The reasons include a comparatively lower rate of growth of the urban population on the one hand, and concentration of industries in the urban areas on the other. These industries generate ample job opportunities for the urban people.
Unemployment in rural areas refers to the joblessness of the landless manual and menial workers. Most often these workers move to urban areas in search of greener pastures. This adds up to the problem of urban unemployment.
Apart from this, there is a sizeable proportion of the rural youth who migrate to the urban sector initially for education but ultimately for jobs. Instead of returning to their ancestral occupations, these educated rural youth choose to settle in the urban sector for jobs and comforts of city life.
This adds a sizeable number to the educated unemployment already in existence in the urban sector. Another reason for the flight of rural population to the urban areas is the charm of city-life, which always attracts a large number of ruralites to the urban regions.
Slow urbanization of rural areas is to be blamed for this. The flight of the rural population to the urban sectors has aggravated the problem of unemployment in the urban sector so much so that a very high proportion of the urban unemployed have a rural origin.
Hence the statement urban unemployment no doubt is an offshoot of rural unemployment. The reasons for the flight of rural people to urban regions can be summarized point-wise as below:
1. Rate of growth of the rural population is much higher than that of the urban population. This creates a massive reservoir of the land-less unemployed in rural world.
2. Population growth in rural areas reduces agricultural land per cultivator. This induces a large number of small cultivators to migrate to urban regions.
3. The process of urbanization is very slow in LDCs. This stagnates the job opportunities in rural areas on one hand, and compels rural life to remain at the primitive levels on the other. Life in urban areas, on the contrary, stands completely transformed due to rapid industrialization. This is one of the most important reasons for the flight of rural people to the urban sector.
4. The process of industrialization generally concentrates in the urban areas. This is so due to availability of power and proximity to markets. The new job opportunities, thus, confine to the urban regions. This provides another reason to the rural unemployed to move to the urban world.
5. Lack of security in the rural sector compels the rural rich as also the rural poor to move to urban areas believed to be more secure.
6. Schools, colleges and other institutions of modern education and training cluster in and around the urban sectors. This leaves little or no alternative for the rural youth except to migrating to the urban townships.
7. Cultivation in LDCs continues to involve the same risk factors and uncertainties as it did in primitive periods. The result is that, it is more strenuous and less rewarding as compared to industrial jobs in urban sector. This compels the ambitious rural youth to lose interest in it completely.
Factors such as these lead to the flight of rural people to urban regions, aggravating, in the process, not only the problem of urban unemployment but also that of labour shortage in rural areas.
(B) Disguised Unemployment as a Potential Source of Capital Formation:
As mentioned in Section 3.2, disguised unemployment is unemployment in the guise of employment. In other words, some workers appear employed and also get paid for but their contribution to production is nil.
Total output remains the same even when these workers are retrenched. Such workers procure jobs for themselves even when there exists none in the organization. A large number of workers in the public sector in India and even a much larger number in agriculture are in this type of employment.
Economists believe that disguised unemployment can provide a potential source of capital formation in capital-deficient LDCs. There are a number of reasons for such belief:
1. If the disguisedly employed workers be withdrawn from such employment, a sizable amount of funds get released from their wasteful use. In other words, non-productive expenditures incurred on the salaries and perks of the disguisedly employed workers can be saved and utilized in financing capital formation.
2. Workers released from the disguised unemployment can be utilized in sectors where their productivity is non-zero. In LDCs, there are many sectors where such workers could be of immense utility in production. They can thus draw their salaries from productive work making positive contribution to the national product.
Either way, the national product is bound to go up. If we look at it from the first angle, funds that get released from non-productive expenditures can be utilized in financing capital formation, so essential for growth of national output.
On the other hand, if we look at it from the second angle, the non-productive jobs get converted into the productive ones, leading to higher output. No doubt, disguised unemployment serves as a potential source of capital formation.