Unemployment in India: Understandings and Challenges

Oct 6, 2023

While youth unemployment may be a demographic dividend, it creates a substantial policy quandary. This article examines the numerous aspects of young unemployment in India, including its causes, repercussions, and the critical need for effective governmental responses.


As per the State of Working India 2023 report released by Azim Premji University, despite significant advances in numerous elements of India's job market, the unemployment rate among graduates under the age of 25 has reached an alarming 42%. 

In India, youth unemployment has become a serious socioeconomic issue with far-reaching consequences. India's rising youth population poses both an opportunity and a concern as one of the world's youngest countries. While youth unemployment may be a demographic dividend, it creates a substantial policy quandary. This article examines the numerous aspects of young unemployment in India, including its causes, repercussions, and the critical need for effective governmental responses.

What is unemployment, and how is it measured? 

Economists refer to the labour market as the supply of labour (from households) and demand for work (from businesses and other organisations). 

According to the Reserve Bank of Australia, unemployment happens when someone is ready and able to work but does not have a paid job. The unemployment rate is the proportion of people in the labour force who are out of work. The International Labour Organisation defines an unemployed person as a person aged 15 or over who meets three conditions at the same time: 

  • being unemployed for a given week; 

  • being available to take a job within two weeks; 

  • actively seeking a job in the last four weeks or having found one starting in less than three months.

According to the International Monetary Fund, unemployment mainly depends on economic activity; when economic activity is high, more output occurs overall, and more workers are required to provide more goods and services. When the economy weakens, businesses downsize their workers, and unemployment grows. In this view, unemployment is countercyclical, meaning it rises when economic growth is low and falls when it is high.

Businesses are more likely to try to rebound from a downturn by having the same number of workers do more work or produce more products—that is, to boost their productivity.  Unemployment may begin to fall only after the economy has begun to recover. 

According to the RBA, variations in the number of unemployed persons can be caused by cyclical variables, such as the number of people who become unemployed due to an economic downturn, or by more structural issues in the economy. Changes in the labour force size also impact the unemployment rate.

Coming to the staggering 42% unemployment rate, the national and state (regional) unemployment rates are calculated using labour-force surveys conducted by each country's national statistical institute. The unemployment rate is used to assess an economy's health. 

The case of unemployment in India

According to Rahul Menon in his September 2023 piece for the Hindu, despite various globally agreed understandings of unemployment and the labour force, the issue is complicated in a developing country since social conventions influence decisions to seek work. For instance, women, especially in rural areas, may be restricted from working in faraway places and stepping out of their homes. Due to the seasonal nature of work, which is mostly informal or contractural, workers may not have to work all year round or even consistently. 

According to the previously mentioned State of Working India report 2023, “Post-Covid, the unemployment rate is lower than it was pre-Covid, for all education levels. But it remains above 15% for graduates, and more worryingly, it touches a huge 42% for graduates under 25 years,” 

These are the points that the Report points to which are crucial to highlight for understanding unemployment in India: 

  • Growth drew people away from agriculture, and the fraction of regular salaried workers increased; nevertheless, the growth in non-agricultural employment was not matched by an increase in regular wage employment or employment in the organised sector.

  • Women quit the labour force. While a high proportion of women left the labour force, the proportion of those who remained in labour grew. 

  • Intergenerational mobility has grown, but for underprivileged castes, it has been less so. According to an examination of father-son pairs in the NSSO employment surveys, upward mobility in terms of the type of work undertaken has increased over the last 15 years.

  • India's biggest concern remains job generation. Despite the above-mentioned advances, economic growth is inextricably linked to employment creation. Since the 1980s, nonfarm output has continually grown far faster than nonfarm employment, resulting in a consistent reduction in employment elasticity (output growth divided by employment growth). India's employment elasticity is significantly lower than the norm for emerging countries.

  • According to the report, there is a wide range in unemployment rates, even among the more educated. The unemployment rate declines from more than 40% for educated young people under the age of 25 to less than 5% for graduates 35 and older. This suggests that graduates eventually find work, but the critical concerns for academics are what kind of employment they find and if they match their abilities and objectives. 

  • Industrial segregation has decreased over time, but occupational and industrial segregation remains essential in explaining caste, religion, and gender differences. Between 1983 and 2021, caste-based industrial segregation declined while gender-based segregation increased. Marginalised identities are nonetheless overrepresented in low-wage occupations. Firm ownership patterns clearly show caste-based marginalisation.

  • More formal salaried positions have been created in recent years than previously. On the other hand, women were forced into self-employment due to the economic slump and pandemic.

What’s the way forward for unemployment amongst young people and overall economic growth then?

Unemployment is shaping up to be a vital issue in the approaching election. To successfully address it, it is necessary first to understand how it is defined and quantified in a developing economy. The need to resolve the poor link between economic growth and job creation was emphasised in the report. However, it is also important to address societal norms, gender and caste imbalances, mainly when collecting and representing data. 

According to V Venkateswara Rao's analysis for the Deccan Herald, Unemployment is the country's most serious problem, both in terms of magnitude and severity. If sufficient employment possibilities are to be developed, the organised and unorganised industries must adopt labour-intensive technologies, and women's labour-force participation must improve. He advocates for a national employment policy (NEP) and a decentralised development paradigm.

Bloomberg reported in September that according to figures from the independent research organisation Centre for Monitoring Indian Economy, the overall unemployment rate fell to 7.09% last month, down from 8.10% in August. This is the lowest level since September of last year. Rural unemployment fell to 6.20% in September, down from 7.11% in August, while urban unemployment fell to 8.94%, down from 10.09% in the same period. Urban joblessness has also decreased ahead of India's important festival season. Employers typically ramp up hiring — particularly in the gig and contract work segments — before Diwali. Creating adequate jobs for India's 1.4 billion people remains a top priority for the government as the country prepares for national elections.