UNEMPLOYMENT

Development Economics 9th October 2012 Solano Da Silva

Objective > To understand the characteristics of unemployment in the context of developing economies and to study some of the policies to address the same. 1) 2) 3) 4) 5) 6) Introduction India: Employment profile Types of unemployment Unemployment estimates Models of employment determination Employment generation strategies

1. Introduction >> [Sectoral composition] Agriculture seen as the sector with most (surplus) labour. [Usual policy prescription] Assumed that with industrialisation problem of open/disguised unemployment solved. [BUT it is noticed that in developing economies]: Industries and urban areas have been unable to absorb surplus labour entirely. Creating the problem of rural and urban unemployment (as a result of migration). Also problem of educated unemployed (fallout of education policies).

2. Employment profile > Sector-wise employment >>

2. Employment profile > Sector-wise employment & GDP contribution>

2. Employment profile > Organised v/s Unorganised sector >>

2. Employment profile > Organised v/s Unorganised sector >>

2. Employment profile > Organised sector > Public v/s Private >>

2. Employment profile > Form of employment >>

3. Types of unemployment >> 3.1. Open unemployment Involuntary: people willing to work at existing rates do not get work. Can be a feature of both rural and urban unemployment. [Causes] Developed economies: frictional: changes in production techniques. Relatively easier to handle with re-training. Developing economies: structural: underdeveloped industry and small service sector. 3.2.Seasonal unemployment [Causes] Mostly in agriculture because of the seasonal nature of agricultural production. Mostly a feature of developing economies No or inadequate supplementary employment opportunities.
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3. Types of unemployment >> 3.3.Disguised unemployment Existence of surplus labour whose removal will not result in declines in production. [Causes] As a result of use of family labour. Usually a feature of agrarian economies.

3.4.Educated unemployed [Causes] Educational achievements result in changes in aspirations.

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3. Types of unemployment >> Some lessons: Seasonal and disguised unemployment are usually clubbed together as underemployment. Underemployment is a more relevant concept to understand developing economies since: 1. Very few workers are wage earners. 2. Most workers self-employed or unpaid family members. 3. Problem of disguised unemployment. 4. Poor social security conditions.

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3. Types of unemployment >>

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4. Unemployment and under-employment estimates >> 4.1. Rapid expansion of labour in developing economies As a result of declines in mortality and relatively high fertility rates. Rate of growth 1.7% (1950-70), 2.3% (1970-90) c.f. Europe 0.7% (nineteenth century).

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4. Unemployment and under-employment estimates >> 4.1. Rapid expansion of labour in developing economies As a result of declines in mortality and relatively high fertility rates. Rate of growth 1.7% (1950-70), 2.3% (1970-90) c.f. Europe 0.7% (nineteenth century).

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4. Unemployment and under-employment estimates >> 4.2.Expansion of unemployment in developing economies Rate of growth 7.6% v/s 2.2% (in developed economies). Africa (9.8%), Asia (7.1%) and Latin America (5.1%). Open unemployment in urban areas: 6-8 million (1950) to 20-24 million (1970).

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4. Unemployment and under-employment estimates >> 4.3. Education profile of unemployed Highest among middle group of primary and secondary school leavers. Low among illiterate and highly educated.

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4. Unemployment and under-employment estimates >> 4.4. Aggregate figures ILO estimates approx. 1 billion persons in developing economies are either jobless or under-employed.

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5. Models of employment determination > 5.1. Classical model >> Based on the assumption that wage rates are perfectly flexible and conditions of perfect competition exist. Wage rate and level of employment determined simultaneously at the point where demand for labour meets supply of labour. Equilibrium point represents the point of full employment i.e. There is no involuntary unemployment. If there is excess supply of labour, workers would be willing to work for less thus depressing wages. If supply of labour is less than demand then this will inflate wages.

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5. Models of employment determination > 5.1. Classical model >> Limitations of the classical model Presence of market imperfections, especially in developing economies. Factor immobility. Price rigidity. Imperfect information Wages may be set by respective governments. The fact that unemployment actually exists challenges this notion. Views unemployment as a wage problem, unwillingness of labour to work for lower wages.

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5. Models of employment determination > 5.2. Keynesian model >> Assumes that the market economy cannot guarantee full employment. Aggregate demand in the economy determined by: total consumption expenditure + total investment expenditure + total government expenditure (C+I+G) may not guarantee full employment. Keynes advocated increasing aggregate demand, through government expenditure, which would through the multiplier effect lead to much higher increase in aggregate demand achieving full employment.

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5. Models of employment determination > 5.2. Keynesian model >> Criticisms Often because of bottlenecks supply does not match increases in demand leading to inflation instead of full employment. Bottlenecks also impair working of the multiplier. Structural differences w.r.t. Employment in Developed v/s Developing economies.

