• UGI USER
  • May 08, 2024
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EMPLOYMENT, UNEMPLOYMENT AND SKILL DEVELOPMENT

Employment

  • Full Employment: This concept signifies a scenario where every individual capable and willing to work finds employment at the prevailing wages. Essentially, it denotes a situation devoid of involuntary unemployment, aligning with John Maynard Keynes’s perspective that full employment is achieved when no one is involuntarily out of work.
  • Significance of Full Employment: Attaining full employment catalyzes the overall growth of the economy. It ensures income for low-income households and revitalizes domestic demand for goods and services by maximizing the use of available labor, both skilled and unskilled.

J.M. Keynes’ Theory of Employment and Income

  • Keynes’ Contribution: In his landmark 1936 publication, “The General Theory of Employment, Interest, and Money,” Keynes revolutionized economic thought by challenging the classical assertion that market forces in a capitalist system naturally adjust to achieve equilibrium.
  • Concept of Effective Demand: At the heart of Keynes’ theory is effective demand, the total spending by consumers on industrial goods, which equates to the national income. According to Keynes, an increase in effective demand leads to higher employment levels, while a decrease results in higher unemployment.

Concept of Aggregate Demand Function (ADF)

  • Role in Keynesian Model: Aggregate demand is pivotal in determining output within the Keynesian framework, encompassing the expected revenue by entrepreneurs from selling goods produced by employed workers.
  • Components: Aggregate demand comprises consumption demand, investment demand, government expenditure, and net exports (exports minus imports).

Concept of Aggregate Supply Function (ASF)

  • Relationship with Employment: The aggregate supply function escalates with an increase in employment levels, signifying the total value of goods and services produced over a year, which equals national income.
  • Components: Aggregate supply includes consumption expenditure, private savings, net tax payments (total tax minus government transfers, subsidies, and interest payments), and personal transfer payments to foreigners (such as donations to international relief efforts).

Key Employment and Unemployment Indicators

Indicator Definition Notes/Examples
Labour Force The sum of individuals who are able and willing to work, encompassing those actively seeking employment and those currently employed. Excludes dependents like children and the elderly, as well as those unable to work but willing.
Workforce Refers to individuals aged 15 to 59 who are engaged in economically productive activities. The main difference from the labour force is the exclusion of the unemployed. Unemployment = Labour Force – Work Force.
Labour Force Participation Rate (LFPR) Calculated by dividing the labour force by the total working-age population (aged 15 to 64) and expressing it as a percentage to illustrate the proportion of the working-age population that is actively participating in the labour market. If the total population is 1000, with 500 employed and 100 unemployed, the LFPR would be 600/1000 or 60%.
Worker Population Ratio (WPR) The ratio of employed individuals per thousand people within a population, indicating the level of employment within a country. A high WPR signifies a larger proportion of the population engaged in generating goods and services, reflecting a better employment scenario.
Unemployment Rate Represents the percentage of the labour force that is of working age (15+) and actively seeking employment but unable to find work. Unlike other metrics, the unemployment rate focuses solely on those in the labour force who cannot find work, rather than as a percentage of the total population.
Activity Status Classified based on the activities a person has undertaken during a specific reference period. Determines an individual’s engagement in economic activities, study, household duties, etc.
Usual Status The usual activity status of a person is identified based on the activities carried out over the last 365 days preceding the survey date. This status helps understand the regular economic engagement or occupation of an individual over a longer period, providing insight into stable employment or unemployment patterns.
Activity Status – Current Weekly Status (CWS) The current weekly status is determined based on the activities a person pursued in the last 7 days preceding the survey date. Offers a snapshot of a person’s recent economic activity or inactivity, allowing for the assessment of short-term employment fluctuations or seasonal variations in work status.

Unemployment

  • Unemployment, as defined by the Organisation for Economic Co-operation and Development (OECD), refers to individuals over a certain age (typically 15 years and above) who are not engaged in any form of paid employment or self-employment, yet are available for work during the specified reference period. This definition encapsulates a broad range of the workforce, highlighting those actively seeking employment opportunities.

Unemployment Rate

  • The unemployment rate serves as a crucial indicator of the labor market’s health, quantified as the percentage of unemployed individuals in relation to the total labor force. It offers insights into the economy’s capacity to generate employment and is often used by policymakers, researchers, and economists to gauge the effectiveness of economic policies and initiatives.

Causes of Unemployment

  • Unemployment can stem from multiple sources, broadly categorized into structural and cyclical factors:
  • New Inventions and Technologies: Technological advancements can lead to the obsolescence of certain jobs, creating a mismatch between the available workforce’s skills and the market’s demands.
  • Economic Conditions: Recessions significantly impact unemployment rates as businesses cut back on expenditures, including labor costs, to sustain operations.
  • Globalization and International Trade: Increased competition from global markets can lead to job losses in industries unable to compete effectively, often pushing towards a realignment of the workforce.
  • Government Policies: Policies relating to taxes, business regulation, and labor laws can either foster job creation or contribute to job losses, depending on their nature and implementation.
  • Market Corrections and Regulation: Fluctuations in the market and regulatory changes can lead to periods of adjustment, affecting employment rates across various sectors.

