A REPORT ON UNEMPLOYMENT

(MACROECONOMICS)

SECTI
ON -H

1
CONTENTS

1. ACKNOWLEDGEMENT…………………………………………………3
2. UNEMPLOYMENT……………………………………………………….4
3. TYPES OF UNEMPLOYMENT………………………………………….5
4. CAUSES OF UNEMPLOYMENT…………………………………...…...6
5. EFFECTS OF UNEMPLOYMENT………………………………………7
6. UNEMPLOYMENT TYPES EXISTING IN INDIA…………………….9
7. LABOR LAWS IN INDIA…………………………………………………11
8. GOVERNMENT ROLE IN FIXING WAGE RATES AND LABOR
HRS………………………………………………………………………….13
9. GOVERNMENT ROLE IN REDUCING
UNEMPLOYMENT……………………………………………………….16
10. IMPORT AND EXPORT OF LABOR SERVICES BY
INDIA……………………………………………………………………….19
11. COMPARISON OF INDIA,USA AND CHINA IN
UNEMPLOYMENT……………………………………………………….20

2
 ACKNOWLEDGEMENT

Behind every achievement lies an unfathomable sea of gratitude to those who had extended their
support and without whom it would never had come into existence. To them we say our words of
gratitude.

We would like to thank Dr. IRS. Sarma who was the source of constant guiding light throughout
the project. He directed us from the scratch how to make the report. Most importantly, we thank
him for giving us this project as it was a good learning experience.

We somehow feel that had if we not had the guidance from certain people along the way, we
would have gotten lost in an abyss of confusion. So, it was with a heart filled with gratitude that
we acknowledge their assistance.

3
 ➢ UNEMPLOYMENT

Unemployment is defined as when people from total labor force are jobless and they
must have been looking for job for past four weeks or they are waiting to be recalled to a job
after having been laid off. The labor force of a country consists of persons belonging to age
group of 15-65 years who are employed and unemployed but looking for a job. It does not
include full time students, full time housewives and retired persons. Thus we can define
unemployment and labor force as:

Unemployment = Labor force – number of employed.

Labor force = Number of employed + Number of unemployed

A person can become unemployed for the following four reasons:

1. The person may be a new entrant in the labor force or reentrant who is returning to labor
force after not having looked for job for more than four weeks.
2. The person who has quit the job in order to join some other job and is currently searching
for other one.
3. The worker may lose a job either by being fired or the firm closes down.
4. The person may be laid off.

Some other terms related to unemployment are unemployment rate and unemployment
frequency. They are defined as follows:

The unemployment rate is the measure of unemployment in a particular country and is calculated
percentage by dividing the number of unemployed individuals by all individuals currently in the
labor force. Thus it can be calculated by the following formula:

4
Unemployment rate = (Labor force – employment / Labor force) * 100

The frequency of unemployment is defined as the average number of times per period the worker
becomes unemployed.

Unemployment is also considered as one of the lagging factor indicating the state of economy as
it lags behind the business cycle and is the consequence of economy.

➢ TYPES OF UNEMPLOYMENT

There are four major types of unemployment. They are:

1. Frictional unemployment: This is caused by constant changes in the labor market. It

occurs because of two reasons a) when employers are not fully aware of all the available
workers and their job qualification b) when workers are not fully aware of the jobs being
offered. Thus this is caused by imperfect information.

2. Structural unemployment: This is due to structural changes in the economy. This

unemployment occurs when pattern of job vacancies does not match the pattern of
workers availability and suitability. When jobs are available workers might not have
required skills. Thus this due to mismatches between opportunities and suitability.

3. Cyclical unemployment: This arises when there is a downturn in an economy. It is a

factor of overall unemployment that relates to the cyclical trends in growth and
production that occur within the business cycle. When business cycles are at their peak,
cyclical unemployment will be low because total economic output is being maximized.
When during recessions job availability is greatly reduced and only a few workers get
employed. Because of bad financial conditions companies layoff workers and cut back
employment. Unexpected reductions in demand of goods and services are the major
reason of cyclical unemployment.

4. Natural rate of unemployment: It is defined as the rate of unemployment that is

consistent with equilibrium in structure of wage rate. This is the certain rate of

5
 unemployment which is always there even when the market is cleared and the economy
is at full employment.At this rate the forces of demand pull and cost push inflation are in
balance and the rate of inflation is stable.

