CDS (I) 2023 General Knowledge · Question 68 of 120

Correct — B, structural unemployment. Structural unemployment is what appears when the economy's structure changes and the workforce no longer fits it. A technology arrives that does what a group of workers used to do; or demand shifts away from one product and towards another; or an industry moves to a different region. The jobs that vanish do not come back with the next upturn, and the workers left behind need retraining or relocation rather than a stimulus. That is exactly the situation the stem describes — changes in technology, or in the demand for particular products. Because it is a mismatch rather than a shortage of demand, structural unemployment can persist while vacancies go unfilled elsewhere in the same economy.

• (a)frictional unemployment — Frictional unemployment is the short spell between leaving one job and starting the next, while information is gathered and applications are made. It is normal, brief and unavoidable, and it has nothing to do with technology or with a shift in demand.
• (c)cyclical unemployment — Cyclical unemployment rises and falls with the business cycle — demand for output falls in a downturn and firms lay workers off, then rehire when demand recovers. The stem is describing a permanent shift in what is wanted, not a temporary dip in how much is wanted.
• (d)disguised unemployment — In disguised unemployment people are apparently at work but adding nothing to output, so the marginal productivity of labour is zero. Indian agriculture, where several family members work a plot one could manage, is the standard illustration. Nobody is displaced by technology here; the surplus is already inside the job.

Unemployment is classified by its cause because the cause dictates the cure. Frictional unemployment is the churn of job search and calls for better information and placement services. Cyclical unemployment tracks aggregate demand and calls for macroeconomic policy. Structural unemployment comes from a mismatch between what workers can do or where they are and what the economy now needs, and calls for skilling, retraining and mobility. Disguised and seasonal unemployment are the two forms that dominate discussions of the Indian countryside.

The examiner has written the definition almost word for word, so the work is in not being distracted by the more familiar terms. Two words in the stem do the identifying — 'technology' and 'demand for particular products'. Note the qualifier on the second: demand for particular products, not demand in general. A fall in overall demand would be cyclical; a shift in which products people want is structural. Disguised unemployment is the tempting pick for Indian candidates because it is the form most discussed in class, but it describes surplus labour already employed rather than workers displaced by change.

• Structural unemployment arises from a mismatch between workers' skills or location and the jobs the economy now offers.
• Frictional unemployment is the short transitional spell between jobs.
• Cyclical unemployment moves with the business cycle and falls when demand recovers.
• In disguised unemployment the marginal productivity of labour is zero — removing a worker would not reduce output.
• Structural unemployment can coexist with unfilled vacancies, which is why retraining rather than stimulus is the response to it.

• Choosing disguised unemployment because it is the form most discussed in the Indian context. It describes surplus labour already in work.
• Reading 'demand for particular products' as a general fall in demand, which would make it cyclical.
• Treating frictional unemployment as any kind of temporary joblessness. It is specifically the job-search interval.

As a definition-to-term match, as a scenario item describing a displaced group of workers, or as a question on which type dominates Indian agriculture.

• practice — not a real PYQ

  Unemployment that persists even when the economy is at full capacity, because workers' skills do not match available jobs, is

  • (a)cyclical
  • (b)frictional
  • (c)structural
  • (d)seasonal

  Answer(c) structural — it is a mismatch of skills or location, and it is treated with retraining and mobility rather than with a demand stimulus.

• practice — not a real PYQ

  Seasonal unemployment is most characteristic of which sector in India?

  • (a)Information technology
  • (b)Agriculture
  • (c)Banking
  • (d)Telecommunications

  Answer(b) Agriculture — work is concentrated in the sowing and harvesting periods, leaving idle stretches in between.