Economic Survey on Unemployment in India (2022-23)

The Economic Survey of India provides insightful data regarding the unemployment situation:

  • Urban Unemployment Rate: Shows a decrease from 8.3% in July-September 2019 to 7.2% in July-September 2022, indicating an improvement in the urban labor market beyond pre-pandemic levels.
  • Overall Unemployment Rate: The national unemployment rate decreased from 5.8% in 2018-19 to 4.2% in 2020-21, showcasing recovery in both urban and rural areas.
  • Labour Force Participation Rate (LFPR): Reflects the proportion of the population that is working or actively seeking employment. There was an increase from 46.9% to 47.9% from the previous year, indicating a higher engagement in the labor force.
  • Worker-Population Ratio: This ratio increased from 42.3% to 44.5%, suggesting a positive trend in employment.
  • Rural Female Labour Force Participation Rate (FLFPR): A significant rise from 19.7% in 2018-19 to 27.7% in 2020-21, highlighting a positive shift towards female employment in rural areas.

Types of Unemployment

  • Unemployment is a multifaceted issue with various forms that affect economies worldwide, influenced by structural and cyclical factors. The nature and impact of unemployment can significantly differ between developing nations, like India, and developed countries, each experiencing unique challenges based on their economic conditions and labor markets.
Type of Unemployment Characteristics Causes Implications/Solutions
Cyclical Unemployment Exists during downturns in the business cycle, leading to widespread job losses. Caused by a deficiency of effective demand during recessions and depressions. Can be addressed through public investment or expansionary monetary policy. Aims for full employment, may lead to inflation.
Seasonal Unemployment Occurs in industries affected by seasonal variations, leading to employment only during certain times of the year. Predominant in agriculture and seasonal industries like tourism and certain manufacturing sectors. Mitigation involves diversifying employment opportunities or creating seasonal adjustment policies.
Frictional Unemployment Arises from the time taken for people to move between jobs, including new entrants to the labor force. Labor immobility, skills mismatch, and temporary disruptions like machinery breakdown. Solutions include improving labor market information, training programs, and enhancing mobility.
Educated Unemployment Occurs when individuals’ qualifications do not match job requirements, leading to underemployment or unemployment. Flawed education system, lack of employable skills, high preference for white-collar jobs. Requires educational reform, vocational training, and alignment of education with market needs.
Technical Unemployment Results from technological advancements that reduce the need for human labor, making some jobs obsolete. Adoption of labor-saving devices, capital-intensive modern technology. Encouraging skill development and retraining for affected workers.
Structural Unemployment Stems from significant shifts in the economy that cause a mismatch between skills and job opportunities. Deep structural changes in the economy, shifts in industry demand, globalization, and technological progress. Promoting flexibility in the labor market, retraining programs, and economic policies to support transition.
Disguised Unemployment Present when more individuals are working in a job than are necessary to produce a given level of output, often with zero or negative marginal productivity of labor. Excess labor in agricultural sectors, inefficiencies in job allocation. Enhancing productivity and reallocation of labor to more productive sectors.

Phillips Curve

  • The Phillips Curve represents a cornerstone of macroeconomic theory, illustrating an inverse relationship between inflation and unemployment within an economy. Introduced by economist A.W. Phillips, this theory posits that lower unemployment in an economy is associated with higher rates of inflation and vice versa.

Foundations of the Phillips Curve

A.W. Phillips introduced the concept in 1958, suggesting that inflation and unemployment rates move in opposite directions. This inverse relationship implied that policymakers could potentially control unemployment and inflation through fiscal and monetary policies.

  • Mechanism: The theory suggests that as an economy grows and unemployment decreases, employers offer higher wages to attract scarce labor. Higher wages increase the demand for goods and services, pushing prices up and leading to inflation.

Challenges to the Phillips Curve

  • Stagflation: The 1970s posed a significant challenge to the Phillips Curve with the phenomenon of stagflation, where the economy experienced high inflation and high unemployment simultaneously. This occurrence contradicted the established theory, suggesting that the relationship might not be as stable or inverse as initially thought.
  • Long-term Perspective: Over time, economists have argued that the Phillips Curve may hold in the short term but not necessarily in the long term, where inflation expectations can adjust, nullifying the inverse relationship between inflation and unemployment.

India’s Low Female Labour Force Participation Rate (FLFPR)

As of December 2021, according to the Centre for Monitoring Indian Economy (CMIE), the male LFPR was at 67.4%, while the female LFPR was alarmingly low at 9.4%.

Causes of Low Female LFPR

  • Law and Order: Concerns about safety and public security significantly hinder women’s ability to seek and sustain employment, especially in areas with high rates of violence against women.
  • Public Transportation: The lack of efficient and safe public transportation options limits accessibility to workplaces, particularly for women living far from urban centers or employment hubs.
  • Societal Norms: Deep-rooted societal norms and expectations about women’s roles within the household and community often prioritize domestic responsibilities over career or economic activities.
  • Violence Against Women: Incidents of gender-based violence and harassment in public and workplace settings deter women from participating in the labor force.
  • Workplace Accessibility: Women who live at a considerable distance from work locations face added challenges in securing employment, owing to transportation and safety issues.