➢ CAUSES OF UNEMPLOYMENT

Unemployment can be caused by many factors in modern market economy like business cycle or
recessions, individual perceptions and willingness to work and search for jobs, their values and
attitudes towards some jobs and about employers, rapid technological change market. Some of
the major factors affecting unemployment are:

1. Economic Inflation: When a country suffers from inflation it faces a steep rise in prices
in comparison to other countries.This affects its exports as it becomes unable to compete
with others. Incomes suffer, people's savings fall and gradually the companies start firing
people, unable to pay them on due time. Thus, the rate of unemployment increases.

2. Economic Recession: This is one of the major reasons of unemployment and directly
affects it. The recent example was the recession of 2008 when millions of people were
unemployed all over the world.

3. Welfare Payments: Welfare payments although are secure for people, cause
unemployment to a considerable extent. The aids given by governments to the
unemployed people are actually reducing their willingness to work.People become
dependent on that which causes increase in unemployment.

4. Job dissatisfaction: When person who is not content with his job can never continue it in
the long run, because he is either making a compromise with his pay scale or the nature
of his job. Thus, job dissatisfaction becomes one of the specific reasons for
unemployment.

6
 5. Changing Technology: A Technology development in today’s time is very fast. The
demands of companies change according to the technological developments and they
look for people who are specialized in the particular invention. Thus the people who are
not familiar to the developments and are not upgraded with the technologies suffer.

➢ EFFECTS OF UNEMPLOYMENT

The two main effects of unemployment are lost production and undesirable effects on the
distribution of income.

Lost production: When people don’t work they don’t produce .The cost of this lost output is
very high. Recession can easily cost 3-5 percent of GDP which can cause loss of around
hundreds of billions of dollars. The relation between unemployment and GDP is very well
explained by Okun’s law. It states that 1 extra point increase in unemployment leads to 2%
decrease in GDP.

Okun’s Law: Relation between unemployment and GDP growth

7
Government expenditures: Because of unemployment sometimes people are not able to finance
even their basic essentials. It also affects government expenditures as government has to pay
unemployment benefits without any productivity.

Inflation: Unemployment also affects the rate of inflation which has an inverse relation with the
rate of unemployment. The lower the unemployment in an economy, the higher the rate of
inflation. While it has been observed that there is a stable short run tradeoff between
unemployment and inflation, this has not been observed in the long run. This can be shown in the
graph of Philips curve.

British economist A.W. Phillips derived the empirical relationship between unemployment and
the rate of increase in the wages. It shows that when unemployment is high, the rate of increase
in the money wage rate is low. On the contrary, when unemployment is low, the rate of increase
in the money wage rate is high. If the productivity of workers or labor does not increase with the
wage rate, then there will also be inflation.

This shows that rate of wage inflation decreases with the unemployment rate. Letting Wt be the
wage this period,Wt+1 the wage next period,the rate of wage inflation Gw is defined as :

Gw = (Wt+1 – Wt) / Wt

8
 Some other effects which exist in India are:
Increased rich poor divide: India is one of the few countries where rich is getting
richer and poor is getting poorer. This scenario is not good for society as it causes a
social mismatch of society.
Anti-social elements: There has been a sudden increase in the anti-social elements of the
country which is because of the unemployment. The unemployed people ultimately resort
to illegal methods to gain money by stealing or robbing and thus causing harm to people.

➢ TYPES OF UNEMPLOYMENT IN INDIA

Unemployment in India is generally structural and disguised. In India the production level is
much below the sufficient levels and it is also increasing at a very slow rate. However the
number of people unemployed is increasing at a faster rate because of the fast increase in the
population. During the past three decades population has been growing at an alarming level
and thus unemployment has also increased correspondingly.

Structural unemployment: This exists in India as major part of India is still in agricultural
sector. And people in rural areas are majorly into that and therefore do not focus too much on
acquiring some extra skills which can fetch them jobs in some other sector. Because of this
the jobs which require some specific skills are sometimes not found by recruiters and even
though the jobs are available, people having the required skills are not available. We can also
consider one of the reasons for this as illiteracy. Because of illiteracy many people who are
not educated cannot take advantage of the opportunities available which causes
unemployment in spite of the availability of jobs.

