CAUSES OF UNEMPLOYMENTS

Submitted in the partial fulfillment for the award of the

degree of
BACHELOR OF BUSINESS
ADMINISTRATION

Under the Supervision

And Guidance of Submitted by:-
Mrs. Anju Batra Narender Singh Meena
(LECTURER) 0012131708
BBA 3rd Semester

SESSION: 2009 - 2010

TECNIA INSTITUTE OF ADVANCED
STUDIES
(Approved by AICTE, Ministry of HRD, Govt. of India)
Affiliated To Guru Gobind Singh Indraprastha University, Delhi
INSTITUTIONAL AREA, MADHUBAN CHOWK, ROHINI, DELHI- 110085
E-Mail:director@tecniaindia.org, Website: www.tecniaindia.org
Fax No: 27555120, Tel: 27555121-24
Causes of unemployment
Unemployment result when the rate of growth of labour force is more than
the rate at which new jobs are created. The rate of growth of labour force, in
turn, is a function of the rate of growth of population. Apparently, when we
say that the number of unemployed in the economy has been increasing we
mean that new jobs have only been created at an inadequate rate, so that it
has not been possible to absorb in gainful employment the increasing labour
force.
Low Employment Elasticity of Growth
The rate of growth of the economy has been much slower than what would
have been ideally required to find new job opportunities for the additional
labour force. On top of it, the employment generation capacity of growth
has been limited. Therefore, despite the economy building up steam through
industrial growth, the engine of growth is not axiomatically pulling along
wagonloads of unemployed in its wake. Till 1970, the Indian economy grew
at a rate of about 3.5 per cent per annum, employment grew at a rate of over
2 percent; 5.5 percent average growth of the GDP during the 1980s
generated an employment growth of about 1.8 percent per annum; and
during the 1990s a6.0 per cent growth rate in GDP generated employment at
less than 1 percent. The employment elasticities, measured as the ratio of
employment growth to the growth of value added have declined,

Period {decade} sector economy

P S T
50s 1.00 0.65 0.55 0.78
60s -0.29 -0.16 0.20 -0.12
70s 1.21 0.52 0.62 0.69
80s 0.52 0.30 0.44 0.39
1950-90 0.61 0.33 0.85 0.44
1990-95 0.43 0.29 0.56 0.39
1997-02 0.50 0.25 0.55 0.38

It would be seen that output elasticity of employment has consistently

declined through time for the economy as a whole as well as its constituent
sectors, though the decline has been the steepest for secondary and the
slowest for the primary sector. The decline has occurred both due to the
technology and composition effect. Changes in technologies of production in
individual sectors, sub-sectors and products have tended to reduce the labour
requirements per unit of output. At the same time, the share of products and
sectors with high labour-output coefficients in total output has declined and
that of products and sectors with high capital output coefficients has
increased.
Explanation for low employment elasticity
1. One possible explanation of this phenomenon can be found in the
domestic macro-policies followed by us. Even though we are surplus
in labour and scare in capital, the artificial factor prices that we have
adopted in no way reflect our factor proportions. Our interest rates
have been abnormally low and for many years did not even cover the
inflation rate. Besides the low interest rates, there are four other
factors that make for low capital costs.
• A low foreign exchange rate, combined with exemptions from
tariffs for capital goods, resulted in cheap imported capital
goods.
• Borrowing for fixed capital, especially the purchase of
machinery, has been easier and cheaper than borrowing for
working capital, need to hire more workers.
• Much of the investments in public enterprises come from the
budget. The real cost of capital can then be close to zero if the
borrowing manager does not expect much pressure to repay
during his tenure and even has the possibility of deferring
interest and adding it to principal.
• Government lending institutions have been usually quite
flexible about repayment and may even be flexible about
interest payments during bad times. Borrowing then spreads
and reduces risks from the manager’s perspective.

Give the distortions in the factor prices; it will not be profitable for the
industrialists to invest in labour-intensive goods. Even small-scale
industrialist fined it profitable to switch over to labour-saving technology.
The result has been, despite a substantial increase in the proportion of
industrial output in the national income, the percentage of labour force in
agricultural has not proportionately declined. The industry will not absorb
surplus manpower unless factor prices reflected true factor proportions.
 2. The framework of industrial costs has been such that there have been
a host of concessions available for investment of capital and none for
employment of labour. The depreciation norms for capital, the
investment allowance scheme and the backward the capital cost of the
plant. In such a system, there are few penalties for over-
capitalizations. There are also no advantages for using labour-
intensive technology.
3. The job security laws in our country have only served to limit the new
job opportunities. A recent study by peter Fallon and Robert Lucas,
based on the data from the annual survey of industries, has concluded
that over 17 percent fewer people are employed in 35 Indian
industries than would have been if laws which protect the jobs of
existing workers had not been there. Protective labour legislation (one
of the most protective in the world) had the following consequences:
• Rise in the price of labour, i.e., rise in wages and payments
unrelated to productivity changes;
• Labour becoming a fixed factor of production instead of
variable one at the enterprise level, which has restricted the
movement of labour across industry and across the sectors;
• Protecting trade unions and thereby preventing the emergence
of a stable system of industrial relations with adverse effected
on productivity.
All these ultimately affected employment growth in organized
manufacturing. Apparently, higher job security for existing
industrial workers has been purchased at the cost of future
employment.