Additional Factors

  • A significant portion of women’s work in India remains categorized as unpaid or domestic labor, such as caregiving and household management, which does not get counted in formal LFPR statistics.

Nature of Unemployment in India

  • Unemployment in India presents a complex scenario, primarily characterized by structural issues. The nature and causes of unemployment in the country can be delineated into several categories, encompassing both rural and urban settings, and can be attributed to a variety of factors ranging from infrastructural inadequacies to social and educational gaps.

Rural Unemployment

  • Seasonal Unemployment: Predominantly observed in agricultural sectors, where work is not available throughout the year, leading to periods where the rural workforce remains unemployed.
  • Disguised Unemployment: A situation where more people are employed than actually needed, resulting in reduced productivity per worker. This is common in rural India due to the over-reliance on agriculture.

Urban Unemployment

  • Industrial Unemployment:
    • Migration from rural to urban areas in search of better employment opportunities has been significant.
    • Despite the influx, the rate of industrialization has not kept pace, failing to provide sufficient employment opportunities, hence leading to industrial unemployment.
  • Educated or Middle-Class Unemployment:
    • A notable feature across India’s urban landscapes, distinguished from other forms of unemployment.
    • The lag in the expansion of technical and vocational educational facilities has led to a mismatch between the education provided and the job market demands, exacerbating unemployment among the educated or middle class.

Causes of Unemployment

  • Over-Reliance on Agriculture: The agriculture sector’s inability to provide year-round employment due to its seasonal nature leaves a significant portion of the population intermittently unemployed.
  • Infrastructural Bottlenecks: Insufficient investment in the manufacturing sector and lack of infrastructure development restrict job creation in secondary industries.
  • Regressive Labour Laws: Strict employment protection laws have made it more economically viable for employers to opt for capital-intensive production methods rather than hiring more workers.
  • Outdated Curriculum: The gap between the academic curriculum and market requirements leads to structural unemployment, as the workforce lacks the skills demanded by employers.
  • Prevalence of the Informal Economy: A significant part of the workforce operates in the informal sector, often due to a lack of necessary education or skills, which is not captured in formal employment statistics.
  • Social Issues: Societal norms and prejudices, including gender biases and discrimination based on ethnicity, race, or age, hinder job opportunities for various sections of the population.
  • Poor Governance: Inadequate infrastructure, financial, and market connectivity, along with minimal government support and cumbersome legal procedures, affect the sustainability of small businesses, cottage industries, and startups.
  • Higher Taxation: High levels of taxation on income, wealth, and production discourage entrepreneurship and limit the capacity of businesses to hire, further constraining employment opportunities.

The multifaceted nature of unemployment in India underscores the need for a comprehensive approach to address the underlying causes. Solutions must span from enhancing educational and vocational training, revising labor laws, and improving infrastructure, to fostering a more inclusive society that offers equal opportunities to all its members.

Gainful Employment and Its Need

Gainful employment refers to a situation where an individual receives steady work and fair compensation from their employer. This concept emphasizes the importance of job security and adequate income, allowing employees to lead a stable and satisfactory life.

Need for Gainful Employment

  • Sustainable Development and Inclusive Growth:
    • Aim: To ensure balanced growth and maintain a healthy economic progression.
    • Importance: Integrates a vast number of people into the formal economy, contributing to overall economic stability and growth.
  • Decent Living Standard:
    • Aim: To facilitate a decent quality of life through gainful employment.
    • Importance: Enhances the well-being of individuals by increasing the overall standard of living.
  • De-radicalization:
    • Aim: To counteract youth radicalization often linked to unemployment, particularly in minority communities.
    • Importance: Creation of decent job opportunities can mitigate radicalization tendencies and contribute to social harmony.
  • Internal Security:
    • Context: In regions like India, economic factors such as inadequate job creation and uneven growth have fueled left-wing extremism.
    • Importance: Gainful employment can address some root causes of unrest, enhancing national security.
  • Demographic Unrest:
    • Challenge: India faces the potential of demographic unrest without adequate education, vocational training, and gainful employment.
    • Importance: Addressing these issues is crucial for harnessing the demographic dividend rather than facing unrest.
  • Maintaining Social Fabric:
    • Aim: To prevent the erosion of social stability, which could escalate into communal tensions.
    • Importance: Providing quality jobs to youth is essential for maintaining social cohesion and peace.
  • Poverty and Inequality:
    • Challenge: Job creation is a pivotal factor in combating multidimensional poverty and inequality.
    • Importance: Employment opportunities are essential for individuals to escape poverty and contribute to economic equality.

