Explanation for above question The Unemployment Rate (or UER) | Tirumal Classes IAS Academy

Explanation for above question

The Unemployment Rate (or UER) is the percentage of people in the labour force who demanded work but did not get it.

Under normal circumstances, the UER is a perfectly fine metric to track unemployment but in India’s case, and especially over the past decade, UER is becoming ineffective in accurately assessing the true level of unemployment distress. That’s because the labour force itself has been shrinking rapidly.

The labour force includes those who are employed and those who are looking for work but unable to get it (i.e. unemployed).

So, what has been happening over the past decade is that the Labour Force Participation Rate in India has been falling. As such, often when it appears that UER has fallen, it is not because more jobs have been created but because fewer people have demanded jobs (in other words, the LFPR has fallen).

Since millions do not formally “demand” work, there is an undercounting of unemployed people in India. This is why UER fails to adequately capture the unemployment distress in India.