Summary

Economics Class 26

A BRIEF OVERVIEW OF THE PREVIOUS CLASS (05:04 PM)

CHANGES IN GDP CALCULATION (05:06 PM)

The new series mainly focused on upgrading our methodology in line with UN standards
a) Change in a Base year from 2004-05 to 2011-12- The base year is a reference year with respect to which GDP is calculated. Base years are generally stable years with fewer fluctuations and the availability of reliable data. Base years are generally recent years to facilitate easy calculations
b) Change in data used to measure the manufacturing sector growth- The performance of the manufacturing sector was previously evaluated by using data from an annual survey of industries which comprises over 2 lakh factories. Post-2015, the data of the Ministry of corporate affairs MCA 21 includes 5 lakh companies
c) GDP at FC was replaced with GDP at MP- Post 2015, international practice of GDP at MP and also a sector-wise estimate of GVA at BP is also calculated. Basic prices include net production taxes.
d) Calculation of labour income- Before 2015, all labour used to be equal in the new series after 2015, the concept of effective labour input is used i.e. different weights are assigned based on whether one is an owner, or a hired professional, etc.
e) Change in the way value addition in agriculture was calculated- Before 2015, value addition was confined to farm production. After 2015, value addition in agriculture is extended beyond farm produce. For example- Livestock data is now considered in the new method.
Introduction of GVA at basic prices
f) The new method captured income generated by financial sectors like stock exchanges, stock brokers, Mutual funds, and Pension funds as well as regulatory bodies like SEBI, IRDA, etc

POTENTIAL GDP (05:45 PM)

It is the real value of goods and services that can be produced when countries' factors of production are fully employed.
It is the maximum sustainable level of output that an economy can produce. It is often used as a benchmark to measure the actual level of output in an economy and to measure the extent to which an economy is operating above or below its potential.
It is determined by several key factors
a) Labor force- The size and quality of the labour force are one of the most important determinants of potential GDP. A well-educated and skilled labour force can increase the economy's potential for growth
b) Availability of natural resources such as Land and minerals can impact the economy's potential for growth.
c) Political setup and governance
d) Infrastructure
e) Effective utilization of capital- A country with lower capital-output ratios can expect higher potential GDP
f) Technological efficiency- Technological advancement can increase the potential for growth and productivity by improving the efficiencies of the production process
g) Economic structure- The composition of economic industries and the distribution of economic activity can impact the economy's potential for growth. Example- A country with a strong manufacturing sector can have a higher potential for growth than an Economy relying on agriculture
h) Demographic factors- Population growth, and Aging population can also impact potential GDP.

UNEMPLOYMENT (06:01 PM)

Framework
Labour force participation rate and Workforce participation rate
Concept of employment elasticity
Types of unemployment
Methods of calculation of unemployment- Usual status, Current weekly status, Current daily survey
Employment Unemployment Survey v/s Periodic Labour Force Survey.
Reasons of Unemployment
PLFS survey- challenges
Measures taken- 1994- 2004-05
Formal v/s informal, casual v/s regular labor
Impact of Globalization on Informalization of Labor.
Reasons for increasing casualization of labour.
Post-reform measures taken by Government
Current measures

UNEMPLOYMENT (06:10 PM)

It is not only an economic problem but also a social problem as it can lead to the breakdown of social institutions like marriage and family and also cause social unrest.
Unemployment according to economists measures "involuntary idleness", i.e. the time which the individuals are available for and willing to, but are not able to find work. Employment is important for generating growth and removing poverty and eventually ensuring prosperity.
Challenges of unemployment
Increase in the labour force- Population pressure- This is not absorbed by the secondary or the tertiary sector
Lack of skills or lack of Vocational training- Lack of job-oriented training
The problem of Jobless Growth- Though there is economic growth, economic growth is not sufficient for job creation. In India, employment elasticity started decreasing.
[* Employment elasticity= Change in employment/ Change in GDP. From 1973-1983, the employment elasticity was 0.52 but from 2011-12 the employment elasticity became almost zero. It is a clear indicator of Jobless growth. The employment elasticity of agriculture in 2011-12 was -0.42. It means existing jobs are also lost because of mechanization]
Issue of disguised unemployment- It is found in the agriculture sector. It resulted in Rural-Urban Migration which resulted in more unemployment in rural areas.
Education system- Not so useful for jobs. The university-industry interface is lacking.
Lack of entrepreneurship culture- Job creation is less
"Muted Manufacturing"- In the last 15-20 years, the contribution of manufacturing to GDP is less and stagnant. Shifting labour from agriculture to manufacturing is not possible.
Knowledge centres require skills and these do not employ more labour
Stringent labour laws- Leading to the contextualization of the workforce
Failure of MSME, Dwarf MSME- these are labour intensive. India focused on capital-intensive growth rather than labour-intensive growth.
[* Capital-intensive technology is good for the ageing population such as Canada]
Rainfed agriculture created seasonal unemployment.