Cyclical Unemployment: We have faced cyclical unemployment because of recession

especially in urban areas. Recession of 2008 had hit hard the employment of India. Lakhs of
people had lost their jobs. This can be eradicated by increasing the aggregate demand and
output of the economy. However in case of developing economies like India unemployment
9
is usually structural and can be eliminated by introducing certain radical measures in the
economy.

Disguised unemployment: Also as in India Agricultural sector is bigger than others we can
also find disguised unemployment in India. This happens when a country intends to transfer
surplus labor from the agricultural sector to some other sectors which would increase the
country’s national production and also the country’s capacity to save. But in actual it is not
always possible to employee the people from this sector because this would require
additional funds .The services of these persons can be used to create real capital. They can be
transferred to other projects like irrigation, drainage, roads, railways and so on. But the
ultimate problem is of the capital required. Less developed countries like India are unable to
raise adequate resources for capital projects from taxes and domestic savings. In urban areas
also most of the unemployment is open and disguised.

What is Full employment

Full employment does not mean zero unemployment. It is defined as the level of employment
that exists when unemployment is normal. It is believed that full employment exists when
94-95% of labor force is employed. It gives the idea that at a given time there is some natural
rate of unemployment. Natural rate of unemployment is the long run average of employment
caused due to frictional and structural changes in labor market. This rate is influenced by the
structure of workforce and by changes in public policy. This can be explained as young
workers change their job most often so they experience more unemployment. Thus we can
say when youth comprises a larger proportion of the workforce the natural rate of
unemployment increases. About policies we can say that the policies that encourage workers
to reject job offers and prohibit employers from offering appropriate wage rates also increase
natural rate of unemployment.

Thus there is a difference between the actual unemployment and natural rate of
unemployment. The actual unemployment fluctuates around the natural rate.The actual rate
generally rises above the natural rate during recession and falls below the natural rate in case
of an economic boom.

10
 ➢ LABOR LAWS IN INDIA.

The Indian labor laws are very complex and consists over fifty national laws and many more
state level laws.Indian government has tried to ensure a high degree of protection for workers.
However because of its complex nature it was criticized by the world bank which claimed that it
lacked modernization and flexibility. Infact it was claimed by the prime minister himself that
new labor laws are needed in India.

Structure of the Indian Labor Market

The Indian labor market can be broadly divided into three categories: (i) organized sector; (ii)
urban informal (i.e. unorganized) sector; and (iii) rural labor (i.e. labor engaged mostly in
agriculture). Wages in the urban informal (i.e. unorganized) sector are marginally higher than
those in rural areas but much lower than those in the organized sector, varying significantly
across skills, occupations, experience and location. Under the Constitution of India, Labor is a
subject where both the Central and State Governments are competent to enact legislations. As a
result, a large number of labor laws have been enacted catering to different aspects of labor
namely, occupational health, safety, employment, training of apprentices, fixation, review and
revision of minimum wages, mode of payment of wages, payment of compensation to workmen
who suffer injuries as a result of accidents or causing death or disablement, bonded labor,
contract labor, women labor and child labor, resolution and adjudication of industrial disputes,

11
provision of social security such as provident fund, employees’ state insurance, gratuity,
provision for payment of bonus, regulating the working conditions of certain specific categories
of workmen such as plantation labor, beedi workers etc. This is how we have a large number of
labor legislations. Some of the main acts are as follows:

1. The Contract Labor Act (1970) Minimum Wages Act 1948

2. Weekly Holidays Act 1942

3. The Payment of Wages Act, 1936

4. The Workmen’s Compensation Act, 1923

5. The Factories Act, 1948

6. Minimum Wages Act 1948

One of the most important factor of Indian labor laws is that it differentiates between employees
who are called as workmen and who are not. Employees working mainly in managerial or
administrative capacity do not fall under the definition of employees who are workmen. Such
employees are ordinarily governed by the terms and conditions of their contracts of
employment.Employees who are workmen are ordinarily afforded a greater degree of legal
protection and benefits under the Indian labor and industrial laws. The applicability of labor
legislations is also dependant upon the nature of activity that the employees are employed in.
This in turn will determine whether the organisation is a factory,industry, shop or establishment.
The location of the organisation also plays a crucial role in ascertaining the compliances that an
employer is required to observe, since almost all the States in India have enacted State-centric
labor laws, rules and regulations. The labor laws in India not only deal with industrial relations,
but also relate to payment of wages, working conditions, social security, etc. Additionally, there
are several labor laws which regulate service conditions in specific industries, such as building
and construction work, pharmaceuticals, dockyards, and mines.It defines retrenchment ,layoff
and also provides exceptions to it. Retrenchment is defined as termination by the employer of the
services of a workman for any reason whatsoever except as a punishment by way of disciplinary
action. However, retrenchment does not include voluntary retirement of the workman,
termination as a result of non-renewal of the contract of employment on its expiry or the

