Deception of Unemployment Rate

Has anyone heard about WEF? World Economic Forum, is an organization in which all the elites discuss the top ten issues which are going to preoccupy the global leaders in the coming 12 to 18 months. According to their study today, unemployment is going to be one of the major disquiet this year, especially for the youth.

Unemployment rate is showing an increasing trend in India since 2011. The Unemployment rate has reached from 3.5% in 2011 to 3.6% in 2012 and to 3.7% last year. According to Global Employment Trends 2014, this year the unemployment rate, also known as the “jobless rate” is anticipated to rise to a 3.8%. This has serious repercussions for our country’s youth aging between 18-25 years, as despite being skilled they do not the opportunities they deserve.

Unemployment is one of the major factors that plays a role in the upliftment of the economy. A high unemployment rate means, there are more jobs seekers than opportunities available for them to work and earn a living. Now this unemployment rate is not only a setback for the unemployed, but also a matter of concern for the people who have a job. So basically, unemployment is a bad omen for everyone. This may not necessarily mean that low unemployment rate is good for an economy.

Let us see the labour market through another perspective, called the labour force participation rate which is the percentage of people who are either employed or unemployed but looking for jobs. Labour force participation rate for ages 15-24, male (%) in India was 54.20 as of 2011. Its highest value over the past 21 years was 69.80 in 1990, while its lowest value was 54.20 in 2011.

Labour Force Participation Rate can be a little deceptive which is what makes it so interesting! Even when unemployment rate is high, there is  a chance that LFPR is high as there can be many people looking for jobs, but very few getting employed. Low LFPR means that the people who are capable of working, are not looking for jobs. This decreases the unemployment rate, but may not be the best thing happening in an economy since, this decrease in unemployment is not leading to an increases in employment. Employment rate rather decreases, which means the economic growth is negative.

Considering a developed country like United States of America, the unemployment rate showed a drastic downswing from 6.3% in May to 6.1% in June under Obama’s Administration. Unfortunately, this kind of decrease in unemployment rate in an economy is nothing but a symptom of Labour Market Deterioration. What has always been good news, a drop in the unemployment rate was, in June, an indicator of bad news.

Hence a country may have low unemployment rate, but this may not mean that the country is progressing. Hence, the youth now has to yearn that unemployment rate decreases but for the appropriate reasons.

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