BASIC CONCEPTS OF UNEMPLOYMENT (06:36 PM)

Labour Force- People between the ages of 15-64, who are either employed or actively looking for employment. The workforce is part of the labour force. The fraction of the labour force that is seeking work but cannot find it determines the Unemployment rate.
Unemployment rate= (Labor Force- Work force) / Labor force * 100
No. of persons unemployed= Labor force- Workforce
Employment elasticity
It is an indicator widely used for analyzing the operation of the labour market.
It measures the percentage change in unemployment induced by changes in GDP.
Hence the elasticity of employment seeks to capture the responsiveness of the labour market to changes in macro-economic conditions.
It can also be defined as the change in employment for every 1% change in GDP.

TYPES OF UNEMPLOYMENT (07:02 PM)

Cyclical Unemployment or demand-deficient unemployment
Cyclical unemployment is due to a fall in demand or a business cycle downturn.
Seasonal Unemployment
Rainfed Indian agriculture can not create employment for 12 months i.e. they work during a particular season.
Frictional Unemployment
This unemployment involves people being temporarily between jobs and searching for new employment. Therefore it is also called "search employment".
It is generally voluntary in nature or workers being fired by the employer.
Structural Unemployment
This unemployment is caused by the mismatch between workers' skills and the skills required for the job. Employer seeks workers with appropriate skill sets.
It essentially occurs because labour resources are confined to a given technology.
Underemployment
It is defined as underutilization of skills, i.e. employment of workers of high skill in low-wage work that does not require such ability.
Open Unemployment
According to NSSO, if a person does not find work for a long-term period, generally 183 days is termed as "chronic unemployment" or "open unemployment".
Natural Unemployment
It exists when the economy is at full employment, i.e. those who want work get work at the prevailing market wages.
Frictional and Structural unemployment is considered natural by-products of a healthy expanding economy. While they can be reduced through proper training and education, total elimination is probably undesirable and likely impossible.

MEASUREMENT OF UNEMPLOYMENT (07:27 PM)

Usual status approach
With a reference period of 365 days preceding the date of the survey, a person is considered employed if he is engaged in economic activity for a long-term period. This methodology indicates chronic or long-term unemployment in the country.
Usual subsidiary status (USS)- It is an extension of the Usual principal status and it considers 30 days as the criteria to give subsidiary status.
Current weekly Status approach (CWS)
It determines the activity status of the person with reference to a period of the preceding seven days. A person who has worked for an hour or more on any one or more days during the reference period gets the employed status.
Current daily status approach
It Considers the activity status of a person for each day prior to the date of the survey ( Seven days reference period).
A person who works for one hour but less than four hours is considered to have worked for half a day. And if he works for four hours or more during the day he is considered employed for the whole day.
The daily status flow rate is evidently more inclusive covering open as well as partial unemployment.

QUESTIONS (07:44 PM)

Question 1- The nature of growth in India in the recent past is often described as jobless growth. Do you agree with this view? Give arguments in favor of your answer. (10 marks/ 150 words)
Question 2- Comment on the challenges for inclusive growth which includes careless and useless manpower in the Indian context. Suggest measures to be taken for facing these challenges. (10 marks/ 150 words)
Question 3- Define informal employment. What types of vulnerabilities are faced by workers in the informal sector in India? Point out the required policy measures to reduce the social and economic hardships of Indian informal sector workers. (15 marks/ 250 words)

EWS SURVEY V/S PLFS SURVEY (07:48 PM)

Workers

Self Employed

Hired workers

Casual workers

Not in the payroll of the company
They work for daily wages
No pension
Working hours+ overtime payments

Regular workers

The payroll of the company
All the socials security

Formal v/s Informal employment

Formal employment

Government offices, departments
Private sector- More than 10 employees

Informal employment

Unorganized sector
Private sector- less than 10 employees

Did globalization lead to in formalization- How?
Globalization led to Migration from Rural to Urban areas. These people lacked the requisite skill thus they had to enter into the informal sector or maybe a casual workforce.
Globalization led to structural change in the economy. [* Now, 42.4% of employment is coming from the agriculture sector].
Agricultural contribution to GDP is around 18% which has reduced since the independence.
The services sector is not able to create jobs as expected, also it requires skills which is lacking.
Globalization has increased subcontracting and outsourcing
After 1991, the Manufacturing sector was muted i.e. Muted Manufacturing.
There was excess competition in the MNCs and smaller MSMEs could not compete because of policies taken during 1991 such as the Deregulation of industries, and the Dereservation of goods that were earlier reserved for small-scale industries.
Question- How globalization has led to a reduction of employment in the formal sector of the Indian economy? Is an increased in-formalization detrimental to the development of the country? (10 marks/ 150 words)

The topic for the next class:- Employments trends in India, Casualization, and Informalization of the workforce, PLFS survey, etc.