12
contract being terminated pursuant to a stipulation in that behalf contained in the contract,
termination of the services of a workman on grounds of continued ill health. The laws provide
safety to labor in case of retrenchment by various rules like 1 months prior notice to the
workman, retrenchment compensation.

Thus we see that India has tried to be labor friendly in implementing the labor laws and
considered the benefits that can be provided to them for their best. However this is the reason for
its complexity.

➢ GOVERNMENT ROLE IN FIXING WAGE RATE AND LABOR

HOURS

Government has made the rules regarding the labor hours in the factories act and minimum
wages in the minimum wages act which is as follows.

The Factories Act mandates that the working hours for an adult worker, or an adolescent
certified to work as an adult, should not exceed 48 hours in a week and 9 hours in a day. Every
worker is allowed at least half an hour rest interval after a maximum working of 5 hours at a
stretch. The total hours of work in a week are to be spread over not more than 10.5 hours in a day
for adults and not more than 4.5 hours for children. The Factories Act also regulates night shifts
and overtime work . No employee should be required to work for more than the prescribed
number of hours ordinarily 9 hours a day and 48 hours a week. In the event that an employee
works beyond 9 hours a day or 48 hours in any week, such excess work is regarded as overtime,
and wages for such work are calculated at twice the rate of the person normal remuneration
calculated by the hour. Women and young persons are not allowed to work in any establishment
between 9 P.M. and 7 A.M. during the summer season and between 8 P.M. and 8 A.M. during
the winter season.

13
For wage rates the government has made the following rules and regulations. It has enacted
minimum wage rates Act to provide the workers a basic pay that is required for their basic
essentials. Wage rates may be fixed on hourly, daily, monthly basis.Minimum rates of wages
may differ from employment to employment, from location to location and also amongst
different classes of workmen It has also provided for penalties that the employer will have to
bear in case the worker is paid below the minimum wage i.e of 6 months imprisonment and fine.
With effect from November 2009,the national floor level of minimum wage has been increased
to Rs.100 per day from Rs.80 which was in effect from 2007. Since the respective state
government has been empowered to independently fix minimum wages, disparities can exist
between wages in neighboring states. In order to reduce this problem the central government has
formed five regional committees for harmonization of minimum wages.

Minimum rate of wages

In the Central sphere, the minimum rates of wages were last revised on 1st October, 2010 under the

Minimum Wages Act, 1948. In State sphere, the minimum rates of wages are revised by the

appropriate Governments from time to time. Minimum wages fixed for scheduled employments

including agricultural sector are applicable to organized as well as unorganized sectors.

A statement showing the latest information available on the minimum rates of wages for unskilled

workers among all scheduled employments as well as for unskilled workers engaged in the scheduled

employment of agriculture in the Central and State sphere is as follows:

(Rs. Per day)
Sr. No Name of State / UnionUnskilled Workers among Unskilled Agricultural
Territory All ScheduledWorkers
Employments
1 2 3 4
A CENTRAL SPHERE* 146.00-163.00 146.00 – 163.00
B STATE SHERE
1 Andhra Pradesh 69.00 112.00
2 Arunachal Pradesh 134.62 134.62
3 Assam 66.50 100.00
4 Bihar 109.12 114.00
5 Chhattisgarh 100.00 100.00
6 Goa 150.00 157.00
7 Gujarat 100.00 100.00
8 Haryana 167.23 167.23

