1. HR Glossary
2. Unemployment

Unemployment

Unemployment is an important challenge that India can address to strengthen its economy. As one of the most populous countries in the world, India has a diverse workforce that presents unique growth opportunities. By focusing on the variations in unemployment, the country can create a lasting positive impact on its development. Understanding employment in India, encompassing both full-time and part-time jobs is crucial for fostering progress and prosperity.

According to the India Employment Report 2024, prepared in collaboration with the Institute for Human Development and the International Labor Organization (ILO), in 2011, India’s working population was 61%, which increased to 64% in 2021. It is projected that the working population will reach 65% in 2036. Continuous, effective policies and measures are essential for sustainable job growth and the nation’s prosperity.

What is Unemployment?

Unemployment refers to a situation in which individuals seek employment but cannot find one. It is an economic condition that shows the health of the nation’s economy in terms of the ability to find work and provide jobs to those who want to work.

Unemployment occurs when individuals who are capable and willing to work but cannot find work are unemployed. A person is termed unemployed if they do not have a job, have been actively seeking work for the past four weeks, and are available for work. This does not include those who have stopped working due to retirement, education, or disability. In India, unemployment occurs when a person actively searches for a job but cannot find work.

Types of Unemployment Relevant to HR

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

1. Frictional Unemployment

This type of out-of-work situation happens when it is short-term, mainly because the employees are in between or transitioning jobs. This includes recent graduates looking for work or employees leaving for better opportunities. This occurs naturally as part of a healthy economy and is generally unavoidable.

2. Structural Unemployment

This situation occurs due to a mismatch between workers' skills and the jobs available in the market. Technological advancements, consumer demands, and the economy are constantly changing. To avoid this, HR should keep training and employee development programs in place to ensure employees are trained enough to acquire new skills and change according to market conditions.

3. Cyclical Unemployment

This is linked to the country's economic cycles; the unemployment rate rises during the recession and decreases during the period of growth. Fluctuations in business cycles affect an organization's hiring strategies. Human resources professionals use methods like layoffs, furloughs, or reducing working hours during a recession or downturn.

4. Seasonal Unemployment

This situation mainly affects industries busy only at certain times of the year, like agriculture and tourism. Because of this, they need temporary workers.

HR professionals in these industries must plan the hiring process carefully, as the number of workers needed changes with the seasons. They may require temporary workers during peak times.

5. Disguised Unemployment

This type occurs when more employees or workers are hired than necessary. This happens mostly in family businesses or informal sectors. This situation can lead to inefficiency in the company, which requires assessing the staffing levels and workers' productivity.

6. Technological Unemployment

Workers whose skills are no longer needed are displaced when there is a technological upgrade. HR professionals' role here is to introduce retaining programs and help those affected to prepare for new job roles.

7. Vulnerable Unemployment

The name vulnerable suggests that the employees or workers work in informal conditions, not including contracts or job security. This can complicate the management of an organization's workforce.

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.

1. Economic Factors

Economic factors like recession or downfall lead to less consumer spending and reduced business profit shares. This situation leads to laying people off and temporarily stopping hiring to cut costs and expenses. Sometimes, limited investments in industrial sectors like large-scale industries limit the creation of new job opportunities.

2. Social Factors

Many social factors exist, such as the education system and demographics. The education system often fails to align organizational goals with fresh graduates' skills, leading to a skill gap. Demographic characteristics, like population growth, increase the labour supply, but due to slow industrialization, they limit job-creating opportunities.

3. Technological Factors

Technological advancement and the rise in automation have resulted in job losses because machines are replacing human labor. Due to technological changes, workers' skills become obsolete. Not only this, but there needs to be a gap in the skill set for which specific training and development programs are required to continue so that the employees can adapt to the new technologies.

4. Structural Changes

This includes employees working in informal jobs that lack job security and benefits. It also provides job opportunities in different regions, but employees are prevented from traveling to other locations due to personal and cultural attachments.