Challenges in Creating Employment Opportunities

  • Entrepreneurship Potential: A high desire for stable employment over entrepreneurship, combined with a lack of entrepreneurial skills among youth.
  • Lack of Credible Data: Insufficient data on employment in new and unorganized sectors, such as gig economy jobs.
  • Structural Challenges: Over 90% of India’s workforce is uneducated formally, which is a mismatch for the capital-intensive manufacturing and skill-dependent services sectors.
  • Competition from Abroad: Economic liberalization has intensified competition with international firms, impacting domestic industries differently.
  • Labour Legislations: Indian labor laws tend to support small, unorganized, and fragmented enterprises, complicating the formal employment landscape.
  • Poor Skill Levels: A significant portion of the Indian workforce suffers from low skill levels due to inadequate vocational training and education.
  • Low Purchasing Power: Despite a large population, the domestic market’s low purchasing power limits the growth of the manufacturing sector.
  • Employee – Employer Linkage: The disconnect between employers and workers exacerbates labor supply and demand imbalances across India.
  • Volatile Global Market: Global economic fluctuations, exacerbated by events like the Covid-19 pandemic, affect India’s labor market stability.

Informal Employment

  • Informal employment encompasses a wide range of labor activities that are not regulated or protected by the state, often characterized by a lack of formal contracts, social security, and labor rights protections. Understanding the distinctions between formal and informal economies can illuminate the varying conditions under which people work and the implications for their social and economic well-being.

Differences Between Formal & Informal Economy

Aspect Formal Economy Informal Economy
Employment Contract Exists with clear terms of employment. Does not exist, leading to uncertainty and lack of job security.
Work Conditions Predefined and standardized, offering clarity on job responsibilities. No standardized conditions, leading to variability and often unfavorable working conditions.
Salary and Incentives Assured fixed salary with additional perks and incentives. Earnings are irregular and uneven, often lacking additional benefits.
Work Hours Fixed duration, adhering to labor laws and regulations. No fixed hours, often resulting in long and unpredictable work schedules.
Social Security Provides coverage for health, retirement, and other life risks through employer contributions and benefits. Lacks social security coverage, leaving workers vulnerable to health and financial crises.
Legal and Social Awareness Part of a well-organized structure with awareness and enforcement of legal rights. Generally lacks awareness of legal rights and protections, and operates outside formal legal and social frameworks.
Grievance Redressal Mechanisms in place for employees to express grievances and seek resolution. No formal platform for addressing grievances, often leaving workers without recourse.

Importance of Informal Employment for India

The informal sector is a crucial component of India’s economic system, particularly in rural and urban areas, offering significant employment and income prospects.

  • Majority of Workforce: With approximately 450 million informal employees, accounting for about 90% of the workforce, the sector sees an addition of 5-10 million workers annually.
  • Employment Generation: Informal employment engages around 85% of all workers, reflecting its critical role in India’s labor market.
  • Increased Share in Employment: The proportion of informal jobs rose by 3.6% in 2017-18, overshadowing the modest increase in formal employment.
  • Dominance in Employment Contribution: Despite its minimal contribution to national income, the informal sector’s dominance in employment is significant.
  • Inter-linkages: There is increasing integration between India’s informal and formal sectors, bridging gaps in the supply chain and providing essential services.
  • Rural Development: The informal sector, which includes agriculture and low-end services, forms a substantial part of the rural economy.

Facilitating Factors for the Growth of Informal Economy

  • Education and Skill Gap: With only about 4% of the workforce receiving formal training, the education and skill gap contributes to the sector’s growth.
  • “Missing Middle Syndrome”: The dominance of small and large businesses, with a notable absence of medium-sized enterprises, encourages the growth of the informal sector.
  • Regulatory Encouragement: Labour laws focusing on larger enterprises have inadvertently promoted informal business practices by making formal operations more technology-intensive.
  • Economic Inequality: Long-term economic disparity and unemployment have favored an environment conducive to informal employment.
  • Poor Incentive Structure: The lack of incentives for small businesses to grow has curtailed the expansion of the formal workforce.
  • Post-Independence Policies: The state-led industrialization strategy post-independence failed to absorb the vast labor force, leading to the growth of the informal sector.

Issues Faced by Informal Workers

  • Formal Economy Inclination: Efforts to formalize the economy have led to the integration of significant funds, including those through the e-Shram portal.
  • Gig Economies: Policies introduced since 2016 have accelerated the formalization process, impacting informal workers.
  • Impact on Women: Women in the informal sector face more precarious conditions compared to men.
  • Grey Market: The informal sector often does not contribute to national GDP, operating in a grey market.
  • Lack of Credible Data: The absence of accurate official statistics on the informal sector complicates policy formulation.
  • Labour-Related Challenges: While rural areas employ a major section of the workforce, urban informal labor faces more significant challenges.
  • Low Productivity: MSMEs in the informal sector cannot leverage economies of scale, resulting in lower productivity.
  • Inability to Raise Tax Revenue: Informal businesses often evade taxes, posing challenges to government revenue.
  • Underutilization of Human Resources: The informal sector’s extensive engagement does not translate into proportional value addition, leading to underutilization.
  • Migration Crisis and Job Loss: The migrant crisis and rising unemployment, exacerbated by the pandemic, have directly impacted the economy, with a significant loss of jobs in the informal sector.