14
9 Himachal Pradesh 110.00 110.00
10 Jammu & Kashmir 110.00 110.00
11 Jharkhand 111.00 111.00
12 Karnataka 72.94 133.80
13 Kerala 100.00 150.00 (for light work)
200.00 (for hard work)
14 Madhya Pradesh 110.00 110.00
15 Maharashtra 90.65 100.00 – 120.00
16 Manipur 81.40 81.40
17 Meghalaya 100.00 100.00
18 Mizoram 132.00 132.00
19 Nagaland 80.00 80.00
20 Orissa 90.00 90.00
21 Punjab 127.25(with meal) 127.25 (with meal)
142.68 (without meal) 142.68 (without meal)
22 Rajasthan 81.00 100.00
23 Sikkim 100.00 -
24 Tamil Nadu 87.60 100.00
25 Tripura 81.54 100.00
26 Uttar Pradesh 100.00 100.00
27 Uttarakhand 91.98 113.68
28 West Bengal 96.00 96.00
29 Andaman& Nicobar
Islands
Andaman 156.00 156.00
Nicobar 167.00 167.00
30 Chandigarh 170.44 170.44
31 Dadra & Nagar Haveli 130.40 130.40
32 Daman & Diu 126.40 -
33 Delhi 203.00 203.00
34 Lakshadweep 147.40 -
35 Puducherry
Puducherry/Karaikal 100.00 100.00 (for 6 hours)
Mahe 120.00 (for light work
done
by women in 8 hours)
160.00 (for hard work
done
by men in 8 hours)
* Under different areas. # Under different Zones.

Real wage rate

15
However the wage rate fixed by government is the nominal wage rate.We have to consider the
real wage rate also which is considered to understand the actual change in purchasing power due
to inflation. The real wage rate is the wage rate adjusted for inflation. It can be defined as the
ratio of nominal wage rate to price level.

Real wage rate = Nominal wage rate / Price level.

Thus we can say that if the nominal wage increases at a rate similar to rate of inflation then real
wage does not change. But if nominal wage increases less than inflation then real wage reduces
and if nominal wage increases more than inflation then real wage increases. Thus it affects the
purchasing power of an individual and hence important to be considered.

➢ ROLE OF GOVERNMENT IN REDUCING UNEMPLOYMENT

It is the responsibility of government that whenever any problem like increasing unemployment
occurs in the country it has to take some actions to eradicate it. But we should also understand
that to reduce this problem by launching various programs and providing unemployment benefits
government has to spend so much which unnecessarily increases its expenditure. When it
provides unemployment benefits its has to spend without any output and it can sometimes even
make unemployed people careless because they are getting their basic necessities without doing
anything.

In India the government has come up with some employment generation programmes. A special
group for creating 10 million employment opportunities per year over the 10th plan period was
constituted by the Planning Commission. The group recommended that besides the employment
generated presently, certain labor intensive sectors like agriculture, small industries and tourism
need to be promoted. This way, an additional 20 million jobs can be created.

Some of those programmes are:

• Swarnjayanthi Gram Swarozgar Yojana: It was launched in April 1999 by merging

programs like IRDP, TRYSEM, DWCRA etc into a single self employment scheme.
• Food for Work Programme: It was launched in February 2001 to give food through
wage employment in the drought affected areas in eight states. Wages are paid by the

16
 state governments’ partly in cash and partly in food grains. These are provided free of
cost by the centre to the drought affected states.
• Sampoorna Grameen Rozgar Yojana: It was launched in September 2001 to provide
wage employment and food security in rural areas and also to create durable economic
and social assets.
• Prime Minister’s Employment Generation Programme (PMEGP):
Prime Minister’s Employment Generation Programme (PMEGP) is a credit linked
subsidy programme of Government of India. It has been introduced by merging the two
schemes, namely, Prime Minister’s Rojgar Yojana (PMRY) and Rural Employment
Generation Programme (REGP). The scheme was launched on 15th August, 2008.

Proposed Estimated Targets under PMEGP

The following estimated targets have been proposed under PMEGP during the four years,
i.e., from 2008-09 to 2011-12.
Year
Employment ( in Nos) Margin Money (subsidy) (Rs.crore)

2008-09 616667 740.00

2009-10 740000 888.00

2010-11 962000 1154.40

2011-12 1418833 1702.60

Total 3737500 4485.00

Objectives of these programs were as follows:

1. To generate employment opportunities in rural as well as urban areas of the country

through setting up of new self employment ventures/projects/micro enterprises.

2. To bring together widely dispersed traditional artisans/ rural and urban unemployed
youth and give them self-employment opportunities to the extent possible, at their place.

17
3. To provide continuous and sustainable employment to a large segment of traditional and
prospective artisans and rural and urban unemployed youth in the country, so as to help
arrest migration of rural youth to urban areas.

