This article deals with ‘Unemployment in India.’ This article is part of our series on ‘Economics’ which is an important pillar of the GS-3. For more articles, you can click here.


Unemployment can be defined as involuntary joblessness on the part of able people who are searching and willing to work.  In simple words, Unemployment is a problem faced when there are people who are willing and able to work at the prevailing wage rate but fail to find a job.

Definition of Unemployment

The unemployment rate in India reached 6.1% in 2017-18 (highest in the last 45 years), according to the data of the Labour Ministry. Moreover, according to NITI Aayog, India doesn’t face the problem of unemployment but severe underemployment, low women participation & voluntary unemployment.

Level of Unemployment in India

Unemployment Rate

  • NSO defines the Unemployment rate as the percentage of (𝑖𝑛𝑣𝑜𝑙𝑢𝑛𝑡𝑎𝑟𝑖𝑙𝑦) 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑝𝑒𝑟𝑠𝑜𝑛𝑠 𝑖𝑛 𝑙𝑎𝑏𝑜𝑢𝑟 f𝑜𝑟𝑐𝑒 in relation to the total labour force of the country. 
  • Unemployment Rate = (𝑁umber 𝑜𝑓 (𝑖𝑛𝑣𝑜𝑙𝑢𝑛𝑡𝑎𝑟𝑖𝑙𝑦) 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑝𝑒𝑟𝑠𝑜𝑛𝑠 𝑖𝑛 𝑙𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒) / (Total Labour Force) X 100
  • According to the latest data, the Unemployment Rate in India is 4.8% (2019).

How does NSO calculate Unemployment Rate?

  • NSO conducts surveys on unemployment
    1. Quinquennial Employment and Unemployment Surveys: Earlier, NSO used to conduct this survey after five years. The last such survey was conducted in 2011-2012. 
    2. Periodic Labour Force Survey (PLFS): In 2017, the government started to conduct annual surveys. Data is released with a lag of one year. Data for July 2019 to July 2020 was released in July 2021. 
  • NSO in survey calculates unemployment by worker’s Usual Status, i.e. whether the worker was unemployed for the majority of the year. If his answer is positive, then the worker is considered unemployed.

Labour Force Participation Rate (LFPR)

  • Labour Force Participation Rate is the percentage of the total population working or looking for a job.
  • It is calculated as the percentage of Total Labour Force (i.e. Employed + Involuntary Unemployed) in relation to Total Population of India.

LFPR = (Number of Employed Persons + Number of Involuntary Unemployed) / (Total Population) X 100

  • Labour Force Participation Rate (LFPR) in India is 40.1% in 2019-20.
  • But LFPR of women in India is low. According to the latest PLFS data, 
  • LFPR of women is 23% (2019-20).

Periodic Labour Force Survey (PLFS)

  • In 2019, NSSO started a new survey called Periodic Labour Force Survey (PLFS) to provide annual estimates of the labour force, employment, unemployment, nature of employment, and national and regional wages. 

Changes in PLFS

  • Households in urban areas are visited four times (one every quarter) analysing changes in seasonal employment and employment characteristics.
  • Usage of technology– adopted World Bank Computer Assisted Personal Interviewing (CAPI) platform with data collected using Tablets.  

Types of Unemployment

Cyclical Unemployment

  • The economy goes through boom-bust cycles. Cyclical unemployment happens during the downturn phase of the trade cycle in the economy when workers are laid off on a mass scale. E.g., A large number of people became unemployed during the Sub-prime crisis of 2008.
  • Cyclical unemployment can be cured by public investment or expansionary monetary policy.
Cyclical Unemployment

Seasonal Unemployment

  • It is a common feature of the rural sector. Since agriculture is a seasonal occupation, at least for five months in a year, a sizeable portion of the working force is unemployed.

Disguised Unemployment

  • It is a situation where a person appears to be employed, but enough work is not available. This happens when too many workers are engaged in doing a small job. The worker’s contribution to output is less than what he can produce by working for normal hours per day.
  • E.g. in Indian Agriculture, more people are engaged than required.
In Indian Agriculture, more people 
are engaged than required.

Under Employment

  • It is a situation in which a person is employed, but his capacity is not utilised to the full extent. His wages are not in accordance with his ability.

Technological Unemployment

  • Technological Unemployment is the result of the situation when workers are replaced with labour-saving machines. 
  • E.g., The textile sector introduced power loom to cut labour costs. 

Structural Unemployment

  • Structural unemployment is due to an exponential change in the structure of the economy and technology. It results in a fall in demand for certain goods and rises in demand for other goods. 
  • For example rise in demand for mobile phones has adversely affected the demand for cameras, tape recorders etc.

Frictional Unemployment

  • It is temporary unemployment that occurs when workers are searching for new employment or transitioning from their old jobs to new jobs. 