Policy Measures to Deal With Unemployment

  • E-Shram Portal
  • Objective: To maximize employability and provide social security benefits to unorganized workers through the creation of the National Database of Unorganized Workers (NDUW).
  • Implementation: Developed by the Ministry of Labour & Employment, this initiative aims to streamline access to government schemes for unorganized workers.
  • Labour Reform
  • Objective: To update and streamline the nation’s labor laws, improving economic growth while protecting workers’ rights.
  • Implementation: The introduction of three labor codes on industrial relations, occupational safety, health, working conditions, and social security by Parliament.
  • Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM)
  • Objective: To provide a pension to unorganized sector workers.
  • Implementation: Managed by the Ministry of Labour and Employment and executed by the Life Insurance Corporation of India and Community Service Centers, targeting 42 crore unorganized workers.
  • Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
  • Objective: To guarantee 100 days of employment per financial year to adult members of rural households willing to do unskilled manual work.
  • Implementation: One of the world’s largest work guarantee programs focusing on alleviating rural poverty.
  • National Commission for Entrepreneurship in the Unorganized Sector (NCEUS)
  • Objective: To address issues faced by the informal economy.
  • Implementation: Established in 2004, India became likely the first country to set up a commission dedicated to the informal sector, focusing on policy recommendations and strategic interventions.
  • Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi (PM SANNidhi)
  • Objective: To provide affordable loans to street vendors.
  • Implementation: Launched by the Ministry of Housing and Urban Affairs, this program supports vendors, hawkers, and artisans among others, facilitating their economic resilience.
  • Self-employment and Talent Utilisation (SETU)
  • Objective: To foster self-employment and exploit the potential inherent in talent.
  • Implementation: Established by NITI Aayog in 2015, focusing on creating opportunities for self-employment and entrepreneurship.
  • Skill Strengthening for Industrial Value Enhancement (STRIVE)
  • Objective: To improve the relevance and efficiency of skill development programs.
  • Implementation: Aims at enhancing vocational education and training through institutional reforms, focusing on the long-term value addition to the workforce.
  • Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
  • Objective: To skill and certify over 40 crore individuals by 2022 in various skills.
  • Implementation: Focuses on providing vocational training and certification to improve the livelihoods and societal status of Indian youth.

Fixed Term Employment (FTE)

  • Fixed-Term Employment (FTE) is a contractual arrangement where an employer hires an employee for a specific period. Typically, this duration is set for a year, but it may vary based on project requirements, company needs, or other factors. This type of employment has been broadened to all sectors, facilitating companies in recruiting staff for specific projects, tasks, or orders. The expansion aims to simplify the hiring process and adapt workforce requirements flexibly.

Statistical Insight

  • According to the Periodic Labour Force Survey (PLFS) 2018-19, within the normal salary group of workers with salaried jobs, which constitutes 24% of the total, only 2.2% have access to all social security benefits. This statistic underscores the limited coverage of social security benefits among salaried employees, highlighting a significant gap in worker protection and benefits.

Benefits of FTE

  • Equity in Benefits: Employees under FTE contracts are entitled to the same benefits as permanent employees. This includes statutory benefits, contributing to a fairer treatment across the workforce.
  • Enhanced Worker Satisfaction: The assurance of statutory benefits and improved working conditions for contract workers could lead to a stronger sense of job security and satisfaction. This is particularly relevant in sectors known for challenging working conditions, such as industrial manufacturing.
  • Economic Efficiency: The low cost of capital has historically deterred the employment of labor. FTE arrangements can offer businesses the flexibility needed to efficiently allocate resources, particularly beneficial for projects requiring specific skill sets for a limited time.
  • Sectoral Flexibility: FTE is valuable in sectors like infrastructure, apparel, footwear, and media, where project-based employment is common. This flexibility allows for efficient workforce management according to project demands.

Key Provisions of FTE

  • Definition and Scope: FTE refers to employment on a contractual basis for a predetermined timeframe. The contract’s non-renewal leads to the automatic termination of employment.
  • Conditions of Employment: FTE stipulates job duration, remuneration, and service conditions, ensuring fixed-term employees receive similar benefits to regular employees, including pay, work hours, and allowances.
  • Parity with Permanent Employees: Fixed-term workers are entitled to the same advantages as their permanent counterparts, ensuring equity in treatment regarding wages and statutory benefits.
  • Simplified Employment Termination: The revised order simplifies the process for terminating bad or temporary employees, removing the requirement for a termination notice.
  • Improved Working Conditions: Fixed-term employees are likely to experience better working and service conditions compared to long-term contract workers.

Impacts of FTE

  • Reduced Transition to Permanent Employment: There has been a notable decline in the transition rate from FTE to permanent positions, potentially affecting long-term job security and career progression.
  • Global Perspective: In countries like Spain, the trend towards shorter FTE contracts is evident, with a significant portion of new contracts lasting less than a week or month. This trend indicates a shift towards more transient and flexible employment arrangements.
  • Labor Market Dynamics: The implementation of FTE has resulted in a labor market characterized by low transition rates to permanent employment and a significant wage gap between fixed-term and permanent workers. Most FTE hires are likely to be in lower-wage positions, contributing to wage volatility and reduced job security.

