CDS Economics · National Income, Growth and Development Indicators

Employment and Unemployment

The kinds of unemployment, the three labour rates of the Periodic Labour Force Survey and how they link, and what the demographic dividend means.

All National Income, Growth and Development Indicators notes

Why this matters

Eight CDS questions. Structural unemployment came up twice (2021 (I) and 2023 (I)) and so did the demographic dividend (2017 (II) and 2019 (II)). CDS 2026 (II) asked for an unemployment rate from two other rates, a sum you can do in your head.

Concept 1 of 3: Kinds of unemployment

People can be out of work for very different reasons. Some are between jobs, some have skills nobody wants any more, some lost work because the whole economy slowed, and some look employed but add nothing. Each reason has its own name.

Definition

The kinds:

Frictional: short spells while people move between jobs or search.
Structural: a lasting mismatch between the skills or places of workers and the jobs on offer. It follows changes in technology or a permanent fall in demand for a product.
Cyclical: caused by a slump in the business cycle; it goes when demand recovers.
Disguised: more people working than the work needs, so the extra workers add nothing to output (their marginal product is zero). Common on Indian family farms.
Seasonal: no work in the off-season, as in farming between harvests.

Kind	Cause	Example
Frictional	Changing or searching for a job	A graduate waiting for the first offer
Structural	Skills or places do not match the vacancies; new technology	Typists after computers spreadQ CDS 2021 (I): a mismatch between vacancies and available workers is structural unemployment.
Cyclical	A fall in total demand	Factory layoffs in a recession
Disguised	Too many hands on one job	Seven family members on a farm that needs four
Seasonal	Work only in one season	Farm labour after the harvest

Practice this concept3 quick reps

The same idea in a real exam question:

CDS · 2023 · CDS (I) 2023 — General Knowledge · Q68Moderate

Example 1 · National Income, Growth and Development Indicators · Employment and Unemployment

The unemployment that occurs due to changes in the technology or in the demand for particular products is called

Disguised workers look employed

Disguised unemployment is invisible: the people are at work, but removing them would not cut output. It is not the same as being openly without a job.

Drill 1 more on kinds of unemployment

Concept 2 of 3: Labour force rates and the PLFS

The labour force is everyone who is working or looking for work. Divide it by the population and you get the participation rate. Divide the people actually working by the population and you get the worker population ratio. The gap between the two is the unemployed, and the unemployment rate measures that gap against the labour force, not against the population.

Definition

The three rates of the Periodic Labour Force Survey (PLFS, NSO, from 2017-18):

Labour force participation rate (LFPR): labour force ÷ population × 100.
Worker population ratio (WPR): employed ÷ population × 100.
Unemployment rate (UR): unemployed ÷ labour force × 100.
PLFS 2023-24: agriculture's share of all employment rose from about 44 per cent (2017-18) to about 46 per cent (2023-24), and the share of women workers in agriculture also rose, as more rural women took up self-employment.
Flexi workers: formal contract staff on the payroll of an organised staffing company, deployed to client firms; they count as formal employment.

Unemployment rate from LFPR and WPR

\text{UR} = \dfrac{\text{LFPR} - \text{WPR}}{\text{LFPR}} \times 100

$\text{LFPR}$ labour force participation rate, per cent of population
$\text{WPR}$ worker population ratio, per cent of population

Worked example

In a district the labour force participation rate is 40 per cent and the worker population ratio is 38 per cent. Find the unemployment rate.

Practice this conceptself-check · 4 quick reps

The same idea in a real exam question:

CDS · 2026 · CDS (II) 2026 — General Knowledge · Q49Moderate

Example 2 · National Income, Growth and Development Indicators · Employment and Unemployment

If Labour Force Participation Rate (LFPR) is 50% and Worker Population Ratio (WPR) is 45%, what is the Unemployment Rate ?

Unemployment rate is out of the labour force

With LFPR 60 and WPR 54, the unemployment rate is 6 ÷ 60 = 10 per cent, not 6 per cent. The 6 is a share of the population.

Drill 3 more on labour force rates and the plfs

Concept 3 of 3: The demographic dividend

When birth rates fall, a country goes through a period with many people of working age and fewer children and old people to support. More earners and savers per head can lift growth. That chance is the demographic dividend, and it pays only if those people find jobs.

Definition

The idea:

Demographic dividend: faster growth that comes from a larger share of working-age people (about 15 to 64) in the population.
It appears when fertility falls, so the dependency ratio (children and old people per working-age person) drops.
It is a window, not a gift: without jobs and skills the extra workers become unemployed instead.

Term	Meaning
Demographic dividend	Growth from a higher share of working-age peopleQ Asked twice: CDS 2017 (II) and 2019 (II).
Working-age population	People aged about 15 to 64
Dependency ratio	Children and old people for each person of working age

Practice this concept3 quick reps

The same idea in a real exam question:

CDS · 2019 · CDS (II) 2019 — General Knowledge · Q80Moderate

Example 3 · National Income, Growth and Development Indicators · Employment and Unemployment

What do you mean by 'Demographic Dividend' ?

It is about the age mix, not the total

The dividend comes from more working-age people relative to dependants. A sharp fall in total population or a rise in the sex ratio is not what it means.

Drill 1 more on the demographic dividend

Summary — formulas & gotchas at a glance

A revision cheat-sheet for the formulas and gotchas above. Click any concept name to jump back to its full explanation.

Formulas (1)

Labour force rates and the PLFS
Unemployment rate from LFPR and WPR
$\text{UR} = \dfrac{\text{LFPR} - \text{WPR}}{\text{LFPR}} \times 100$

Reference tables (2)

Kinds of unemployment5 rows

Kind	Cause	Example
Frictional	Changing or searching for a job	A graduate waiting for the first offer
Structural	Skills or places do not match the vacancies; new technology	Typists after computers spreadQ CDS 2021 (I): a mismatch between vacancies and available workers is structural unemployment.
Cyclical	A fall in total demand	Factory layoffs in a recession
Disguised	Too many hands on one job	Seven family members on a farm that needs four
Seasonal	Work only in one season	Farm labour after the harvest

The demographic dividend3 rows

Term	Meaning
Demographic dividend	Growth from a higher share of working-age peopleQ Asked twice: CDS 2017 (II) and 2019 (II).
Working-age population	People aged about 15 to 64
Dependency ratio	Children and old people for each person of working age

Watch out for (3)

Disguised workers look employed
→ Kinds of unemployment
Unemployment rate is out of the labour force
→ Labour force rates and the PLFS
It is about the age mix, not the total
→ The demographic dividend

Test yourself on National Income, Growth and Development Indicators

20 past CDS questions from this chapter, timed at 20 minutes and marked the way the exam marks it. You see your score and every answer the moment you finish. Free to start.

Take the National Income, Growth and Development Indicators chapter test Drill all 8 questions