 and above who were engaged in domestic work reported willingness to work if it were made available within the premises of the household.
• Measuring unemployment in India is difficult due to the informal nature of jobs.
• Unlike developed economies, individuals do not hold one job year-round. An individual may be unemployed this week, but may have worked as a casual labourer last month, and as a farmer for most of the year.
• The NSSO adopts two major measures for classifying the working status of individuals in India — the Usual Principal and Subsidiary Status (UPSS) and the Current Weekly Status (CWS).
• An individual’s principal status, whether employed, unemployed or out of the labour force, is based on the activity in which they spent relatively long time in the previous year.
• A person who is not a worker, according to the principal status, would still be counted as employed according to the UPSS if they were engaged in some economic activity in a subsidiary role for a period not less than 30 days.
• The CWS adopts a shorter reference period of a week. An individual is counted as being employed if they have worked for at least one hour on at least one day during the seven days preceding the date of survey.
• UPSS unemployment rates will always be lower than CWS rates because there is a greater probability that an individual would find work over a year as compared to a week.

The lockdown effect

• The lockdown announced in March 2020 was a profound disruption to the Indian economy.
• But this wasn’t reflected in the PLFS unemployment rates, which covers a period between July of one year to June of the next.
• The lockdown would have been covered in the last quarter of the 2019-20 PLFS, its after-effects seen in the 2020-21 PLFS.
• However, unemployment rates — measured both by the UPSS and CWS standards — fell in 2019-20 and 2020-21.
• Unemployment spiked during the lockdown quarter, but reduced thereafter. The CWS unemployment over the year would not show such a high rise.

Conclusion

• Unemployment is shaping up to be an important factor in the upcoming election. In order to successfully tackle it, it is important to understand how it is defined and measured in a developing economy.