Self-Employment
Nature and Features of Self-employment

  • Self-employment embodies the essence of entrepreneurship. Individuals venture into self-employment for various reasons, including the desire for autonomy, the pursuit of a passion, or the identification of a niche market. This mode of work allows individuals to steer their business according to their vision, ethics, and goals, unlike traditional employment where one’s role and scope of work are defined by an employer.

Risk, Reward, and Financial Uncertainty

  • One of the fundamental characteristics of self-employment is the direct correlation between effort and financial reward. While this can lead to significant earnings and personal fulfillment, it also comes with substantial risk. Market dynamics, consumer preferences, and economic fluctuations directly impact income, making financial stability less predictable than in salaried employment.

Impact on Employment Landscape

  • Self-employment not only contributes to the individual’s income but also has the potential to create additional jobs. Whether through the expansion of a business or subcontracting, self-employment can be a catalyst for broader employment opportunities within the community.

Significance of Self-employment in India

Economic Diversification and Innovation

  • Self-employment is pivotal in fostering economic diversification in India. By encouraging individuals to explore various sectors, including agriculture, technology, and the arts, it helps in reducing the dependency on a few industries and promotes innovation at the grassroots level.

Social and Cultural Impact

  • Self-employment has a profound social and cultural impact, especially in a diverse country like India. It supports the preservation of traditional crafts and promotes cultural heritage, contributing to the tourism industry and global market appeal.

Gender Empowerment and Inclusivity

  • Self-employment offers a pathway for gender empowerment by providing women and other marginalized groups with opportunities for economic independence and leadership roles. It enables them to balance work with familial responsibilities, thereby promoting inclusivity and diversity in the workforce.

Challenges Faced by the Self-employed in India

Access to Capital and Resources

  • One of the significant challenges faced by self-employed individuals is accessing capital and resources. Financial institutions often view small businesses and freelancers as high-risk clients, making it difficult for them to secure loans and investment.

Regulatory and Formalization Hurdles

  • The regulatory environment can be daunting for the self-employed, especially for those in informal sectors. The lack of formalization limits their access to legal protections, benefits, and support systems available to formal businesses.

Market Competition and Skill Gaps

  • The self-employed must constantly adapt to stay competitive in a rapidly changing market landscape. This requires continuous skill development and innovation, which can be challenging without the right support and resources.

Pathways for Improvement

Education and Skill Development

  • Enhancing the education system to focus on skill development, entrepreneurship, and practical knowledge can better prepare individuals for self-employment. Initiatives like the Pradhan Mantri Kaushal Vikas Yojana are steps in the right direction but need to be expanded and made more accessible.

Policy Reforms and Support Systems

  • Implementing policy reforms that simplify business registration processes, provide tax incentives, and offer financial support can encourage more individuals to formalize their self-employment ventures. Additionally, creating a supportive ecosystem that offers mentorship, networking opportunities, and access to markets can significantly impact the success of self-employed individuals.

Leveraging Technology and Innovation

  • Technology plays a crucial role in enabling self-employment and entrepreneurship. Providing access to digital tools, platforms for market access, and resources for technological innovation can help self-employed individuals expand their businesses and reach wider markets.

SKILL DEVELOPMENT

  • Skill development encompasses the acquisition and enhancement of skills through education and experience, aimed at increasing an individual’s capability to adapt to changing market demands and to capitalize on new entrepreneurial opportunities.

Current Status

  • Unemployment Rate: A significant indicator of economic health, the unemployment rate has shown a decreasing trend, from 6.1% in 2017-18 to 4.8% in 2019-20. This suggests a gradual improvement in job availability and economic conditions.
  • Worker Population Rate (WPR): The WPR has increased to 38.2% in 2019-20 from 34.7% in 2017-18, indicating a higher percentage of the working-age population is employed or seeking employment.
  • Labour Force Participation Ratio (LFPR): This ratio, which measures the proportion of the working-age population that is actively engaged in the labor market, increased to 40.1% in 2019-20, reflecting a positive shift in workforce engagement.
  • Gender-Based Unemployment Rate: The data revealed a decrease in the unemployment rate for both males and females, indicating an improvement in gender inclusivity in employment opportunities.
  • Periodic Labour Force Survey (PLFS) 2020–21: Showed a further decrease in the unemployment rate to 4.2%, highlighting ongoing positive trends in the labor market.

Need for Skill Development

  • Exploiting the Demographic Dividend: With India poised to have the world’s largest workforce by 2025, skill development becomes crucial to harness the demographic advantage effectively.
  • Transitioning to a Knowledge-based Economy: Developing a highly skilled workforce is essential for fostering innovation and supporting India’s ambition to become a knowledge-based economy.
  • Addressing Unemployment and Wage Issues: Enhancing skill levels is directly linked to reducing unemployment rates and improving wage conditions, thereby contributing to economic stability.
  • Promoting Inclusive Economic Growth: Given the size of India’s labor force and its fast-growing economy, skill development, especially for women, is vital for achieving comprehensive economic success.
  • Sectoral Mobilization: As the economy evolves, labor needs to move from primary (agricultural) to secondary and tertiary (industrial and services) sectors, requiring new skills for transitioning workers.