Keynesian Unemployment

  • It is the result of a deficiency of aggregate demand in an economy. 

Types of Employed workers

Different agencies define employed workers differently. These are as follows

#1. NSO Classification

According to NSO, the types of employed workers are of the following types

Self Employed

  • Persons who work for themselves and charge fees. They don’t sell their labour to anyone for a wage but are their own boss. 

Regular Wage Employees

  • Workers who sell their labour to the employer for a wage. They work on a predetermined wage, and their job continues around the year.

Casual Employees

  • Workers who sell their labour to the employee for a wage but their job doesn’t continue around the year. Usually, the employer hires them for a particular time. 

#2. Census Classification

According to Census, types of employed workers are as follows

Main  workers A worker employed for at least 183 days/year.
Marginal Workers A worker employed for less than 183 days/year.

#3. Labour Ministry Classification

According to Labour Ministry, types of workers are of the following types

Organised Sector workers

  • Workers employed in the organised sector. Eg: employed in companies like Infosys, Wipro, TCS, Maruti etc.
  • They are covered under at least one of the acts i.e. Factories Act, Companies Act, EPFO,  Shop establishment act or working in any Public Sector Undertaking or Government Organisation (except defence sector).
  • 17% of workers in India are employed in the Organised Sector.

Unorganised Sector Workers

  • Workers employed in the unorganised sector. Eg: Domestic Workers
  • They are not covered in any of the above acts. Hence, they are vulnerable due to a lack of social security.
  • 83% of workers in India are employed in Unorganised Sector.

Side Topic: Gig Economy

Gig Economy is the economy in which organizations work with independent workers for a short duration. Companies like Uber, Ola etc., don’t treat the workers as employees of the company. Instead, they are treated as freelance contractors, and traditional employee rights like minimum wages, pension, provident fund, insurance etc., aren’t given to them by the company.

Features of Gig Economy

  • Gig Economy has two sets of agents (i.e. Buyer and Seller), which interact through intermediaries or aggregators.
  • Gig Worker is not an employee on the company’s payroll. Instead, they are treated as independent service contractors. 
  • They are paid in terms of ‘piece rate’ (depend on gigs completed) and ‘rewards’ (dependent on the rating given). The company doesn’t pay them a fixed salary.
  • Gig Workers (or contractors) aren’t eligible for social security incentives such as provident fund, insurance, pension etc., provided by the company. 
Gig Economy

Case Studies

  • Uber: It is the most famous company that employs the gig economy. It has re-defined the gig economy. 
Gig Economy in Taxi
  • Udemy: In Udemy, instructors develop courses and sell them on the platform to those who want to learn that skill. Udemy is just the host of the content and pays the instructors according to the sale of their courses after cutting their share.
udemy and gig economy
  • Airbnb: Airbnb provides a platform to the house owners with extra space to rent their space to the travellers. Airbnb provides the platform to connect buyers and sellers and take the commission in return for services. 
Airbnb and gig economy

Benefits of Gig Economy

  • The gig economy is generating a large number of jobs in the economy.
  • It provides an easy way to monetize resources like vacant spaces in homes (Airbnb) and ordinary vehicles (Uber and Ola).
  • It guards the companies against the fluctuations in demand as companies don’t have to pay the workers if there is a lack of demand.

Issues with Gig Economy

  • The gig workers don’t have the cover of social security such as provident fund, pension etc.
  • There is no security of a job in the gig economy.
  • The income of the gig workers is not fixed, and companies enjoy large powers vis-a-vis workers enabling them to exploit workers. 
  • The gig economy is not adequately regulated and gives a lot of opportunity to the companies to evade taxes and harass workers.

Steps taken wrt protection of workers in the Gig Economy

#1. Steps taken by Indian Government

  1. Budget 2021-22: The Government has announced that the law on minimum wages act and Employee State Insurance Corporation will apply to all firms. 
  2. Regulation: Central Government has announced that Taxi-hailing apps cant charge more than 20% commission from driving contractors. Along with that, contractors cant work more than 12 hours per day.

#2. International Examples

  • In 2021, the UK Supreme Court ruled that Uber drivers should be considered workers and not freelance contractors, making them eligible for all employment-related benefits such as minimum wage, annual leaves, and insurance.

Side Topic: Demographic Dividend

A country is said to be in the Demographic dividend phase WHEN

  • The majority of its population is in the working-age group.
  • The dependency ratio is minimum, i.e. very few people below 15 & above 64.
  • The age pyramid shows a bulge in the middle.
Demographic Dividend
  • As East Asian countries in the past, and Ireland today, India is supposed to benefit from a ‘demographic dividend. This dividend results from large working-age people with a relatively small percentage of older people to support.
  • In 2020, the average Indian was 29 years old, compared with 43 in China and the 38 in the United States and 48 in Japan. It implies a large and growing labour force, which can deliver unexpected benefits in terms of growth and prosperity.
  • But to reap the Demographic Dividend, the government have to 
    • Invest in education & skill development of the young generation.
    • Produce enough good jobs to absorb them in employment.

