1. HR Glossary
2. Unemployment

Unemployment

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What is Unemployment?

Unemployment is defined as the state where individuals who are actively seeking work opportunities are unable to find a suitable job. These individuals are part of the labor force in India and are capable of working but are out of work. It includes individuals actively trying to find a job, which can be through interviewing or other means.

One key component in unemployment is that an individual must be of working age and should have the ability to start working when a job is offered. It is an economic condition that shows the health of the nation’s economy in terms of the ability to find work and provide employment to those who want to work. In India, unemployment does not include those who have stopped working due to retirement, education, or disability.

Types of Unemployment

Various types are essential for human resources professionals, as they directly impact workforce management and recruitment strategies. Some of these types are mentioned below.

Frictional Unemployment

Frictional unemployment occurs when individuals are out of work temporarily. This situation occurs when an individual is transitioning between jobs or entering the workforce for the first time. This helps workers with the time needed to find jobs that match their skills and preferences.

Structural Unemployment

Structural unemployment occurs when there is a mismatch between the skills workers possess or there is a skills gap and the skills demanded by employers. Employees face this shift due to changes in the economy, for example, new industries emerging. Workers in the coal industry lose their jobs due to a shift toward renewable energy.

Cyclical Unemployment

Cyclical unemployment is associated with the business cycles and occurs during times of recession or downturn. Businesses lay off workers/employees when demand for goods and services reduces.

Seasonal Unemployment

Seasonal unemployment occurs when workers lose their jobs due to changes in demand. These are common in agriculture and tourism due to changes in seasonal patterns.

Disguised Unemployment

Disguised unemployment occurs when more workers are employed than needed within an organization. When the workers are laid off, the overall output will not decrease. This type of unemployment is common in developing countries and the agricultural sector.

Technological Unemployment

Technological unemployment occurs when there are advances in technology that replace human labor with machines. For example, Automated Teller Machines (ATMs) have reduced the need for bank tellers.

Vulnerable Unemployment

Vulnerable unemployment includes staff in an unsecured and informal work environment, who can lose employment easily. This informal sector has minimal labor laws and protection for employees.

Understanding the different types of out-of-work for effective workplace management and recruitment strategies is essential.

Causes of Unemployment

Many factors affect the cause, such as social, technological, and economic factors. From the HR perspective, understanding these factors helps in further planning recruitment strategies, workforce planning, and training and development programs. Some of these factors are mentioned below to give you a clearer idea.

• Economic Factors: This includes recessions/slowdowns in business cycles, which lead to a decrease in consumer demand. It also causes reduced profits and layoffs or hiring freezes.
• Government Policies: Government policies, like minimum wages in India and unemployment benefits, can affect the labor market and employment rates.
• Social Factors: Some countries experience rapid population growth, which dilutes available job opportunities and increases competition for jobs.
• Technological Factors: Sometimes skills possessed by the workforce do not match those required by the companies due to evolving industry needs and insufficient training.
• Structural Changes: Sometimes skills possessed by the workforce do not match those required by the companies due to evolving industry needs and insufficient training. This is possible for both part-time and full-time employees.

Unemployment Measurement

Unemployment measurement refers to the process and methods taken to quantify the number of people who are unemployed/jobless. But these individuals are seeking work opportunities. The formula to calculate the rate is:

Unemployment Rate=(Number of Unemployed/Total Labor Force) × 100

There are a few ways to calculate the unemployment rate in India. These are:

• Labor Force Survey (LFS)
• Claimant Count Method

Some of the additional broader methods by BLS are mentioned below.

• U3 includes the official unemployment rate for those actively looking for work.
• U4 includes discouraged workers who have stopped looking for work.
• U5 includes partially attached workers who want to work but haven’t recently sought employment.
• U6 includes part-time workers looking for full-time work positions.

What are the Effects of Unemployment on the Workforce?

The impact of unemployment can be experienced by both the workers and the national economy. It causes a ripple effect as worker face financial struggle and impact their families. Some of these effects are:

Reduced Customer Spending

When workers have low income due to unemployment, their spending reduces for discretionary and essential goods. It creates a domino effect where consumers spend less money and businesses face reduced revenues, which also leads to further layoffs.

Increased Business Costs

The costs rise for businesses as they need to implement a strong recruitment strategy and upskill programs when they rehire after layoffs. This is a type of furlough where employers have to impose involuntary leave to reduce costs. Companies might also have to lower prices to attract consumers and reduce profits.

Long-Term Effects

Extended unemployment reduces an employee’s professional skills and confidence, which makes it difficult for these employees to rejoin the workforce. It can also lead to a reduction in productivity and an increase in wage depression in the long term.

Mental Health Issues

Unemployment causes an increase in stress levels and anxiety, as employees face loss of self-worth. Along with the mental health effects, it also affects physical health due to depression.

Family Dynamics

Families experience a financial strain and tension between members, which leads to disruptions in family life. Children in households with unemployed parents have a lower educational attainment, especially in India.

Community Impact

Communities with a high unemployment ratio experience an increase in poverty and a reduction in spending limit. It can also increase crime rates in some areas and can persist even after the employment level recovers.

Brain Drain

When unemployment becomes chronic, skilled workers can look for opportunities in other regions, which leads to brain drain. It weakens the local workforce and compromises future economic prospects.

Increased Labor Market Competition

The competition increases as more individuals compete for job opportunities, and this forces workers to accept jobs below their qualification levels. Individuals who are unemployed for the long term can get discouraged, and they might drop out of the workforce entirely.

Long-Term Unemployment vs. Short-Term Unemployment

Unemployment that lasts longer than 26 weeks (6 months) is long-term unemployment. Short-term unemployment is for a shorter period, i.e., 26 weeks. The effects of long-term unemployment are far worse when compared to short-term unemployment. Some of these effects are:

• The chances of finding a job decrease the longer someone is jobless.
• Long-term unemployed individuals face negative consequences continuously compared to short-term unemployed individuals.
• Wage losses are larger and more consistent in long-term unemployment.
• It can also lead to skill erosion and an increase in discrimination by employers during interviews.
• Individuals experience a high level of stress and low self-esteem.
• It also leads to family dysfunction due to depression and lowered or no income, which negatively impacts a child’s academic performance.

HR Strategies for Preventing Unemployment

HR professionals play a significant role in preventing the effects of unemployment on organizations and individuals. Some of the strategies mentioned below can be practiced.

• Organizations should hire highly skilled individuals and align them with the organization’s objectives.
• The focus should be on investing in training and development programs to help employees acquire new skills and knowledge to stay updated in the market.
• Through wellness initiatives, provide health and mental well-being services to employees to help them deal with personal and professional challenges.
• HR professionals should implement flexible working hours and remote work location policies for employees to accommodate their commitments.

Conclusion

The various aspects of unemployment highlight its complexity, which contributes to challenges faced by countries such as India. These issues include persistent economic and social challenges along with their long-lasting effects. Even an individual’s well-being is affected, and can cause mental health issues. Reasons for unemployment are many, and its effects are beyond the loss of income and reduced consumer confidence. This also includes contributions to increasing poverty levels and social unrest.

FAQs

What are the Leading Causes of Unemployment?

Various factors, including economic downturns, technological advancements, structural changes, and government policies, can cause it.

How Can Governments Address Unemployment?

Governments can implement policies to address unemployment, such as job training programs, infrastructure investment, and tax cuts.

What is the Impact of Globalization on Unemployment?

Globalization can lead to job losses in specific industries and create new job opportunities for others.

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