Measurement Problems with Unemployment in Developing Economies

  • India’s unemployment rate, which was 6.1% in 2017, was the highest ever recorded, according to the Periodic Labour Force Survey (PLFS).
  • The 2021–22 PLFS showed a decrease to 4.1%, which is still higher than unemployment rates in certain major economies, such as the US, where rates ranged from 3.5% to 3.7% between July 2022 and July 2023.
  • Given their radically dissimilar economies, comparing the unemployment rates of India and the United States is complicated.

What Is Unemployment?

  • The International Labour Organisation (ILO) defines unemployment as the state of not having a job but being actively looking for one.
  • The ratio of unemployed persons to the labour force is known as the unemployment rate, which might fall if the economy doesn’t create enough jobs or if people give up looking for work.

India’s Measurement of Unemployment

  • Social conventions in underdeveloped nations like India may restrict job seeking options.
  • According to a 2009–10 National Sample poll Organisation (NSSO) poll, many women who participate in domestic work would work if there were openings in their households, but they are not counted as unemployed since they aren’t actively looking for work.
  • India’s informal labour sector, where people perform a variety of jobs all year long, makes measuring unemployment there challenging.

Different Classification Metrics

  • In India, two key classification methods are the Usual Principal and Subsidiary Status (UPSS) and the Current Weekly Status (CWS).
  • Even if a person worked in a supporting function for longer than 30 days, UPSS still considers them to be employed.
  • If a person worked for at least an hour on one day within the previous week, CWS considers them to be employed.
  • Since finding job over a year is more likely than doing so in a week, UPSS often produces lower unemployment rates than CWS.

The effect of the informal economy

  • In agrarian economies, unemployment rates are lower in rural than in urban areas due to the low threshold for identifying people as employed.
  • Although definitions may “underestimate” unemployment, they aim to capture the specifics of the informal economy.

The Effect of Lockdown

  • The lockdown in March 2020 caused significant economic disruption in India, although the PLFS unemployment numbers did not immediately reflect this.
  • If someone lost their job during the shutdown but worked for the majority of the preceding year, UPSS status may still count them as employed.
  • Shorter reference periods for CWS criterion result in larger unemployment rates, but when aggregated over multiple periods, they may not accurately reflect the lockdown’s long-term effects.
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