5. Government Policies

Labor market regulations also affect employment levels, i.e., changes in government policies regarding minimum wage laws. Not only this, but tax policies also affect investment criteria and job creation.

Addressing these factors helps HR professionals scale the business by bridging the gap between skills and market requirements. It can also help develop strategies to enhance the workforce and collectively contribute to the economy.

How do We Measure Unemployment?

Measurement involves many methodologies and classifications, mainly focusing on who qualifies as unemployed and how this group is quantified. Some of the essential methods are mentioned below.

1. Current Population Survey (CPS)

The Bureau of Labor Statistics (BLS) conducts this survey monthly with a sample size of 60000 households, approximately 6,000 individuals aged 16 or more. To strengthen the study's reliability, the census changes a quarter of the sampled households each month so that no household is represented for more than four consecutive months.

2. Current Employment Statistics Survey (CES)

This study only intends to provide insights into employment trends rather than measure unemployment. It collects data from almost 1,60,000 business and government agencies, including 4,00,000 employees.

The formula used is mentioned below to calculate and measure the rate.

Unemployment Rate = (Number of unemployed / Labor force) x 100

Where,

Labor force includes both employed and unemployed individuals looking for work.

The number of unemployed is those who are out of work but available and have searched for employment within the specified time frame, i.e., the last four weeks.

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.

Effects of Unemployment on the Workforce

It dramatically impacts individuals and the economy; some effects are mentioned below.

1. Reduced Customer Spending

Due to layoffs or out-of-work situations, individuals have less disposable income, which results in less purchasing power. This reduces overall consumer spending by reducing demand, as only a few can earn wages.

2. Increased Business Costs

As businesses make less profit due to less demand and economic depression, they often implement cost-cutting measures. This creates a negative cycle in which the remaining employees are loaded with workload without additional compensation, ultimately reducing productivity and morale.

3. Long-term Effects

Due to rising rates, government resources are burdened by individuals relying on social welfare programs, which increases public expenditures with fewer or reduced tax revenues, worsening the economic situation.

4. Mental Health Issues

The jobless situation leads to psychological effects like depression, stress, and anxiety, wherein, according to the studies, the workers who are out of work are generally dissatisfied with life and have poor mental health when compared to the employed working class.

5. Family Dynamics

An out-of-work situation affects the individual and strains the families due to tension and conflicts, which leads to harmful changes in the family dynamics and affects children’s well-being.

6. Community Impact

Community impacts include social unrest and increased crime rates, degrading community unity, and not just this but also the community often faces poverty-related issues, for example, inadequate housing and limited access to education and healthcare services.

7. Brain Drain

Brain drain is the migration of highly skilled and educated individuals from one country to another in search of better job opportunities, high salaries, and improved living conditions.

8. Increased Labor Market Competition

Due to higher rates, competition for the remaining available positions increases, which impacts wages and bargaining power.

HR Strategies for Mitigating Unemployment

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

1. Talent Acquisition and Retention

One strategy to be implemented should be hiring highly skilled and in-demand individuals and aligning them with the organization's objectives. In addition, competitive packages, flexible working hours, and opportunities for further development should be offered to retain and attract top talent.

2. Training and Development

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. If there are any technological advancements, they can be adapted to the latest, changing job requirements.

3. Employee Engagement and Well-being

Engage employees with employee recognition programs and award-giving events. Through wellness initiatives, provide health and mental well-being services to deal with personal and professional challenges.

4. Flexible Work Arrangement

HR professionals should implement flexible working hours and remote work location policies for employees to accommodate their personal commitments.

Conclusion

In conclusion, it is a complex issue with a rippling effect on the economy as many factors affect it, and HR professionals are advised to mitigate the impacts. This can be done by implementing talent acquisition, training, and development programs, flexible work arrangements, and employee engagement programs.

Staying updated with economic trends and patterns, the labor market, and technological advancements is essential for making the necessary changes. By doing so, these challenges can be addressed, and organizations can emerge more vital in times of need.

FAQ

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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