Meaning and Nature of Unemployment

Unemployment is a condition in which a person who is willing and able to work at the prevailing wage rate is unable to find suitable work. The Gujarat Std 12 Economics syllabus takes up this chapter as a natural continuation of the national-income and poverty chapters studied earlier, because unemployment is one of the clearest signs of how far an economy is falling short of fully using its available human resources.

To understand unemployment precisely, three related ideas must be kept distinct:

• Labour force — all persons of working age who are either working or actively seeking work.
• Workforce (employed persons) — that part of the labour force actually engaged in some productive economic activity.
• Unemployed persons — the remaining part of the labour force who are willing and able to work but cannot find employment.

So, Labour Force = Workforce + Unemployed persons. A person who is not seeking work at all — a student, a retired person, or someone engaged only in household duties — is outside the labour force altogether and is not counted as unemployed, even though they are also not working.

Economists further distinguish unemployment from underemployment. An unemployed person has no work at all. An underemployed person does have some work, but it is insufficient — either the number of hours worked is less than what the person is willing to work (visible underemployment), or the work does not fully use the person's skill and productive capacity (invisible/disguised underemployment, covered later in this chapter). Underemployment is especially significant in India's agricultural and unorganised sectors, where a person may appear "employed" on the family farm yet contribute very little extra output.

Unemployment can also be classified by cause: voluntary unemployment, where a person chooses not to work at the going wage rate, and involuntary unemployment, where a person is willing to work at the prevailing wage but simply cannot find a job. Involuntary unemployment is the form that concerns economic policy, since it represents a genuine waste of a country's productive human resources.