Economy Key Terminologies — Unemployment
1. Previous Year Questions (UPSC)
Context: Understanding unemployment terminologies is crucial for UPSC preparation. The following terms have been asked in previous years' examinations (2013-2016).
| Year | Term | Explanation |
|---|---|---|
| 2016 | Ease of Doing Business Index | An index created by the World Bank that measures the ease of doing business in a country based on various factors such as starting a business, dealing with construction permits, getting credit, and enforcing contracts. Used to compare business regulation across countries and over time. |
| 2013 | Disguised Unemployment | A type of unemployment in which individuals appear to be employed but are actually not contributing to the economy meaningfully. Often occurs in sectors such as agriculture, where individuals are employed but are not fully utilised or are engaged in unproductive work. |
2. Important Terms in News
Context: These unemployment terms frequently appear in economic surveys, policy discussions, and are essential for UPSC aspirants to understand.
Types of Unemployment
- Involuntary Unemployment: When a person is willing to work at the prevailing wage rate but unable to find work due to factors beyond their control.
- Cyclical Unemployment: As the economy goes through a boom-bust cycle, the unemployment resulting from recession is termed cyclical unemployment.
- Frictional Unemployment: Unemployment during the transition time from one job to another is termed frictional unemployment.
- Underemployment: When a person is employed but in an inferior position to his skill or qualification, it is termed underemployment.
- Technological Unemployment: Unemployment occurs when men are replaced with machines.
- Structural Unemployment: Lack of employment when a person's skill or qualification is insufficient for a job in the market.
- Disguised Unemployment: Individuals appear to be employed but are not contributing meaningfully to the economy. Common in agriculture where workers are underutilised or engaged in unproductive work. (UPSC 2013)
Labour Force & Employment Indicators
- Labour Force: The labour force, or currently active population, comprises all persons who fulfil the requirements for inclusion among the employed (civilian employment plus the armed forces) or the unemployed.
- Labour Force Participation Rate (LFPR): The "labour force" ratio to the "total working age population" of a country.
- Unemployment Ratio: The ratio of "involuntary unemployed in labour force" to "total labour force".
- Worker Population Ratio (WPR): The percentage of employed workers in the population.
Economic Theories & Indicators
- Phillips Curve: The graphical representation of the inverse relationship between the unemployment rate and inflation.
- Ease of Doing Business Index: An index created by the World Bank that measures the ease of doing business in a country based on various factors such as starting a business, dealing with construction permits, getting credit, and enforcing contracts. Used to compare business regulation across countries and over time. (UPSC 2016)
Key Unemployment Terms at a Glance:
- Types of Unemployment: Involuntary, Cyclical (recession), Frictional (job transition), Underemployment (inferior position), Technological (machines replace men), Structural (skill insufficiency), Disguised (apparent but unproductive employment)
- Labour Force Indicators: Labour Force, LFPR (labour force/working age population), Unemployment Ratio (unemployed/labour force), WPR (employed workers/population)
- Economic Theories: Phillips Curve (inverse relationship between unemployment and inflation)
- Business Environment: Ease of Doing Business Index (World Bank)
- Types of Unemployment: Involuntary, Cyclical (recession), Frictional (job transition), Underemployment (inferior position), Technological (machines replace men), Structural (skill insufficiency), Disguised (apparent but unproductive employment)
- Labour Force Indicators: Labour Force, LFPR (labour force/working age population), Unemployment Ratio (unemployed/labour force), WPR (employed workers/population)
- Economic Theories: Phillips Curve (inverse relationship between unemployment and inflation)
- Business Environment: Ease of Doing Business Index (World Bank)
3. Summary: Key Unemployment Terminologies
| Term | Key Definition / Category |
|---|---|
| Involuntary Unemployment | Willing to work at prevailing wage but unable to find work |
| Cyclical Unemployment | Unemployment resulting from recession in boom-bust cycle |
| Frictional Unemployment | Unemployment during transition from one job to another |
| Underemployment | Employed in inferior position to skill/qualification |
| Technological Unemployment | Men replaced with machines |
| Structural Unemployment | Skill/qualification insufficient for market jobs |
| Disguised Unemployment | Appears employed but not contributing meaningfully (UPSC 2013) |
| Labour Force | Employed (civilian + armed forces) + Unemployed |
| LFPR | Labour Force / Total Working Age Population |
| Unemployment Ratio | Involuntary Unemployed in Labour Force / Total Labour Force |
| WPR | Employed Workers / Population |
| Phillips Curve | Inverse relationship between unemployment and inflation |
| Ease of Doing Business Index | World Bank index measuring business regulation (UPSC 2016) |
Key Takeaways for UPSC
- Types of Unemployment: Involuntary (willing but unable), Cyclical (recession), Frictional (job transition), Underemployment (inferior position), Technological (machines replace men), Structural (skill insufficiency), Disguised (apparent but unproductive, common in agriculture)
- Key Labour Force Indicators: Labour Force (employed + unemployed), LFPR (labour force/working age population), Unemployment Ratio (unemployed/labour force), WPR (employed workers/population)
- Phillips Curve: Inverse relationship between unemployment rate and inflation — crucial for understanding macroeconomic policy trade-offs
- Ease of Doing Business Index (UPSC 2016): World Bank index measuring business regulation across countries
High-Yield Interactive UPSC Quiz (Chapter 13: Unemployment)
Q1. Disguised Unemployment is commonly found in which sector?
Correct Answer: C. Disguised unemployment often occurs in sectors such as agriculture, where individuals are employed but are not fully utilised or are engaged in unproductive work. (UPSC 2013)
Q2. The Ease of Doing Business Index is created by:
Correct Answer: B. The Ease of Doing Business Index is created by the World Bank and measures the ease of doing business in a country based on various factors. (UPSC 2016)
Q3. Involuntary Unemployment occurs when:
Correct Answer: C. Involuntary unemployment is when a person is willing to work at the prevailing wage rate but unable to find work due to factors beyond their control.
Q4. Cyclical Unemployment is caused by:
Correct Answer: B. Cyclical unemployment results from recession as the economy goes through a boom-bust cycle.
Q5. Frictional Unemployment refers to:
Correct Answer: B. Frictional unemployment is unemployment during the transition time from one job to another.
Q6. Underemployment occurs when:
Correct Answer: C. Underemployment is when a person is employed but in an inferior position to his skill or qualification.
Q7. The Phillips Curve shows the relationship between:
Correct Answer: B. The Phillips Curve is the graphical representation of the inverse relationship between the unemployment rate and inflation.
Q8. Labour Force Participation Rate (LFPR) is the ratio of:
Correct Answer: B. LFPR is the "labour force" ratio to the "total working age population of a country".
Q9. Worker Population Ratio (WPR) measures:
Correct Answer: C. Worker Population Ratio (WPR) is the percentage of employed workers in the population.
Q10. Technological Unemployment occurs when:
Correct Answer: C. Technological unemployment occurs when men are replaced with machines.