4. To increase the wage earning capacity of artisans and contribute to increase in the growth
rate of rural and urban employment.

• Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA):

The National Rural Employment Guarantee Act (NREGA, also known as National
Rural Employment Guarantee Scheme, NREGS) is Indian legislation enacted on
August 25, 2005. The NREGA provides a legal guarantee for one hundred days of
employment in every financial year to adult members of any rural household willing to
do public work-related unskilled manual work at the statutory minimum wage. The
Ministry of Rural Development (MRD), Govt of India is monitoring the entire
implementation of this scheme in association with state governments.This act was
introduced with an aim of improving the purchasing power of the rural people, primarily
semi or un-skilled work to people living below poverty line in rural India. It attempts to
bridge the gap between the rich and poor in the country. Roughly one-third of the
stipulated work force must be women.

• Employee exchange program: For a long time, the Employment Exchanges have been
fulfilling the objectives by carrying out various activities assigned to them, such as
registration of job seekers, submission of candidates against notified vacancies, collection
of labor market information and providing vocational guidance & career counseling to
the job seekers. However, with the passage of time, due to the shrinkage of job
opportunities in organized sector, setting up of major recruitment agencies such as Staff
Selection Commission, Institute of Banking Personnel Selection (IBPS), State Public
Service Commissions, State Subordinate Service Selection Boards, etc., many vacancies
are not notified to the Employment Exchanges. Supreme Court judgement of 1996 gave
freedom to employers to advertise their vacancies to seek nominations from open market
besides notification of vacancies to Employment Exchanges. A number of private

18
 recruitment agencies and web portals have also come up for recruitment, particularly, in
the private sector.Up-gradation and Modernization of the Employment Exchanges
(EEMMP) has been taken up as one of the Mission Mode Projects (MMP) under
National-e Governance Plan (NeGP) of Government of India. The project is under
finalisation. Under the project, a national web portal is proposed to be developed which
will work like a virtual job market. This will contain all the data regarding availability of
skilled persons on the one hand and requirement of skilled persons by the industry on the
other. It will help youth in getting suitable placement and enable industry to procure
required skills on real time basis.

➢ IMPORT AND EXPORT OF LABOR SERVICES BY INDIA

Indian economy is today facing new challenges on the international fronts which have
implications for employment growth. Some of these challenges are: Absorbing capital inflow for
investment purpose; Providing enough security to migrant workers going abroad; Enhancing
skill levels of migrant workers going abroad for better employability ; Protecting small and
medium enterprises (SMEs) which face unequal competition; and Providing incentives to labor
intensive export sectors – textiles (mainly handloom and other traditional textile sectors), gems
and jewellery, handicrafts etc which are facing decline in profitability. However in spite of these
facts India exports and imports labor.

The concept of export of labor exists in India because of the employment rate of the country. As
there are many number of people who need employment and have skills to perform a particular
job, India utilizes this to export the this labor to other countries. This provides benefits to both
the importing as well as exporting countries as exporting country helps people to find jobs in
other countries thus reducing its unemployment rate. On the other hand the importing country
gets labor meeting its requirements. Indian labor is also exported for a reason because the labor

19
here is considered to be cheap than in other countries. Thus the companies in other nations take
advantage of that to reduce its costs.

India holds a leadership role in the world when it comes to exporting human labor, in the
services sector of the economy. If any country needs manpower or to outsource the processing of
various aspects of business, or needs certain services performed, India exports its human labor
and services to other countries, in the form of outsourced labor. If searched many consultant
companies can be found which exports labor to other countries.

However India sometimes have to import this manpower. One of the reason is that the labor in
India is still costly than some of the other countries like China. China is considered to have very
cheap labor and this is a reason that Chinese construction companies choose to import Chinese
labor to India, for projects they are working on in India, and why, till very recently, there were
40,000+ Chinese workers in India doing construction.

➢ COMPARISON OF INDIAN UNEMPLOYMENT WITH CHINA AND USA

Unemployment Rate

From the graphs we can see the unemployment trends have been quite different in these
three nations. And thus we can say that these countries were facing unemployment due to
different reasons which might have been some internal factors of the country itself at times. We
can see that from the year 1990-2000 the unemployment had increased continuously in China
whereas it had decreased in USA. But in India was fluctuating as it first decreased till 1996 and

20
then started rising 2004.However we can see that all the three countries had faced almost same
trend from 2000-2004.Also when recession hit in 2008 the unemployement rate of all rose.

