• ANS-B
  • Option 3 is called disguised unemployment.
  • Underemployment occurs when person obtain works which is much below his capability.
  • A country having Underemployment fails to exploit the efficiency of their labourer/employees.


  • ANS-A
  • Tendulkar Committee recommended four major changes:

(i) a shift away from calorie consumption based poverty estimation;

(ii) a uniform poverty line basket (PLB) across rural and urban India;

(iii) a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and

(iv) incorporation of private expenditure on health and education while estimating poverty.

  • The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty.

Poverty Line Baskets (PLB)

  • Rural and urban poverty lines were first defined in 1973-74 in terms of Per Capita Total Expenditure (PCTE).
  • Consumption is measured in terms of a collection of goods and services known as reference Poverty Line Baskets (PLB).
  • These PLB were determined separately for urban and rural areas and based on a per-day calorie intake of 2400 (rural) and 2100 (urban), each containing items such as food, clothing, fuel, rent, conveyance and entertainment, among others.
  • The official poverty line is the national average expenditure per person incurred to obtain the goods in the PLB.
  • Since 1973-74, prices for goods in the PLB have been periodically adjusted over time and across states to deduce the official poverty line.

Uniform Reference Period (URP) vs Mixed Reference Period (MRP)

  • Until 1993-94, consumption information collected by the NSSO was based on the Uniform Reference Period (URP), which measured consumption across a 30-day recall period.
  • That is, survey respondents were asked about their consumption in the previous 30 days.
  • From 1999-2000 onwards, the NSSO switched to a method known as the Mixed Reference Period (MRP).
  • The MRP measures consumption of five low-frequency items (clothing, footwear, durables, education and institutional health expenditure) over the previous year, and all other items over the previous 30 days.
  • That is to say, for the five items, survey respondents are asked about consumption in the previous one year.
  • For the remaining items, they are asked about consumption in the previous 30 days.


  • ANS-A
  • The Usual Status approach to measuring unemployment uses a reference period of 365 days i.e. one year preceding the date of the survey of NSSO for measuring unemployment.
  • The Current Daily Status approach to measuring unemployment seeks to ascertain the activity status of an individual for each day of the reference week.
  • It reports time disposition of an individual on each day of the reference week.
  • If CDS is higher than UPS it means that the person did get work in a particular period of the year but not throughout the year.
  • In an economy which is not going through major structural change, it indicates present of seasonal unemployment.
  • For Example, in India unemployment according to CDS is higher than UPS because a large portion of labor force is employed in agriculture, which becomes workless after the agricultural period is over.


  • ANS-D
  • The Natural Rate of Unemployment is the rate of Unemployment when the labour market is in equilibrium.
  • It is the difference between those who would like a job at the current wage rate and those who are willing and able to take a job.
  • The Natural Rate of Unemployment will therefore include:

 frictional unemployment

 structural unemployment

  • E.g. a worker who is not able to get a job because he doesn’t have the right skills
  • The natural rate of unemployment is unemployment caused by supply side factors rather than demand side factors.
  • The Natural Rate of Unemployment is sometimes known as the Non accelerating inflation rate of Unemployment NAIRU.
  • This is because when unemployment is 4% there is no tendency for inflation to increase
  • Sometimes the natural rate is known as the full employment level of unemployment.
  • This is because even if the economy is operating at full capacity and there is no demand deficient unemployment then there will still be some unemployment caused by supply side factors.


  • ANS-A

Frictional unemployment: Unemployment that is always present in the economy, resulting from temporary transitions made by workers and employers or from workers and employers having inconsistent or incomplete information. There will always be some frictional unemployment in an economy because information isn’t perfect and it takes time to find work.

Classical unemployment: Unemployment occurs when there are people who are willing and able to work but don’t have a job.It is one of the main types of unemployment. It occurs when the real wages for workers in an economy are too high, meaning that firms are unwilling to employ every person looking for a job. As a result, some of the economy’s pool of labour is not used. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise.

Structural unemployment: A longer-lasting form of unemployment caused by fundamental shifts in an economy. Structural unemployment occurs for a number of reasons – workers may lack the requisite job skills, or they may live far from regions where jobs are available but are unable to move there. Or they may simply be unwilling to work because existing wage levels are too low. So while jobs are available, there is a serious mismatch between what companies need and what workers can offer. Structural unemployment is exacerbated by extraneous factors such as technology, competition and government policy.

  • Unemployment trap is high social security benefits to the unemployed, this erodes the motivation to take up a job.

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