Challenges in Skill Development

  • Lack of Basic Education: A significant dropout rate, particularly at the elementary level, undermines the foundation for advanced skill training.
  • Neglect of Upskilling/Reskilling: The low percentage of the population receiving vocational training highlights a gap in continuous skill enhancement efforts.
  • Inadequate Training Facilities: The shortage of training infrastructure in key growth sectors limits the capacity to meet the skill demands of the economy.
  • Impact of the Covid-19 Pandemic: The pandemic has disrupted educational and training programs, exacerbating the challenges in skill development.

Policy Initiatives by the Government for Skill Development

  • The Indian government has introduced several policy initiatives aimed at enhancing the skill development ecosystem to empower the youth, foster employment opportunities, and propel the country towards becoming a global skill capital.

Major Policy Initiatives

  • Deen Dayal Upadhyaya Grameen Kaushal Yojana: This initiative focuses on creating a skilling ecosystem that aligns with the needs of industry partners while securing long-term employment opportunities for the rural poor youth.
  • Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Launched in 2015, PMKVY aims to provide short-term training and skilling through Industrial Training Institutes (ITIs) and apprenticeship schemes. Since its inception, nearly 10 million youths have been trained under this flagship scheme.
  • TEJAS Initiative for Skilling: At the Dubai Expo 2020, the TEJAS (Training for Emirates Jobs and Skills) initiative was introduced as part of the Skill India International Project, targeting the training of Indians living abroad to enhance their job prospects.
  • Mandatory Corporate Social Responsibility (CSR) Expenditure in Skilling: Following the Companies Act of 2013, which mandated CSR spending, Indian corporations have contributed over ₹100,000 crores to various social causes, including skill development.
  • Atmanirbhar Skilled Employee Employer Mapping (ASEEM): Launched in 2020 by the Ministry of Skill Development and Entrepreneurship (MSDE), ASEEM is a digital platform designed to help skilled individuals find sustainable livelihood opportunities.
  • USTTAD (Upgrading Skills and Training in Traditional Arts/Crafts for Development): This initiative aims to preserve traditional arts and crafts while enhancing the skills of artisans and craftsmen from minority communities.

Way Forward

  • Enhancing Accessibility: Expanding ITIs, especially in rural areas, and creating gender-specific infrastructure are crucial steps towards increasing accessibility for all, particularly women.
  • Engaging the Private Sector: The private sector should play a significant role in skill development by contributing to curriculum development, training delivery, internships, and the evaluation and accreditation of programs.
  • Promoting Employment Opportunities: Recognizing and modifying societal biases that hinder women’s employment prospects is essential for fostering gender equality in the labor market.
  • Innovative Approaches like Skills on Wheels: Adopting models such as Skill Trucks, similar to those in Brazil, can help overcome transportation and infrastructure barriers, bringing skill training to remote and rural areas.
  • Establishing Vertical Mobility: Creating a system for vertical mobility in vocational education—from certificates to diplomas to degrees—will offer a wide range of opportunities for learners at all levels.
  • Recognition of Prior Learning (RPL): It’s important to formalize informal training by certifying the skills of workers who have inherited their crafts or trades, thus facilitating job opportunities, financial services, and livelihood security.

Gig Workers

Growth and Economic Contribution

  • Projected Growth: NITI Aayog’s research highlights a robust projection for the gig economy, expecting it to encompass 23.5 million workers by FY 2030. This significant growth underscores the shifting paradigms in India’s labor market towards more flexible, project-based employment.
  • Workforce Composition: The gig economy’s workforce in 2020-21 comprised 7.7 million individuals, equating to 1.5% of India’s total workforce or 2.6% of the non-agricultural workforce. This indicates the gig economy’s growing role in providing employment outside traditional agricultural sectors.

Gig Worker Classification

  • Platform vs. Non-Platform Workers: The distinction between platform and non-platform workers categorizes the gig workforce based on their engagement with digital platforms. Platform workers rely on apps and websites for jobs, whereas non-platform workers find gigs through more traditional channels but still work on a temporary or project basis.

Global Context

  • India’s Positioning: Being the fifth-largest flexible staffing market globally, India trails only major economies like the US and China. This positioning reflects the country’s rapid adaptation to flexible work arrangements, driven by its burgeoning startup ecosystem and digital infrastructure.

Deeper Insights from the NITI Aayog Report

Workforce Dynamics

  • The report’s forecast of the gig economy growing to 2.35 million by 2029-30 highlights the expected expansion and the importance of gig work in India’s future employment landscape.

Platformization of Work

  • The concept of “platformization” reflects a shift towards digital platforms facilitating gig work, which is becoming increasingly popular across various industries. This shift is driven by businesses’ desire for flexibility and scalability, allowing them to tap into a broad talent pool without the commitments of traditional employment.

Skill Levels and Industry Potential

  • The gig economy encompasses a diverse range of skills, from low-skilled tasks to high-skilled professional services. This diversity indicates the gig economy’s capacity to absorb workers with varying skill sets and education levels, offering opportunities across the economic spectrum.