Otherwise, this huge population would become burden onerous to handle instead of becoming an asset.

Demographic Dividend and India

Causes of Unemployment in India

1 . Not Producing what Industry demands

  • Indian system is producing more than required graduates and not focussing on giving vocational training. Hence, India is facing a paradoxical situation, i.e. a large population is unemployed, but there is a labour shortage in many sectors.  

2. Defective planning and development model

  • Indian Policymakers adopted (faulty) Capital Intensive Industrial Model in a Labour Intensive nation. The model failed to create enough jobs.

3. Low Employment Elasticity (after LPG)

  • Employment Elasticity is defined as the number of jobs created per unit of growth. But after LPG Reforms, Employment Elasticity has decreased drastically. 
    1. Till 1991: 1% growth in the GDP increased jobs by 0.4%. 
    2. Presently: 1 % Growth in the GDP increases jobs by (just) 0.02%.
  • This is because only highly skilled jobs in the Service Sector (IT, BPO etc.) are being produced. 

4. Slow pace of labour reforms

  • The slow pace of labour reforms has dissuaded companies from creating formal employment and incentivised investments in automation.

5. Impact of mechanisation

  • In the face of high competition, to cut their costs, labour-intensive industries (like textile) are beginning to mechanise their operations shrinking job opportunities increasingly.

6. Global Slowdown

  • The world is passing through a slowdown. Indian Industry is facing the heat as well since Indian companies are part of large global supply chains. 

7. Dependence on Agriculture

  • Agriculture provides seasonal employment & includes work for a few months. So this gives rise to disguised unemployment.

8. Joint Family System

  • In big families having a big business, many such persons will be available who do not do any work and depend on the family’s joint income. Hence, the Joint structure of the family system also encourages unemployment

9. Immobility of Labour

  • The mobility of labour in India is low. Due to attachment to the family, people do not go too far off areas for jobs. Factors like language, religion, and climate are also responsible for low mobility. The immobility of labour adds to unemployment.

Impact of Unemployment

  • It has increased the crime rates as unemployed youth gets involved in crimes to earn a living. 
  • Unemployment has caused a lot of hardship, agony, frustration & depression, particularly among the youngsters. Patel & Jat Reservation issue is the result of this frustration only. 
  • Brain drain: As a consequence of the lack of opportunities in India, intelligent youth migrate to foreign countries. Their intellectual abilities are used by foreign governments, causing loss to India.
  • Demographic dividend not achieved: India is fast losing the narrow window of opportunity provided by a large proportion of the working-age group population. 

Case of India’s  Jobless Growth

  • Jobless growth is a situation in which, although the economy grows, but unemployment remains stubbornly high. 
  • In this decade, although the Indian economy grew by the average rate of 7%, it has not provided jobs to job seekers. According to Census 2011, employment in India increased at the rate of 1.4%, which is significantly lower than the growth rate of the Indian economy.

The cause of jobless growth are many 

  • Between 1947 and 1991, India chose the Capital Intensive Model instead of the Labour Intensive Model of Industrialisation.
  • After LPG Reforms, the job elasticity was reduced due to high skilled jobs produced in the service sector. As a result, GDP is increasing, but jobs are not growing  at the same pace ( 1% GDP Growth leads to 0.02% increase in employment)
  • Large scale mechanisation & automation is eating away a large number of jobs.
  • The slow pace of labour reforms has dissuaded companies from creating formal employment and incentivised investments in automation.
  • Government policies have abandoned MSMEs in favour of Large firms. It has to be noted that MSMEs are 4X labour intensive than Capital Intensive large firms set by MNCs. 
  • In India, the BPO sector was a huge job provider. Still, this sector is also feeling the heat of technology and job cuts due to self-service portals, interactive voice response (IVR) & upcoming Artificial Intelligence.

Side Topic: Covid and Unemployment in India

  • Unemployment has worsened in India due to the Covid pandemic.
  • Within the different sectors as well, the level of recovery is different. Hence, e-commerce and IT companies have recovered and are working at levels higher than pre-pandemic levels thus creating more number of jobs than pre-pandemic. But the unorganised sector has not been able to recover properly. Since the unorganised sector employs the majority of people in India, it has resulted in higher unemployment in India.
  • The number of workers enrolled under MNREGA has also increased. It shows that the unorganised sector has not been able to recover properly.

Voluntary Unemployment

  • Voluntary unemployment is a condition in which a person is not employed and is not willing to join the workforce. It happens because people choose not to work below a certain income level after ‘investing’ in education. 
  • E.g., Seen in Kerala in India in the highest proportion. 

NITI Aayog has also reported that voluntary unemployment & underemployment is a more severe issue than unemployment.