Employment: Growth, Informalisation and Other Issues
Key Concepts
Worker: A person who participates in economic activity and contributes to the production of goods and services.
Workforce participation rate (WPR): The proportion of a population that is employed, expressed as a percentage.
WPR = (Number of employed persons / Total population) x 100
Types of Employment
- 1.Self-employed: Own account workers or employers. The largest category in India — about 50-55% of workers.
- 2.Regular salaried/wage employees: Work for others under a formal contract, with regular wages. About 20-22% in India.
- 3.Casual wage workers: Work for others without fixed terms, paid daily wages. About 25-28%.
Formal vs Informal Employment
- Formal sector: Enterprises with 10 or more workers, registered with the government, covered by labour laws. Workers get social security (PF, ESI, pension), job security, and regulated wages.
- Informal sector: Enterprises with fewer than 10 workers, unregistered. Workers have no job security, no social security, low and irregular wages.
The informal sector accounts for over 90% of India's workforce. Even in the formal sector, there is growing informalisation — firms hire contract workers who do not enjoy the benefits of permanent employees.
Unemployment
- Types of unemployment in India:
- Seasonal unemployment: Workers are employed during harvest/sowing season but unemployed in off-season. Common in agriculture.
- Disguised unemployment: More workers are employed than necessary on a given task. Their marginal productivity is zero or near zero. Common in agriculture — if 5 people work on a farm that only needs 3, the extra 2 are "disguised" unemployed.
- Educated unemployment: Qualified graduates who cannot find jobs matching their qualifications.
Informalisation of the Economy
Informalisation refers to the growing share of informal workers even in formal-sector enterprises — through contract labour, sub-contracting, and casual hiring. This has been a concern since the 1990s as liberalisation encouraged firms to hire flexibly.
Calculating Workforce Participation Rate
Total population = 100 million. Employed persons = 40 million.
WPR = (40/100) x 100 = 40%
India's overall WPR is around 40-50%, with significant gender disparity (male WPR about 75%, female WPR about 25%).
Disguised unemployment in agriculture
A farm of 5 acres needs 3 workers to maximise output. Currently 6 family members work on it. If 3 leave for city jobs, total output does NOT fall. These 3 were "disguised" unemployed — their marginal product was zero. This type is common in Indian agriculture.
Seasonal unemployment
A paddy farmer in Bihar works actively from June (planting) to December (harvest). From January to May, there is little agricultural work. He is seasonally unemployed for 5 months. MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) provides 100 days of guaranteed work during such lean seasons.
Formal vs informal — a comparison
A permanent worker in a steel mill earns Rs. 50,000/month with Provident Fund, ESI, gratuity, and paid leave. A contract worker doing the same job earns Rs. 25,000/month with none of these benefits. Both are in the "formal" enterprise, but one is informal in terms of employment status — this is informalisation.
Educated unemployment
A BE (engineering) graduate applies for 200 jobs over 18 months and receives no offer matching his qualification. He is educationally unemployed. This reflects a mismatch between skills produced by the education system and skills demanded by employers. About 60% of Indian graduates are said to be "unemployable" by industry standards.
MGNREGA as a policy response
Under MGNREGA (2005), any rural household is legally entitled to 100 days of unskilled wage employment per year at the statutory minimum wage. If the government fails to provide work, it must pay an unemployment allowance. This acts as a social safety net for seasonal and casual workers.
Gender and employment
Female Work Participation Rate (WPR) in India is much lower than male WPR. Reasons include social norms restricting women's mobility, unpaid domestic work not counted in WPR, lower female education, and employer discrimination. Female WPR is particularly low in states like Uttar Pradesh and Bihar, while Kerala and Himachal Pradesh show higher rates.
Common mistakes
- Disguised unemployment is not the same as hidden unemployment — it specifically means zero marginal productivity of some workers in a task that has more workers than needed.
- Informalisation does not mean the formal sector is shrinking — it means informal employment is growing WITHIN formal enterprises through contract work.
- Unemployment rate and WPR are different: WPR measures employment; unemployment rate measures those seeking but not finding jobs.
Summary
India's labour market is characterised by dominance of self-employment and informal work, multiple types of unemployment (seasonal, disguised, educated), and growing informalisation. MGNREGA has provided a safety net. Challenges include low female WPR, jobless growth after 1991, and skill mismatch. Expanding formal employment with social security is a key development challenge.