Why is it in the news?

• In 2017, India’s Periodic Labour Force Survey (PLFS) reported an unemployment rate of 1%, which was the highest ever recorded in the country.
  • However, in the PLFS of 2021-22, India’s unemployment rate reduced to 1%, showing improvement over the previous years.
  • Comparatively, the U.S. experienced unemployment rate fluctuations between 3.5% in July 2022 and 3.7% in July 2023.
• The U.S. and India have vastly different economic structures.
  • The U.S. is more industrialized with a formalized labour market and India, on the other hand, has a significant informal sector, which affects how unemployment is measured.
• These differences in economic structure leads to distinct methods of measuring unemployment in each country.

Definition of Unemployment

India:

• The International Labour Organization (ILO) defines unemployment as being out of a job, available to take a job, and actively engaged in searching for work.
• Individuals who have lost work but do not actively seek another job are not considered unemployed.

United States:

• The definition of unemployment in the U.S. is similar to the ILO’s definition, focusing on those out of work, available, and actively job-seeking.

Labour Force Composition

India:

• In India, the labour force includes the employed and the
• Those neither employed nor unemployed, such as students and those engaged in unpaid domestic work, are considered out of the labour force.

United States:

• The U.S. labour force consists of the employed and the unemployed, with those not participating, like students or individuals engaged in unpaid domestic work, considered out of the labour force.

Unemployment Rate Calculation

India:

• The unemployment rate in India is measured as the ratio of the number of unemployed individuals to the total labour force.
• This rate may also fall if there aren’t enough job opportunities or if people choose not to actively seek work.

United States:

• The U.S. calculates the unemployment rate by dividing the number of unemployed individuals by the total labour force.

About Measurement Challenges in India

Informal Nature of Jobs:

• In India, informal employment is prevalent, making it challenging to track unemployment accurately.

Social Norms:

• Social norms and constraints affect job-seeking decisions, potentially leading to underestimation of unemployment.

Measurement Methods:

• India employs two key measures, Usual Principal and Subsidiary Status (UPSS) and Current Weekly Status (CWS), to classify an individual’s working status.
• UPSS considers a longer reference period (a year), while CWS uses a shorter one (a week).
• UPSS unemployment rates tend to be lower than CWS rates.

Rural vs Urban Discrepancy:

• Lower bar criteria for employment classification contribute to lower rural unemployment rates compared to urban areas.

Lockdown Effect:

• The COVID-19 lockdown’s impact on employment may not be fully reflected in annual unemployment rates due to the different reference periods used in UPSS and CWS.

Conclusion

• In developing economies like India, there’s a trade-off between using short or long reference periods to measure unemployment accurately.
• The choice between UPSS and CWS methods depends on the need to capture the dynamics of informal employment and short-term job availability.

(Topic: GS2: social issues)