Key Drivers of the Gig Sector

Technological and Cultural Shifts

  • Advances in technology and changing cultural attitudes towards work and career paths significantly contribute to the gig economy’s growth. Younger generations, in particular, value flexibility, autonomy, and the ability to work remotely or pursue passion projects, which the gig economy can offer.

Demand for Flexibility

  • Both workers and employers benefit from the gig economy’s inherent flexibility. Workers enjoy the autonomy and control over their work-life balance, while employers can scale their workforce up or down as needed, accessing specialized skills on a project basis without the overheads associated with permanent staff.

Challenges and Recommendations

Addressing Worker Vulnerabilities

  • The gig economy’s flexibility often comes at the cost of job security and social protections for workers. Challenges such as income instability, lack of access to benefits, and occupational safety concerns necessitate targeted interventions.

NITI Aayog’s Strategic Recommendations

  • Enumeration and Platformization Initiatives: By accurately mapping the gig economy and fostering platform-based employment through supportive policies and programs, India can enhance the quality and accessibility of gig work.
  • Financial and Social Inclusion: Strategies to integrate gig workers into the formal banking system and promote inclusivity can address some of the financial vulnerabilities and social barriers faced by gig workers.
  • Universal Social Security: Drawing from global practices, India is encouraged to develop comprehensive social security frameworks that extend protections to gig workers, covering health insurance, accident insurance, and retirement benefits.

Social Security Code 2020

The Social Security Code 2020 is a comprehensive legislative framework in India, designed to enhance and streamline social security, retirement, and employee benefits across various sectors of employment. This code consolidates nine existing regulations into a unified statute, significantly broadening its scope and application.

Enhanced Coverage

  • Scope: The Code significantly widens the range of workers covered under social security schemes. This includes individuals in the unorganised sector, fixed-term employees, gig and platform workers, and interstate migrant workers.
  • Objective: The primary aim is to provide a safety net and ensure social security benefits are accessible to a broader demographic, including those traditionally considered outside the formal employment sector.

National Database and Registration

  • Registration Process: A streamlined, internet-based registration process is established for workers. This process emphasizes self-certification, simplifying the inclusion of workers into the national system.
  • National Database Creation: The ultimate goal of this registration process is to compile a comprehensive national database of unorganised sector workers. This database will serve as a crucial tool for policy implementation and monitoring.

Uniform Definitions

  • Salary Calculations: The Code introduces standardized methods for calculating salaries for the purpose of social security benefits. This uniformity ensures fairness and clarity in benefit distribution.
  • Definition of Wages: A comprehensive definition of wages is provided, which is crucial for determining eligibility and benefits under various social security schemes.

Consultative Approach

  • Inspector-Cum-Facilitator Role: A shift towards a consultative approach is evident in the new role designated to inspectors. These officials now act as facilitators, offering employers guidance and assistance to comply with regulations, marking a departure from purely punitive measures.

Social Security Fund

  • Purpose: A dedicated Social Security Fund will be established to finance social security programs. This fund is intended to ensure the financial sustainability and effective delivery of social security benefits.

Career Centre

  • Human Resource Needs: Career centres will be established to address the demand for human resources. These centres will also play a pivotal role in tracking employment data, aiding in policy formulation and workforce planning.

Stringent Penalties

  • Non-compliance Penalties: The Code imposes stringent penalties for employers who fail to deposit employee contributions, including a fine of up to Rs. 1,00,000 and imprisonment ranging from one to three years.
  • Repeat Offences: For repeat offences, the possibility of compounding is removed, underlining the seriousness with which compliance failures are treated.

 

UPSC PREVIOUS YEAR QUESTIONS

 

1.  With reference to Pradhan Mantri Kaushal Vikas Yojana, consider the following statements: (2018)

1.  It is the flagship scheme of the Ministry of Labour and Employment.
2.  It, among other things, will also impart training in soft skills, entrepreneurship, and financial and digital literacy.
3.  It aims to align the competencies of the unregulated workforce of the country to the National Skill Qualification Framework.

Which of the statements given above is/are correct?

(a)  1 and 3 only
(b)  2 only
(c)  2 and 3 only
(d)  1, 2 and 3

2.  ‘Recognition of Prior Learning Scheme’ is sometimes mentioned in the news with reference to __________ (2017)

(a)  Certifying the skills acquired by construction workers through traditional channels.
(b)  Enrolling the persons in Universities for distance learning programmes.
(c)   Reserving some skilled jobs to rural and urban poor in some public sector undertakings.
(d)  Certifying the skills acquired by trainees under the National Skill Development Programme.

3.  Disguised unemployment generally means ____________ (2013)

(a)  a Large number of people remain unemployed
(b)  Alternative employment is not available
(c)  Marginal productivity of labour is zero
(d)  Productivity of workers is low

4.  Examine the role of the ‘Gig Economy’ in the process of empowerment of women in India. (2021)

5.  “While we flaunt India’s demographic dividend, we ignore the dropping rates of employability.” What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain. (2014)