Slow Growth in the Agricultural Sector

Hanumantha Rao estimates that had agricultural output increased at an
annual average rate of about 4 percent- the minimum envisaged in the five
year plan- employment in the production of agricultural commodities alone
would have grown by about 3 percent per annum, as the labour co-efficient
(i.e., percentage increase in output) is likely to be around 0.75 for all the
techniques (e.g., irrigation, multiple cropping and HYV, etc,) taken together.
This is in addition to the employment that would have been generated in
marketing and distribution of additional output, in the production and
distribution of additional inputs and consumption goods and in the services
sector. This growth in employment would have been sufficient to absorb not
only the growing labour force in agriculture but would have also helped to
clear much of the backlog of rural unemployment and underemployment.
This is because the growth of labour force in the rural sector would be
significantly less than the growth of population owing, among other factors,
to the migration to the urban sector and to the fact that in the initial phases of
development in the low income countries, as the unskilled labour,
particularly females, declines significantly.

Nature of Agricultural Technology

The short duration high yielding varieties of seeds can facilitate an increase
in labour-use. In practice, however, because of the profitability of intensive
farming involving the use of large quantity of water and fertilizer per unit of
land, there may not have been much incentive for increasing cropping
intensity. This may explain why cropping intensity has risen at a much
slower rate in the post-green Revolution period, despite the decline in the
average size of holding and a significant improvement in the proportion of
cultivated area irrigated. The slowing down in the growth of cropping
intensity is responsible for much of the deceleration in agricultural
employment.

Uneven Growth of Agriculture between Different Regions

The inter-state disparities in the growth of agricultural output and output per
worker continued to widen from the early 1970s through the early 1980s. the
uneven regional growth was mainly agriculture. In a large number of states
comprising the eastern part of the country where there was abundant
availability of labour, the growth of output was too slow to generate
adequate employment opportunities. In the high growth regions of northern
India, labour was not plentiful and wage rates were high. The sudden rise in
the demand for labour in these areas induced mechanization and labour-
saving practices in general. This happened despite the use of migrant labour
from the less developed regions for certain operations. The net result was a
significant decline in the elasticity of labour with respect to agricultural
output for the country as a whole.
In the recent period, however, there is some evidence of agricultural
growth picking up in the eastern states, e.g., Assam, Bihar, Orissa, Madhya
Pradesh and west Bengal, where labour is abundant and poverty is
widespread.
In consequence, the demand for labour has been increasing. This
may explain why inter-state disparities in rural wages for agricultural labour
have started declining since the mid-1980s. Another consequence of these
developments is that the disparity between male-female wage rates has
started declining in several states. These recent developments in Indian
agriculture point to the possibility of a significant rise in employment and
wages for labour in the poverty stricken states, if appropriate strategies are
adopted for stepping up agricultural growth.
Inappropriate Educational System
After remaining at schools and colleges for a number of years’s men and
women come out in large numbers, having gained neither occupational nor
vocational training nor functional literacy from which all future skilled,
educated professional and managerial manpower is drawn. The system as
such has rather failed to deliver the goods in the manner in which it could.

Weaknesses in Planning Techniques

The growth strategy underlying our plans has been found to be faulty.
• Efforts to lay sufficient infrastructure in the country for a balanced
economic development have been lacking.
• The plans could not halt the drift of the rural population into cities by
making rural areas more attractive and congenial by enabling them to
earn a better living off the land and encouraging the development of
growth centre around village.
• The plans could not encourage the use of labour-intensive techniques
of agricultural and industrial production as also to mobilize the
energies and enthusiasm of young men and women by giving them a
role to play and a livelihood to earn in the process of economic
development.
• The plans have failed to put a due emphasis on schemes of irrigation,
waste land reclamation, soil conservation, and development of dairies,
fisheries and poultry farming, etc., so as to generate employment
avenues for various categories of skilled, semi-skilled and unskilled
workers.
• The plans also have not done well in the spheres of flood control,
drainage, anti-water logging, rural electrification and other
construction actives which, in turn, could provide extensive
employment opportunities to all the categories of workers including
skilled and unskilled personnel.