Labor Costs

There is always an issue while discussing if the labor is cheap in China or India. The cost
structures in China are within an extremely competitive range relative to many of the leading
global delivery locations including India. Unfortunately, there is no clear yes or no answer as to
whether China is cheaper than India. A detailed look at costs reveals that there a several factors
that have a large variability across city locations in China. These factors include the variability of
wage rates and attrition across various cities in China, large standard deviations in the investment
ranges required for human resources readiness (technical, language and soft skills training) ,
additional investment needed for low English speaking capability and/or cultural affinity.

The most common mistakes enterprise buyers with regard to cost comparisons are as follows:

1. Comparison of pure wage rate charts. For example, if you look at some wage rate charts in
China, you may see a quoted number such as 9K per year for specific for a programmer.
However, the total cost to the employer is far more because China has a federal tax that is
required which are currently 50%. Therefore, the cost to the employer is actually 13.5 K (9K
plus 4.5K). Beyond that, if the programmer requires a certain level of English proficiency, a
premium of 10 to 15% must be factored into the wage rate .

2. Assuming competency and skill sets in China and India are equivalent. A project manager or
business analysts or even a programmer as designated on an human resource inventory in each of
the respective region are not at all equivalent. Project management expertise is quite different.

3. Assuming that there is one singular China cost structure. China is a vast country with over 20
designated hub cities. Cost structures across these various cities may vary by as much as 30%.

And when it comes to comparison with the labor of USA ,it is a well known fact that the labor
out there is costlier than India and China for the same skills and duties to be performed and
hence they have started outsourcing and shifting manufacturing facilities to either of the cheap
labor countries.

21
Unemployment benefits provided

India: Employees who remain employed but have their hours of work substantially reduced may
be eligible for unemployment compensation. This determination varies from state to state.
Fortunately many states realize that workers may face significant financial challenges while still
employed when their pay is decreased or their work schedules are reduced. These state
unemployment agencies will offer what are referred to as partial unemployment benefits. Some
states go even further and offer partial unemployment benefits through programs that are referred
to as “Shared Work Programs” or “Work Share Programs.” However India stll lags behind in the
unemployment benefits provided as already mentioned above the unemployment benefits were
approved with much of difficulty for the first time in UP under NREGA act.

USA

In general, the Federal-State Unemployment Insurance Program provides unemployment

benefits to eligible workers who are unemployed through no fault of their own and meet other
eligibility requirements of State law. Each State administers a separate unemployment insurance
program within guidelines established by Federal law. Eligibility for unemployment insurance,
benefit amounts and the length of time benefits are available are determined by the State law
under which unemployment insurance claims are established. In general, benefits are based on a
percentage of an individual's earnings over a recent 52-week period - up to a State maximum
amount. Benefits can be paid for a maximum of 26 weeks in most States. Additional weeks of
benefits may be available during times of high unemployment.
China

The unemployment insurance in China has undergone a significant transformation over the past two
decades. When China had first introduced this system in 1986, it differed considerably from those in
most other countries. At that time, the Chinese system provided income and other support to
redundant workers through their former employers, the state-owned enterprises (SOEs). Welfare of
workers was considered to be the responsibility of SOEs, and therefore workers were not required to
pay contributions. As subsequent economic reforms ended the requirement that SOEs take care of
their former workers, the system was modified accordingly. By 1999, the features of the Chinese

22
system had become much more similar to those found in other countries. The current system aims to
provide a basic level of income protection to the unemployed as well as help them gain new
employment through related active labor market programs.Under increasing pressure to provide
support to a larger number of workers, the UI system now faces a number of important policy
dilemmas and challenges. The level of benefits remains quite low and provides a much lower income
replacement rate than other countries.Unemployment benefit is payable in China provided that the
following conditions are met:

• One full year of insurance premium has been paid, for example via social security
deductions from wages / salary

• The unemployment is not voluntary

• Unemployment has been registered and application for reemployment filed

REFERENCES

1. Macroeconomics by D N Dwivedi
2. Macroeconomics by Dornbusch, Fischer and Startz
3. www.worldbank.org
4. www.labor.nic.in
5. www.cbwe.nic.in

23