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6. Employment generation strategies >> 6.1. Industrial development [Rationale] Many developing economies have made large investments in agriculture in the hope that this would: 1. Directly generate employment 2. Stimulate creation of new jobs through ancillary industries. [BUT] in many cases industrial growth has not come with significant expansion of industrial employment. E.g. India in 1980s industrial output grew at 7.5%/annum but employment grew by only 2.8%/annum. Many developing economies face situation of jobless growth

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6. Employment generation strategies > 6.1. Industrial development >> Policy responses have included: 1. Investment and incentives to setup Small Scale Industries and Cottage industries. 2. Better utilisation of industrial capacity. Found that in developing economies there is up to 50-60% under-utilisation of industrial capacity. 3. Greater emphasis on labour-intensive techniques. Often meant encouraging Small Scale & Cottage Industries which will: 1. stem unemployment in rural areas and 2. curb seasonal under-employment. 4. Development of intermediate technology: neither too advanced nor obsolete as traditional economy. Better match of labour profile.
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6. Employment generation strategies >> 6.2. Agricultural development The fact remains that 60 70% of the workforce in developing economies lies in the agricultural sector. With limited capacity to absorb labour by industrial sector and urban jobs focus on expansion of employment in agriculture: 1. Expanding area under cultivation (possible where land is available) 2. Technological progress in agriculture Multi-cropping and intensification may increase employment [Inconclusive evidence] that this will expand employment, indiscriminate use of technology may actually displace labour. 3. Institutional reforms: hope to meet objectives of social justice and improve productivity. Arguments that productivity will actually decline due to small holdings Alternative evidence shows increases in productivity due to 25 more intensive cultivation of land.

6. Employment generation strategies >> 6.3. Public works Highly labour-intensive. Helpful in directly transferring incomes to the poor and those left behind from employment opportunities/policies. Can be started quickly. Meets pressing economic needs: construction, roads, drainage, irrigation, etc. Dependent on government finance E.g. National Rural Employment Guarantee Scheme (NREGS), 2006 which aims to guarantee employment to rural households for at least 100 days/year.

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NREGA Progress
Date: July 12, 2006 Sl. No. State Districts Rural households Applications Job cards Employment provided No. of works Funds released 1 Andhra Pradesh 13 6104032 3954522 3954522 704101 22063 20000 2 Arunachal Pradesh 1 7905 45070 16256 272.85 3 Assam 7 923966 160897 104383 6990 534 13970.845 4 Bihar 23 8943456 2401836 1071522 505281 17619 40503.38 5 Chattisgarh 11 1792584 1696860 1534636 162480 9671 17321.72 6 Gujarat 6 1596636 604695 597028 73791 1716 4113.94 7 Harayana 2 304178 81489 76421 15573 288 913.39 8 Himachal Pradesh 2 167349 70084 62408 24848 2249 683.64 9 Jammu & Kashmir 3 319692 169038 65531 4127 283 986.365 10 Jharkhand 20 3806040 1755005 1171831 467832 9451 37618.59 11 Karanataka 5 1484815 572892 315412 118810 3678 6329.69 12 Kerala 2 603527 225133 2179.51 13 Madhya Pradesh 18 3890287 4281258 4144413 1804953 69783 93617.22 14 Maharashtra 12 3706706 4139778 1094659 183075 6152 17961.645 15 Manipur 1 22299 45172 17880 570.89 16 Meghalaya 2 109577 2064.68 17 Mizoram 2 22828 41808 29016 298.9 18 Nagaland 1 48697 430.11 19 Orissa 19 3503354 2702290 1900553 563681 23559 31516.56 20 Punjab 1 237480 39318 33375 21284 976 755.75 21 Rajasthan 6 1461606 1443720 1423013 846263 13809 40000 22 Sikkim 1 7955 4696 4696 451.5 23 Tamil Nadu 6 1811557 541568 535519 82009 668 9889.21 24 Tripura 1 57709 62736 58114 16218 327 1456.66 25 Utttar Pradesh 22 9021545 1950901 1641250 466726 15627 33498.69 26 Uttranchal 3 211495 282182 176636 6206 1739 1910.6 27 West Bengal 10 7374151 3322241 1149145 495493 3305 18358.84 TOTAL 200 57541426 30595189 21178219 6569741 203497 397675.175 # In column applications are for registration of households # Blank spaces in the table denote information not received from States Index: 1. Funds released pertain to 2006-7 [in lakh Rs.]

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6. Employment generation strategies >> 6.4. Service sector [Early phase] expansion takes place in traditional service sectors: shoe-shining, rickshaw pulling, cycle repair, window washing, newspaper selling, etc. [Later phase] modern services expand: banking, finance, commerce, transport, telecom and tourism. Rapid expansion usually takes place in: public administration, transport and communications. [Services in rural areas] Some have argued that will small amounts of training persons can be assigned to rural areas as para-medics, government assistants and school teachers.

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6. Employment generation strategies >> 6.5. Problem of educated unemployed In 1972-73 of the total no. of unemployed: 14.9% were illiterate, 21.3% had primary education and 53.6% had secondary education. Education can create unemployment because: 1. Educated unemployed looking for white collar jobs and despising manual labour. 2. Inadequately equip workforce with the necessary skills and training necessary for employment. Responses: Need a strategy which has a closer integration of education and employment. Need change in nature of vocational training i.e. with one the job training. Create opportunities and incentives for expansion of selfemployment.
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REFERENCES Misra, S. K. and Puri, V. K. (2010), The Problem of Unemployment, in Development and Planning: Theory and Practices, 13th ed. Himalaya Publishing House Pvt. Ltd. Mumbai, pp. 327 338.

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